Immunovant, Inc. (IMVT) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition, results of operations, and cash flows together with the audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends on March 31.

Overview

We are a clinical-stage biopharmaceutical company dedicated to enabling normal lives for people with autoimmune diseases. Our innovative compound, batoclimab, formerly referred to as IMVT-1401, is a novel, fully human, monoclonal antibody targeting the neonatal fragment crystallizable receptor (“FcRn”). Batoclimab is the product of a multi-step, multi-year research program conducted by HanAll Biopharma Co., Ltd., to design a highly potent anti-FcRn antibody to be optimized as a simple, subcutaneous injection with dosing that we believe can be tailored based on disease severity and stage.

Our product candidate, batoclimab, has been dosed in small volumes (e.g., 2 mL) and with a 27-gauge needle, while still generating therapeutically relevant pharmacodynamic activity, important attributes that we believe will drive patient preference and market adoption. In nonclinical studies and in clinical trials conducted to date, batoclimab has been observed to reduce immunoglobulin G (“IgG”) antibody levels. High levels of pathogenic IgG antibodies drive a variety of autoimmune diseases and, as a result, we believe batoclimab has the potential for broad application in these disease areas. We intend to develop batoclimab in autoimmune diseases for which there is robust evidence that pathogenic IgG antibodies drive disease manifestation and for which reduction of IgG antibodies should lead to clinical benefit.

We are currently developing batoclimab for Myasthenia Gravis (“MG”), Thyroid Eye Disease (“TED”) and Warm Autoimmune Hemolytic Anemia (“WAIHA”). As a result of our rational design and current outlook on potential opportunities, we believe that batoclimab, if developed and approved for commercial sale, would be differentiated from currently available, more invasive treatments for advanced IgG-mediated autoimmune diseases. Based on third-party patient prevalence estimates for the more than 15 indications that have been announced by multiple companies for clinical development with anti-FcRn assets, including our planned development of batoclimab in MG, TED and WAIHA, we estimate the total potential opportunity for batoclimab to be greater than two million patients in the United States (the “U.S.”) and Europe (Europe includes all European Union countries (the “E.U.”), the United Kingdom (the “U.K.”) and Switzerland).

To the extent we choose to develop batoclimab as a potential treatment for certain of these rare diseases, we plan to seek orphan drug designation in the United States and Europe, where applicable. Such designations would primarily provide financial and exclusivity incentives intended to make the development of orphan drugs financially viable. In July 2021, we were granted orphan drug designation by the U.S. Food and Drug Administration (“FDA”) for batoclimab for the potential treatment of MG. We plan to seek orphan drug designation from the FDA for batoclimab for the treatment of TED and WAIHA, and potentially other orphan indications in which there is a medically plausible basis for batoclimab's use. We may seek orphan drug designation for batoclimab in Europe.

We intend to continue the development of batoclimab for the treatment of MG, TED and WAIHA, as well as two new indications to be announced by August 2022. MG is an autoimmune disease associated with muscle weakness. TED is an autoimmune inflammatory disorder that affects the muscles and other tissues around the eyes, and in severe cases can be sight-threatening. WAIHA is a rare hematologic disease in which autoantibodies mediate hemolysis, or the destruction of red blood cells.

We were incorporated in July 2018 and we have been primarily engaged in preparing for and conducting clinical trials for our product candidate, batoclimab. To date, we have not generated any revenue and have generated significant operating losses since our inception. As of March 31, 2022 and 2021, we had an accumulated deficit of $355.4 million and $198.7 million, respectively. For the years ended March 31, 2022 and 2021, we recorded net losses of $156.7 million and $107.4 million, respectively.

94

Table of Contents

Recent Developments in Our Clinical Programs

As previously disclosed, in December 2021, we achieved alignment with the FDA Division of Neurology 1 to move forward with our pivotal trial of batoclimab as a treatment for MG. We plan to initiate this Phase 3 trial by the end of June 2022.

We recently achieved alignment with the FDA Division of Ophthalmology to move forward in TED. We plan to initiate two Phase 3 clinical trials to evaluate batoclimab for the treatment of TED in the second half of calendar year 2022.

Following expected discussions with the hematology division of the FDA, we intend to initiate a randomized, placebo-controlled study of batoclimab as a treatment for WAIHA.

We continue to evaluate potential new indications for batoclimab. As previously disclosed, we plan to announce two new indications by August 2022. We expect one of our three indications beyond MG and TED to be initiated as a pivotal study in the calendar year 2022.

COVID-19 Business Update

The COVID-19 pandemic continues to and is disrupting supply chains and affecting production and sales across a range of industries. Currently, we have not suffered significant adverse consequences as a result of the COVID-19 pandemic, though it did slow enrollment of our clinical trials prior to our voluntary pause of clinical dosing in February 2021, as previously disclosed. The extent of the impact of COVID-19 on our future operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, including its variants, impact on employees and vendors, and impact on clinical trial sites and patients, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain.

For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, see the section titled “Risk Factors” under Part I, Item 1A in this Annual Report.

Our Key Agreements

License Agreement with HanAll Biopharma Co., Ltd.

In December 2017, RSG entered into the HanAll Agreement. Under the HanAll Agreement, RSG, a wholly owned subsidiary of RSL, received (1) the non-exclusive right to manufacture and (2) the exclusive, royalty-bearing right to develop, import and use the antibody referred to as batoclimab and certain back-up and next-generation antibodies, and products containing such antibodies, and to commercialize such products, in the United States, Canada, Mexico, the E.U., the U.K., Switzerland, the Middle East, North Africa and Latin America, or the Licensed Territory, for all human and animal uses, during the term of the agreement.

In December 2018, we obtained and assumed all rights, title, interest and obligations under the HanAll Agreement from RSG, including all rights to batoclimab from RSG in the Licensed Territory, pursuant to an assignment and assumption agreement between RSG and its wholly owned subsidiary, ISG, for an aggregate purchase price of $37.8 million.

Under the HanAll Agreement, the parties may choose to collaborate on a research program directed to the research and development of next generation FcRn inhibitors in accordance with an agreed plan and budget. We are obligated to reimburse HanAll for half of such research and development expenses incurred by HanAll, up to an aggregate reimbursement amount of $20.0 million. Intellectual property created by HanAll pursuant to this research program will be included in our license; intellectual property created by us pursuant to this research program will be included in HanAll’s license. As of March 31, 2022, $0.4 million was payable to HanAll for research and development costs incurred and reported to us pursuant to the HanAll Agreement.

95

Table of Contents

Pursuant to the HanAll Agreement, RSG made an upfront payment of $30.0 million to HanAll. In May 2019, we achieved our first development and regulatory milestone, which resulted in a $10.0 million milestone payment that we subsequently paid in August 2019. We will be responsible for future contingent payments and royalties, including up to an aggregate of $442.5 million upon the achievement of certain development, regulatory and sales milestone events. We are also obligated to pay HanAll tiered royalties ranging from the mid-single digits to mid-teens percentage of net sales of licensed products, subject to standard offsets and reductions as set forth in the HanAll Agreement. These royalty obligations apply on a product-by-product and country-by-country basis and end upon the latest of: (A) the date on which the last valid claim of the licensed patents expire, (B) the date on which the data or market exclusivity expires or (C) 11 years after the first commercial sale of the licensed product, in each case, with respect to a given product in a given country. See “Business—License Agreement with HanAll Biopharma Co., Ltd.” for further information.

Product Service Agreement and Master Services Agreement

On November 17, 2021, Immunovant, Inc.’s wholly owned subsidiary, ISG, entered into a Product Service Agreement, (“PSA”), with Samsung Biologics Co., Ltd., (“Samsung”), pursuant to which Samsung will manufacture and supply us with batoclimab drug substance for commercial sale and perform other manufacturing-related services with respect to batoclimab. We previously entered in a Master Services Agreement, (“MSA”), with Samsung, dated April 30, 2021, which governs certain terms of our relationship with Samsung. Upon execution of the PSA, we committed to purchase process performance qualification batches of batoclimab and pre-approval inspection batches of batoclimab which may be used for regulatory submissions and, pending regulatory approval, commercial sale. In addition to these, we are obligated to purchase additional batches of batoclimab in the four-year period of 2026 through 2029.

The PSA will continue until the later of December 31, 2029 or the completion of the services thereunder, unless the PSA is terminated earlier. If we make a final decision to stop all development of batoclimab and all attempts to obtain regulatory approval for batoclimab, then we will have the right to terminate the PSA with 30 days’ written notice to Samsung as long as such notice is provided no later than January 2024. Upon such termination of the PSA, we will pay Samsung for non-cancellable service fees and costs that Samsung incurs and for all batches of batoclimab scheduled to be manufactured during the two-year period following such termination. In addition, either party may terminate the PSA on account of (i) the other party’s material breach of the PSA that is not cured within a specified period after the termination notice, (ii) the other party’s insolvency or bankruptcy, or (iii) certain force majeure events.

As of March 31, 2022, the minimum purchase commitment related to this agreement is estimated to be approximately $36.0 million.

Related Party Transactions

For a description of our transactions under agreements with related parties, refer to Part II, Item 8. Financial Statements and Supplementary Data, Note 5 – Related Party Transactions.

Financial Operations Overview

Revenue

We have not generated any revenue and have incurred significant operating losses since inception, and we do not expect to generate any revenue from the sale of any products unless or until we obtain regulatory approval of and commercialize batoclimab or any future product candidates. Our ability to generate revenue sufficient to achieve profitability will depend completely on the successful development and eventual commercialization of batoclimab and any future product candidates.

Research and Development Expenses

We have been primarily engaged in preparing for and conducting clinical trials. Research and development expenses include program-specific costs, as well as unallocated costs, and are net of costs reimbursable to the Company pursuant to cost-sharing arrangements with a third party.

96

Table of Contents

Program-specific costs include direct third-party costs, which include expenses incurred under agreements with contract research organizations and the cost of consultants who assist with the development of the Company’s product candidate on a program-specific basis, investigator grants, sponsored research, and any other third-party expenses directly attributable to the development of the product candidate. Program-specific costs also include contract manufacturing costs in connection with producing materials for use in conducting preclinical and clinical studies, including under our agreement with Samsung, to the extent they can be allocated to a specific program.

Unallocated costs include:

•costs related to contract manufacturing operations not allocated to a specific program;

•personnel-related expenses for research and development personnel, which includes employee-related expenses such as salaries, benefits and other staff-related costs;

•stock-based compensation expenses for research and development personnel;

•payments upon the achievement of certain development and regulatory milestones under the HanAll Agreement;

•costs allocated to us under our services agreements with RSI and RSG (the “Services Agreements”); and

•other expenses, which include the cost of consultants who assist with our research and development, but are not allocated to a specific program.

Research and development activities will continue to be central to our business model. We expect our research and development expenses to increase significantly in the short term as we plan to initiate a Phase 3 trial of batoclimab as a treatment for MG by the end of June 2022 and plan to initiate two Phase 3 clinical trials to evaluate batoclimab for the treatment of TED in the second half of calendar year 2022. In addition, we expect one of our three indications beyond MG and TED to be initiated as a pivotal study in the calendar year 2022. Our research and development expenses are expected to continue to increase over the next several years as we hire personnel and our compensation costs increase, commence additional clinical trials for batoclimab, increase manufacturing of batoclimab substance and prepare to seek regulatory approval for batoclimab. It is not possible to determine with certainty the duration and completion costs of any clinical trial we may conduct.

The duration, costs and timing of clinical trials of batoclimab and any future product candidates will depend on a variety of factors that include, but are not limited to:

•the number of trials required for approval;

•the per patient trial costs;

•the number of patients that participate in the trials;

•the number of sites included in the trials;

•the countries in which the trial is conducted;

•the length of time required to enroll eligible patients;

•the number of doses that patients receive;

•the drop-out or discontinuation rates of patients;

•the potential additional safety monitoring or other studies requested by regulatory agencies;

•the duration of patient follow-up;

•the timing and receipt of regulatory approvals;

•the potential impact of the ongoing COVID-19 pandemic;

•the efficacy and safety profile of the product candidate; and

•the cost of manufacturing.

In addition, the probability of success for batoclimab will depend on numerous factors, including our product’s efficacy, safety, ease of use, competition, manufacturing capability and commercial viability.

97

Table of Contents

General and Administrative Expenses

General and administrative expenses consist primarily of employee salaries and related benefits, costs allocated under the Services Agreements and stock-based compensation for general and administrative personnel, legal and accounting fees, consulting services and other operating costs relating to corporate matters and daily operations.

We anticipate that our general and administrative expenses will continue to increase in the future to support our continued research and development activities and increased costs of operating as a public company. These increases will likely include patent-related costs, including legal and professional fees for filing, prosecution and maintenance of our product candidate, increased costs related to the hiring of additional personnel and fees to outside consultants for professional services. In addition, whenever batoclimab obtains regulatory approval, we expect that we would incur significant additional expenses associated with building medical affairs and commercial teams.

Results of Operations

Comparison of the Years Ended March 31, 2022 and 2021

The following table sets forth our results of operations for the years ended March 31, 2022 and 2021 (in thousands):

Research and Development Expenses

The following table summarizes the year-over-year changes in research and development expenses for the years ended March 31, 2022 and 2021 (in thousands):

___________

*Certain prior year amounts have been reclassified to conform to current year presentation.

Research and development expenses increased by $33.2 million, from $68.6 million for the year ended March 31, 2021 to $101.8 million for the year ended March 31, 2022.

Program-specific research and development costs increased by $0.3 million, from $41.8 million for the year ended March 31, 2021 to $42.1 million for the year ended March 31, 2022. This increase reflected higher contract manufacturing costs of approximately $9 million for process development and drug substance manufacturing as we prepared to resume our clinical activities, including our planned Phase 3 trial for batoclimab in MG. Offsetting this increase was approximately $9 million of lower clinical activities due to the continued voluntary pause in our clinical trials.

98

Table of Contents

Unallocated research and development costs increased by $32.9 million, from $26.8 million for the year ended March 31, 2021 to $59.7 million for the year ended March 31, 2022. This increase reflected higher costs related to cross-indication clinical studies and clinical research costs of approximately $18 million, primarily reflecting activities to advance the clinical development of batoclimab in current and potentially new indications. Also contributing to the increase were higher personnel-related expenses of approximately $15 million, primarily reflecting the enhancement of our capabilities to support our strategic objectives as we prepared to resume our clinical activities and evaluated potential new indications.

General and Administrative Expenses

General and administrative expenses increased by $14.7 million, from $39.5 million for the year ended March 31, 2021 to $54.2 million for the year ended March 31, 2022. This increase was primarily due to higher personnel-related costs (including stock-based compensation) of $9.7 million and financial advisory, legal and other professional costs of $3.7 million.

Liquidity and Capital Resources

Sources of Liquidity

We had cash of $493.8 million and $400.1 million as of March 31, 2022 and 2021, respectively. For the years ended March 31, 2022 and 2021, we had net losses of $156.7 million and $107.4 million, respectively. We expect to continue to incur significant expenses and increasing operating losses at least for the next several years. We have never generated any revenue and we do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for batoclimab or any future product candidate.

To date, we have financed our operations primarily from equity offerings and the sale of convertible promissory notes. Until such time, if ever, as we can generate substantial product revenue from sales of batoclimab or any future product candidate, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, including disruptions resulting from the onset of hostilities by Russia towards Ukraine and the COVID-19 pandemic.

We do not currently have any committed external source of funds. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

In January 2021, we filed a shelf registration statement on Form S-3 with the SEC which permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $900.0 million of our common stock, of which $150.0 million may be issued and sold pursuant to an at-the-market (ATM) offering program for sales of our common stock under a sales agreement with SVB Leerink LLC, subject to certain conditions as specified in the sales agreement. We agreed to pay SVB Leerink up to 3% of the gross proceeds sold through the sale agreement. Our common stock would be sold at prevailing market prices at the time of the sale and, as a result, prices may vary. We have not issued or sold any securities pursuant to the shelf registration statement or ATM offering program.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves or potentially discontinue operations.

99

Table of Contents

Cash Flows

The following table sets forth a summary of our cash flows for the years ended March 31, 2022 and 2021 (in thousands):

Operating Activities

For the year ended March 31, 2022, $106.1 million of cash was used in operating activities, primarily reflecting a net loss from operations of $156.7 million, partially offset by non-cash charges of $35.5 million and a net change in operating assets and liabilities of $15.1 million. The non-cash charges consisted mainly of stock-based compensation of $34.2 million, reflecting the higher headcount and incentive equity awards as compared with the prior year. The change in our operating assets and liabilities was primarily due to an increase of $25.7 million in accounts payable and accrued expenses, driven by the timing and level of payments related to contract manufacturing and other research and development costs. The change in operating assets and liabilities also reflected $2.1 million of lower prepaid expenses and other current assets, driven by the timing of payments related to clinical research and contract manufacturing activities. Partially offsetting these changes was an increase in accounts receivable of $11.6 million reflecting amounts owed to us under research and development cost-sharing arrangements with a third party.

For the year ended March 31, 2021, $83.3 million of cash was used in operating activities. This was primarily attributable to a net loss from operations for the year of $107.4 million, partially offset by non-cash charges of $19.5 million and a net change in operating assets and liabilities of $4.6 million. The non-cash charges consisted mainly of stock-based compensation of $18.8 million, reflecting the higher headcount to support increased research and development and business operations during the year ended March 31, 2021. The change in our operating assets and liabilities was primarily due to an increase of $5.7 million in accounts payable and accrued expenses, primarily driven by increased research and development efforts as well as higher general and administrative activities, and the settlement of a $3.0 million value-added tax receivable in April 2020. These changes were partially offset by an increase of $2.9 million in prepaid expenses, driven by the timing of payments related to clinical research and contract manufacturing activities.

Investing Activities

For the years ended March 31, 2022 and 2021, cash used in investing activities was related to the purchase of computer equipment.

Financing Activities

For the year ended March 31, 2022, $200.1 million of cash provided by financing activities primarily consisted of $200.0 million in proceeds from the sale of 17,021,276 shares of common stock to RSL, at a per share price of $11.75 in August 2021.

For the year ended March 31, 2021, $383.1 million of cash provided by financing activities consisted of $319.1 million in cash received, net of underwriting discounts and commissions and offering expenses, as a result of the follow-on public offerings in April 2020 and September 2020 and $65.8 million from the issuance of common stock as a result of the redemption of outstanding warrants, partially offset by the repayment of a note payable to RSL.

Funding Requirements

Our primary uses of capital have been, and we expect will continue to be, for advancing our clinical and preclinical development programs. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials, timing of batoclimab manufacturing, HanAll milestone payments and our expenditures on other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of product candidates.

100

Table of Contents

Our short-term and long-term material cash requirements as of March 31, 2022 primarily consisted of those related to our clinical trials and clinical development activities, which we expect to fund primarily with our existing cash balance. Our most significant cash requirements are described below:

Product Service Agreement and Master Services Agreement

During the year ended March 31, 2022, we entered into an agreement with Samsung to manufacture a certain quantity of batoclimab drug substance for, among other things, commercial sale, if approved. In connection with this agreement, we have a minimum long-term obligation to Samsung of approximately $36.0 million, of which is $17.7 million is expected to be paid during the fiscal year ending March 31, 2023 and $18.3 million is expected to be paid during the fiscal year ending March 31, 2026. See Part II, Item 8. Financial Statements and Supplementary Data, Note 3 – Material Agreements for additional details.

HanAll Agreement

Potential future payments due under the HanAll Agreement are contingent upon future events. As of March 31, 2022, the aggregate maximum amount of milestone payments we could be required to make under the HanAll Agreement is $442.5 million upon the achievement of certain development, regulatory and sales milestone events. We are also required to reimburse HanAll for half of budgeted research and development costs incurred by HanAll with respect to batoclimab, up to an aggregate of $20.0 million.

Lease Agreements

In June 2020, we entered into two sublease agreements with RSI, for the two floors of the building that serves as our headquarters in New York. The subleases will expire on February 27, 2024 and April 29, 2024, respectively, and have scheduled rent increases each year.

In March 2022, we entered into a lease agreement with an unrelated party for office space in a building in North Carolina. The lease will expire on March 31, 2024 and has scheduled rent increases each year. The lease agreement includes an option at the Company’s election to renew for an additional two years.

Our future minimum lease payments as of March 31, 2022 totaled $1.2 million related to short-term lease liabilities, and $1.2 million related to long-term lease liabilities.

For more information on our leases, see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 – Leases.

Except as discussed above, we did not have any other ongoing material contractual obligations for which cash flows were fixed and determinable. We expect to enter into other commitments as the business further develops. In the normal course of business, we enter into agreements with CROs for clinical trials and with vendors for nonclinical studies, manufacturing and other services and products for operating purposes, which agreements are generally cancellable by us at any time, subject to payment of remaining obligations under binding purchase orders and, in certain cases, nominal early-termination fees. These commitments are not deemed significant. There are certain contracts wherein we have a minimum purchase commitment, however, most of it is due and payable within one year.

We anticipate that our short-term and long-term future capital requirements will increase substantially as we:

•fund our clinical development programs;

•launch any potential Phase 2 proof-of-concept studies of batoclimab in additional indications;

•increase manufacturing of batoclimab substance to support clinical trials;

•achieve milestones under our agreements with third parties, including the HanAll Agreement, that will require us to make substantial payments to those parties;

•seek to identify, acquire, develop and commercialize additional product candidates;

•integrate acquired technologies into a comprehensive regulatory and product development strategy;

•maintain, expand and protect our intellectual property portfolio;

•hire scientific, clinical, quality control and administrative personnel;

101

Table of Contents

•add operational, financial and management information systems and personnel, including personnel to support our drug development efforts;

•commence the number of clinical trials required for approval;

•seek regulatory approvals for any product candidates that successfully complete clinical trials;

•ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates for which we may obtain regulatory approval; and

•incur insurance, legal and other regulatory compliance expenses to operate as a public company.

Our primary use of cash is to fund our clinical trials and clinical development activities. Our current funds will not be sufficient to enable us to complete all necessary development and commercially launch batoclimab. We anticipate that we will continue to incur net losses for the foreseeable future.

Outlook

Based on our existing cash balance as of March 31, 2022 of $493.8 million, our research and development plans and our timing expectations related to our development programs for batoclimab, we expect to be able to fund our operating expenses and capital expenditure requirements into the calendar year 2025. However, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet, and the reported amounts of expenses during the reporting period. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting estimates as those under U.S. GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in “Note 2 — Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 of this Annual Report, we believe the following critical accounting estimate used in the preparation of our consolidated financial statements requires significant estimates and judgments. We did not make any material changes to these assumptions for the year ended March 31, 2022. We do not expect any material changes in the near term to the underlying assumptions during the year ended March 31, 2022.

Research and Development Expenses

Research and development costs with no alternative future use are expensed as incurred. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by contract research organizations. In making these estimates, we consider various factors, including status and timing of services performed, the number of patients enrolled and the rate of patient enrollment. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development expenses. Research and development costs are charged to expense when incurred and primarily consist of employee compensation and expenses from third parties who conduct research and development activities (including manufacturing) on our behalf.