This Quarterly Report on Form 10-Q contains forward-looking statements based upon current expectations that involve risks and uncertainties. Pear's actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section included in Part II, Item 1A of this Form 10-
Q. Allreferences to years, unless otherwise noted, refer to our fiscal years, which end on December 31. For purposes of this section, all references to "we," "us," "our," "Pear," or the "Company" refer to Pear Therapeutics, Inc.and its consolidated subsidiaries. The following discussion and analysis should also be read in conjunction with the accompanying consolidated financial statements included in Part I, Item 1 of this Form 10-Q. This Item 2 generally discusses 2022 and 2021 financial condition and results of operations and year-to-year comparisons between 2022 and 2021. Overview
Pear is a commercial-stage healthcare company pioneering a new class of drugs, called PDT, which uses software to treat disease. Our vision is to advance healthcare through the widespread use of PDTs.
Two of our FDA-authorized PDTs are for the treatment of addiction. Our first product, reSET, is indicated for the treatment of substance use disorder ("SUD") as a monotherapy. Our second product, reSET-O, is indicated for the treatment of opioid use disorder ("OUD") in combination with buprenorphine.
Our third product, Somryst, is indicated for the treatment of chronic insomnia.
We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker (
whois our president and chief executive officer) reviews financial performance and allocates resources.
Factors Affecting Our Performance and Results of Operations
We believe that our performance and future success depend on many factors that present significant opportunities for us, but also pose risks and challenges, including those discussed more fully under the heading "Risk Factors" in Part II, Item 1A of this Form 10-Q.
Key business indicators
We monitor key non-financial operational performance measures to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. Metrics include the following:
A. The total number of prescriptions in a given period is (a) the imputed number of prescriptions based on revenue recognized under access agreements, plus (b) the number of prescriptions written that are not charged under access agreements.
B. The fill rate in a given period is (a) the number of prescriptions for which a patient begins treatment or for which there is a contractual payment obligation and revenue has been recognized divided by (b) total prescriptions. (The total number of prescriptions multiplied by the fill rate equals the prescriptions filled.)
C.Payment Ratein a given period is (a) the number of prescriptions for which the company receives payment divided by (b) Fulfilled Prescriptions. (Fulfilled Prescriptions times Payment Rate equals Paid Prescriptions.)
D. The average selling price, or ASP, during a given period is the average price received by the company per scenario for which the company receives payment.
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Three Months Ended Six Months Ended June Key Performance Operating Metric June 30, 2022 30, 2022 Total Prescriptions 11,000+ 20,000+ Fulfillment Rate 56% 57% Payment Rate 45% 47% Average Selling Price (ASP)
$1,323 $1,338Product Revenue We generate product revenue from the sale of our three FDA-authorized PDTs: reSET, reSET-O, and Somryst. We began our efforts to self-commercialize reSET and reSET-O in Q4 2019 and Somryst in Q4 2020. Sales of our existing products are expected to reduce our net operating losses over time, but we cannot predict when we will achieve profitability. We enter into agreements with health care providers and payors, and state and local governments, to provide prescriptions which provide for volume-based discounts and other discounts, and in certain circumstances, value-based rebates ("Access Agreements"). We also enter into arrangements with health care providers and payors that provide for government-mandated and/or privately negotiated rebates and discounts with respect to the purchase of our products. A portion of the product revenue is recognized when the products are made available to the customer (via Access Agreements) or when a prescription is fulfilled (via third party reimbursement), and the portion of the product revenue related to the clinician's access to our proprietary clinician dashboard is deferred and recognized ratably over the remaining term of the contract (if purchased via an Access Agreement) or the prescription duration (if purchased via third party reimbursement).
Product revenues from our three existing FDA-cleared PDTs, as well as potential future product candidates, are and will be impacted by many factors, including the following variables: patient and clinician adoption of PDTs, pricing, reimbursement , contingency management and mixing product.
Patient and Clinician Adoption of PDTs - To continue to grow our business, we will need to execute on our current business strategy of achieving and maintaining broad market acceptance of our PDTs by patients and physicians. Market acceptance and adoption of our PDTs depends on educating patients, self-insured employers, commercial and government payors, health plans and physicians, and other government entities, as to the distinct features, therapeutic benefits, cost savings, and other advantages of our PDTs as compared to competitive products or other currently available treatment options. Pricing - In the future, we expect to grow the number of commercially available PDTs in our product portfolio, offering a broad range of PDTs spanning multiple price points. PDTs may be subject to competition which may impact our pricing. In addition, our products may be subject to legislative prescription-pricing practices. Further, we continue to collect additional data to enhance product performance and bolster health economics and outcomes research ("HEOR") and associated cost savings for payors. Reimbursement - Our payor strategy focuses across all major payor channels, including employers, Integrated Delivery Networks ("IDNs"), pharmacy benefit managers ("PBMs"), commercial payors, and government payors, including Medicaid and Medicare. We expect to increase our number of payors, and the pricing for such payors may vary as net prices for our products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and can be subject to customary discounts and rebates. In addition, some of our products may be subject to certain customer incentive programs. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to achieve profitability. In the future, as our market access team educates payors on the clinical attributes of our products, we expect our products to secure favorable coverage policies and to maximize the covered lives that have reimbursement for our products.
Contingency management – Costs related to clinically validated rewards that patients earn when they reach their treatment goals under our reSET and reSET-O PDTs are recorded as counterpart revenue.
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Product Mix - Sales of certain products have, or are expected to have, higher gross margins than others. As a result, our financial performance depends, in part, on the mix of products we sell during a given period.
Product revenue cost
Cost of product revenue consists primarily of costs that are closely correlated or directly related to the delivery of our products, including pharmacy costs, royalties paid under license agreements related to our commercialized products, amortization of milestone payments capitalized related to commercialized products, hosting costs, and personnel-related costs, including salaries and bonuses, employee benefits, and stock-based compensation attributable to employees in a particular function and associated with our implementation services. We expect the cost of product revenue to increase as we further commercialize our products and increase the volume of prescriptions filled. However, we expect our cost of product revenue to decrease as a percentage of total revenue over the longer-term subject to the expected revenue growth.
Research and development costs
June 30, 2022, we have multiple product candidates in our pipeline. As of July 25, 2022, we paused most investment in our pipeline in order to conserve cash, and we expect our R&D expenses will decrease during the second half of 2022.
R&D expenses consist of costs incurred in the performance of R&D activities, which include:
•expenditures incurred in the development of our potato pipeline;
•expenses incurred to improve our products;
•costs related to licensing agreements with third parties, including development and regulatory milestones;
•personnel expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in R&D functions;
•cost of clinical trials;
•expenses incurred in connection with the discovery and development of our PDTs, including in connection with agreements with third parties, such as consultants;
• expenses incurred under agreements with consultants
•facilities, depreciation and other expenses, which include direct and allocated expenses, such as rent and maintenance of facilities, insurance and other operating costs for space and costs directly related to functions R&D; and
•We capitalize certain software development costs attributable to the development of our data foundry during the application development stage of the project and amortize the costs to research and development upon completion over the expected life of the software.
Each of our product candidates involves technical, clinical, regulatory and business risks, including those more fully described under the heading “Risk Factors” in Part II, Item 1A of this Form 10-Q.
We expense R&D costs as incurred and do not track the costs at a project level. Advance payments made for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed. In the early phases of development, our R&D costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific product.
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Selling, general and administrative expenses
Selling, general, and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation related to commercial, marketing, executive, finance and accounting, information technology, corporate and business development, and human resource functions. Other SG&A expenses include marketing initiatives, market research and analysis, conferences and trade shows, travel expenses, professional services fees (including legal, patent, accounting, audit, tax, and consulting fees), insurance costs, amortization of internal-use software, general corporate expenses, and allocated facilities-related expenses, including rent and maintenance of facilities.
We expect general and administrative expenses to decline as we reduce expenses primarily related to personnel costs and certain business efforts related to restructuring activities that began on
Interest and other income (expenses), net
Interest expense includes interest due under our Credit Agreement with
Perceptive Credit Holdings III, LP, as administrative agent for the lenders, which we refer to as the Perceptive Credit Facility, and accretion of the debt discount on the Perceptive Credit Facility as well as the change in the fair value of our derivative liabilities and earn-out liabilities that occurred during the period. We expect interest expense to increase as London Interbank Offered Rate ("LIBOR") increases. In addition, it includes the accretion of the interest of the seller financing in connection with the Waypoint asset acquired in November 2021. See Note 9 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. Interest income consists of interest earned on cash balances held in interest-bearing accounts. We expect our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our commercial products and R&D for our product candidates and ongoing business operations. Financial Highlights
Year-over-year product sales increased significantly, primarily due to increased sales of reSET and reSET-O.
We incurred net losses of
$18.4 millionand $52.6 millionfor the six months ended June 30, 2022and 2021, respectively, representing a period-over-period decrease of $34.2 millionor 65.0%. This decrease was primarily due to a change in the fair value of the earn-out liabilities of $43.8 millionfor the six months ended June 30, 2022, a gain related to the change in fair value of the Public Warrants and the Private Placement Warrants of $6.7 millionfor the six months ended June 30, 2022, compared to a $5.4 millionloss for the six months ended June 30, 2021, related to the Legacy Pear Warrants, and a $4.5 millionincrease in total revenue period over period. These increases were partially offset by an $18.9 millionincrease in personnel-related expenses, primarily related to new hires as we expanded from 220 employees on June 30, 2021, to 298 employees on June 30, 2022. Further, we had a $3.1 millionincrease in costs related to being a public company and a $2.0 millionincrease in marketing-related expenses period over period. To date, we have funded our operations primarily with proceeds from sales of Legacy Pear's convertible preferred stock, proceeds as a result of the Business Combination, payments received in connection with collaboration and license agreements, product sales, and proceeds from borrowings under various credit facilities. Since our inception, we have received gross cash proceeds of $175.3 millionas a result of the Business Combination (see Note 3 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q), and gross cash proceeds of $268.2 millionfrom sales of our Legacy Pear's convertible preferred stock; we currently have $30.0 millionof debt outstanding under the Perceptive Credit Facility.
Addition to the Russell 2000® Index
The pear will be added to the US Russell Index Series in conjunction with the
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cited performance benchmarks for small-cap companies and is widely used by investment managers and institutional investors as the basis for index funds and as a benchmark for active investment strategies. We believe our inclusion in the Russell 2000® Index will continue to increase overall awareness and exposure of the Company by introducing us to a wider investor audience.
July 25, 2022, the Company restructured its operations to narrow its near-term business focus and reduce its workforce due to the macroeconomic environment. The Company's restructuring includes external and internal cost reductions in almost all areas of the Company. The Company focused cost reductions on pipeline candidates, discovery programs, business development, and the Company's dual platform in order to prioritize certain of its commercial efforts. The reduction in workforce will decrease overall headcount by approximately 25 employees. The Company expects to incur a one-time charge of approximately $0.9 millionin the third quarter of 2022 related to the reduction in workforce, consisting primarily of one-time severance payments upon termination of the employees and continued benefits for a specific period of time with related cash payments expected to be substantially paid out by September 30, 2022. The Company expects such payments to be the only direct expense of the reduction in workforce. The Company does not expect to recognize a stock-based compensation expense for impacted employees related to vested awards and does not anticipate modifying the affected employees' stock awards in a manner that would result in additional expenses. The severance-related and non-cash charges that the Company expects to incur in connection with, or as a result of, the workforce reduction, are subject to a number of assumptions, and actual results may differ materially.
December 3, 2021, we consummated a business combination, pursuant to the terms of the Business Combination Agreement dated June 21, 2021. Upon the consummation of the Business Combination, Oz Merger Sub, a newly formed subsidiary of THMA, merged with and into Pear, with Pear surviving. THMA was renamed Pear Therapeutics, Inc.("Pear") and Pear Therapeutics, Inc.was renamed Pear Therapeutics (US), Inc.("Legacy Pear"). Legacy Pear is deemed the accounting predecessor and the post-company successor SECregistrant, which means Legacy Pear financial statements for previous periods will be disclosed in this Form 10-Q. Future period reports filed with the SECwill include Pear Therapeutics, Inc.and its subsidiaries. The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, THMA was treated as the acquired company for financial statement reporting purposes. The most significant change in the post-combination company's reported financial position and results was an increase in cash of $175.0 million. We paid $32.8 millionin transaction costs relating to the business combination. We recorded a liability related to the Public Warrants and the Private Placement Warrants of $16.5 millionand $95.4 millionrelated to the earn-out shares that holders of Legacy Pear Common Shares and Legacy Pear Preferred Shares prior on the Closing Date whoreceived the contingent right to receive up to 12,395,625 additional shares of Class A common stock (the "Earn-Out Shares") upon the achievement of certain earn-out targets. As a consequence of the Business Combination, we became the successor to an SEC-registered and Nasdaq-listed company and we have hired additional personnel and implemented procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees over those as a private company.
Economic conditions (impact of COVID-19)
March 2020, the World Health Organizationdeclared the global outbreak of COVID-19 to be a pandemic. The pandemic has significantly impacted the economic conditions in the US, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the US economy. The downstream impact of various lockdown orders and related economic pullback affect our business and our customers to varying degrees. We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it is impacting our customers, patients, employees, suppliers, vendors, and business partners. We are unable to predict the specific Pear Therapeutics, Inc.| Form 10-Q |Page 30
impact that COVID-19 may have on our business, financial position, and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. For further details see the information under the heading "Risk Factors" in Part II, Item 1A in this Form 10-Q. We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the US. The COVID-19 pandemic has also affected global access to capital and caused significant volatility in financial markets. Significant deterioration of the US and global economies or rapid increases in inflation could have an adverse impact on our future liquidity needs. As a result of the COVID -19 pandemic, we shifted our workforce to a hybrid model in which employees in one of our three offices work both remotely and onsite, and we anticipate we will continue to use this model going forward. In addition, our workforce has deep domain knowledge across a range of healthcare, technology, and general business, which was partially achieved by having certain of our employees working remotely across the US. Pear will continue to monitor the performance of its business and assess the impacts of COVID-19. Impact of Inflation We are experiencing rising costs for certain inflation-sensitive operating expenses such as labor and certain service providers that are heavily dependent on labor. We do not believe these impacts were material to net income during the six months ended
June 30, 2022or will be going forward. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods. Results of Operations
The tables and comments below present the results for the periods indicated:
Three Months Ended June 30, Change (in thousands, except percentages) 2022 2021 $ %
$ 2,997 $ 1,047 $ 1,950186 % Collaboration and license revenue 300 154 146 95 % Total revenues 3,297 1,201 2,096 175 % Cost and operating expenses: Cost of product revenue 2,401 727 1,674 230 % Research and development 12,716 7,877 4,839 61 % Selling, general, and administrative 21,000 14,546 6,454 44 % Total cost and operating expenses 36,117 23,150 12,967 56 % Loss from operations (32,820) (21,949) (10,871) 50 % Other income (expenses): Interest and other (expense) income, net (343) (1,018) 675 (66) % Change in estimated fair value of earn-out liability 29,163 - 29,163 * Change in estimated fair value of warrant liabilities 9,462 (5,234) 14,696 * Total other income (expense) 38,282 (6,252) 44,534 * Net income (loss) $ 5,462 $ (28,201) $ 33,663(119) % __________________
* Percentage change not significant.
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Product revenue-Product revenue for the three months ended
June 30, 2022was $3.0 million, compared to $1.0 millionfor the three months ended June 30, 2021. The increase of $2.0 millionwas primarily driven by increased sales of reSET and reSET-O under Access Agreements.
Collaboration and Licensing Revenue-Collaboration and Licensing Revenue for the Three Months Ended
Cost of product revenue-Cost of product revenue for the three months ended
June 30, 2022was $2.4 million, compared to $0.7 millionfor the three months ended June 30, 2021. This increase was primarily due to implementation costs associated with our Access Agreements and minimum royalties related to licensing agreements for commercialized products, pharmacy and hosting costs for our PDTs. Cost of product revenue represented 72.8% and 60.5% of total revenue for the three months ended June 30, 2022and 2021, respectively. We expect cost of product revenue to decrease as a percentage of revenue as revenue increases. Research and development-R&D expenses for the three months ended June 30, 2022were $12.7 million, compared to $7.9 millionfor the three months ended June 30, 2021. The increase of $4.8 millionwas primarily due to an increase of $3.6 millionof personnel-related costs as we expanded our R&D staff from 93 on June 30, 2021, to 132 on June 30, 2022. Selling, general, and administrative-SG&A expenses for the three months ended June 30, 2022were $21.0 million, compared to $14.5 millionfor the three months ended June 30, 2021. This increase of $6.5 millionwas primarily due to further building out of our commercial operations, and is mainly comprised of the following increases: •$4.3 million in personnel-related costs as a result of an increase in headcount from 117 on June 30, 2021, to 144 on June 30, 2022, primarily in the commercial team;
•$1.4 million in public company fees, including insurance for our directors and officers;
• $0.8 million in marketing and advertising costs as a result of targeted media and market awareness, education and advocacy initiatives;
•$0.5 million of amortization expense, primarily related to the amortization of software used in our patient support center;
Interest and other (expense) income, net-Interest and other income (expense), net, was an expense of
$0.3 millionfor the three months ended June 30, 2022, compared to an expense of $1.0 millionfor the three months ended June 30, 2021. This decrease is mainly the result of the gain from the change in the fair value of the embedded debt derivative recorded during three months ended June 30, 2022. Change in fair value of earn-out liabilities-For the three months ended June 30, 2022we recognized a $29.2 milliongain as a result of the change in fair value of the earn-out liabilities. Change in fair value of warrant liabilities-We recognized a $5.2 millionloss for the three months ended June 30, 2021related to the Legacy Pear Warrants, which were exercised in 2021 prior to the Business Combination. For the three months ended June 30, 2022, we recognized a gain of $9.5 millionrelated to outstanding the Public Warrants and the Private Placement Warrants. Pear Therapeutics, Inc.| Form 10-Q |Page 32
Table of Contents Six Months Ended June 30, Change (in thousands, except percentages) 2022 2021 $ %
$ 5,746 $ 1,347 $ 4,399327 % Collaboration and license revenue 300 230 70 30 % Total revenues 6,046 1,577 4,469 283 % Cost and operating expenses: Cost of product revenue 3,882 1,465 2,417 165 % Research and development 25,980 15,367 10,613 69 % Selling, general, and administrative 43,745 27,845 15,900 57 % Total cost and operating expenses 73,607 44,677 28,930 65 % Loss from operations (67,561) (43,100) (24,461) 57 % Other income (expenses): Interest and other (expense) income, net (1,359) (2,044) 685 (34) % Change in estimated fair value of earn-out liability 43,790 - 43,790 * Change in estimated fair value of warrant liabilities 6,733 (5,397) 12,130 * Loss on issuance of Legacy Pear convertible preferred stock - (2,053) 2,053 (100) % Total other income (expense) 49,164 (9,494) 58,658 * Net loss $ (18,397) $ (52,594) $ 34,197(65) % __________________
* Percentage change not significant.
Product revenue-Product revenue for the six months ended
June 30, 2022, was $5.7 million, compared to $1.3 millionfor the six months ended June 30, 2021. The increase of $4.4 millionwas primarily driven by increased sales of reSET and reSET-O under Access Agreements. Collaboration and license revenue-Collaboration and license revenue for the six months ended June 30, 2022was $0.3 million, compared to $0.2 millionfor the six months ended June 30, 2021. Cost of product revenue-Cost of product revenue for the six months ended June 30, 2022, was $3.9 million, compared to $1.5 millionfor the six months ended June 30, 2021. This increase of $2.4 millionwas primarily due to implementation costs associated with our Access Agreements and minimum royalties related to licensing agreements for commercialized products, pharmacy, and hosting costs for our PDTs. Cost of product revenue represented 64.2% and 92.9% of total revenue for the six months ended June 30, 2022and 2021, respectively. We expect cost of product revenue to decrease as a percentage of revenue as revenue increases. Research and development-R&D expenses for the six months ended June 30, 2022were $26.0 million, compared to $15.4 millionfor the six months ended June 30, 2021. The increase of $10.6 millionwas primarily due to an increase of $8.1 millionof personnel-related costs as we continued shifting our software development work from external to internal resources, and coinciding with an increase in R&D headcount from 93 on June 30, 2021, to 132 on June 30, 2022.
Selling, general and administrative-SG&A expenses have been
•$9.0 million in personnel-related costs as a result of an increase in headcount from 117 on
June 30, 2021, to 144 on June 30, 2022, primarily in the commercial team;
•$3.1 million in public enterprise costs, including insurance for our directors and officers;
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•$2.0 million in marketing and advertising expenses as a result of targeted media and market awareness, education and advocacy initiatives;
•$0.9 million of amortization expense, primarily related to the amortization of software used in our patient support center; and
•$0.9 million in professional fees, including increases in legal and accounting fees due to going public.
Interest and other (expense) income, net-Interest and other income (expense), net, for the six months ended
June 30, 2022was an expense of $1.4 millioncompared to an expense of $2.0 millionfor the six months ended June 30, 2021. This decrease is mainly the result of the gain from the change in the fair value of the embedded debt derivative recorded during three months ended June 30, 2022Change in fair value of earn-out liabilities-For the six months ended June 30, 2022, we recognized a $43.8 milliongain as a result of the change in fair value of the earn-out liabilities. Change in fair value of warrant liabilities-We recognized a $5.4 millionloss for the six months ended June 30, 2021related to the Legacy Pear Warrants, which were exercised in 2021 prior to the Business Combination. For the six months ended June 30, 2022, we recognized a gain of $6.7 millionrelated to the Public Warrants and the Private Placement Warrants. Loss on issuance of Legacy Pear convertible preferred stock-In February 2021, we issued shares of Legacy Pear Series D-1 Preferred Stock. The shares were recorded at their estimated fair market value on the date of issuance. In connection with the Legacy Pear Series D-1 Preferred Stock, we recorded a loss of $2.1 millionfor the six months ended June 30, 2021, which represents the amount by which the estimated fair value of the shares exceeded the sale price, net of issuance costs. Income tax-We did not incur income tax expenses for the six months ended June 30, 2022and 2021. Given our lack of prior earnings history, we have a full valuation allowance primarily related to our net operating loss and R&D credit carryforwards that we do not consider more likely than not to be realized.
Cash and capital resources
Since our inception, our primary sources of capital have been proceeds from sales of Legacy Pear convertible preferred stock, payments received in connection with collaboration agreements, proceeds from borrowings under various credit facilities, and the Business Combination. See Note 3 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. We have three commercial products: reSET, reSET-O, and Somryst. The revenue from the sale of these products at the present time is not sufficient to cover the operating costs incurred. Our ability to achieve sufficient revenue to cover our costs is highly dependent on our PDTs achieving and maintaining broad market acceptance by patients and physicians and obtaining reimbursement from third-party payors. We have incurred recurring losses from inception and anticipate net losses and negative operating cash flows for the near future. For the six months ended
June 30, 2022and 2021, we incurred net operating losses of $18.4 millionand $52.6 million, respectively. As of June 30, 2022and December 31, 2021, we had an accumulated deficit of $266.4 millionand $248.0 million, respectively. As of June 30, 2022and December 31, 2021, we had outstanding debt of $27.4 millionand $27.0 million, net of debt issuance costs, respectively. Our cash flows may fluctuate and are difficult to forecast and will depend on many factors. As of June 30, 2022and December 31, 2021, we had cash and cash equivalents of $60.2 millionand $169.6 million, respectively. Our primary uses of capital are, and we expect will continue to be for the near future, funding operating activities, including commercial operations and product enhancements and development of certain of our product pipeline. We have in the past and we expect in the future to capitalize labor costs related to the development of our internal-use software. Pear Therapeutics, Inc.| Form 10-Q |Page 34
In the future, we will need to raise additional capital to pursue our growth strategy and support continuing operations. Until such time as we can generate significant revenue to fund operations, we expect to seek additional capital from the issuance of equity, debt, or other capital transactions. If sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses further. In
July 2022, we restructured our business operations to narrow our near-term business focus and decreased our workforce to reduce our operating expenses. We may be unable to increase our revenue, raise additional funds, or enter into such other agreements or arrangements when needed on favorable terms, or at all. Despite our recent restructuring, if we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, further scale back or discontinue the development and commercialization of more of our product candidates and other strategic initiatives. We are also subject to various covenants related to the Perceptive Credit Facility, and given the substantial doubt about our ability to continue as a going concern, there is a risk that we may not meet our covenants in the future. As of June 30, 2022and December 31, 2021, we meet our covenants, however we concluded that the above circumstances raise substantial doubt about our ability to continue as a going concern.
Cash and cash equivalents
We expect to incur substantial additional expenditures in the near term to support our ongoing activities, including costs related to being a public company. We expect to continue to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates will depend on the amount and timing of cash available to fund operations. Our future liquidity and capital funding requirements will depend on numerous factors, including:
•the growth of our revenues;
•the possibility of obtaining reimbursement by third-party payment for our current products;
•the amount and timing of sales and other revenue from our product candidates, if approved, including sale price, availability of coverage, and adequate third-party payer reimbursement;
•our business activities, including sales and marketing;
•our R&D efforts;
•the emergence and effect of competing or complementary products;
•the outcome, timing and cost of meeting regulatory requirements established by the FDA or comparable foreign regulatory authorities;
•the progress, timing, scope and costs of our preclinical studies, clinical trials, potential future clinical trials and other related activities;
•the costs of commercialization activities for any of our product candidates that receive marketing authorization, including the costs and timing of establishing product sales, marketing and hosting capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities;
• cash requirements related to the development of our programs and our ability and willingness to fund their continued development;
•the cash requirements of any future discovery of product candidates;
• our ability to retain our current employees;
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•the time and cost required to respond to technological and market developments, including other products that may compete with one or more of our product candidates;
•debt service requirements;
•the extent to which we acquire or invest in businesses, products or technologies;
•our ability to reduce or contain certain costs and expenses;
•the impact of the macroeconomic environment; and
•the impact of the COVID-19 pandemic.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the sale of our products or the development of product candidates. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. See the information under the heading "Risk Factors" included in Part II, Item 1A this Form 10-Q for risks related to our financial condition. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Please see the risks associated with our substantial capital requirements explained more fully under the heading "Risk Factors-We will need substantial additional funding, and if we are unable to raise capital when needed or on terms favorable to us, our business, financial condition, and results of operation could be materially and adversely affected" in Part II, Item 1A of this Form 10-Q.
Debt Financing and Covenants
Borrowings under our secured Perceptive Credit Facility were
$30.0 millionas of June 30, 2022and December 31, 2021; these borrowings were used to extinguish the former SVB Term Loan and for general business purposes. The Perceptive Credit Facility matures in June 2025. We are required to pay a variable rate of interest based upon the one-month LIBOR rate plus 11.0%, subject to a LIBOR floor of 1.0%. As of June 30, 2022, the annual interest rate was 12.1%. The Company is required to make interest-only payments until May 31, 2024, after which point the Company will be required to make monthly payments of principal equal to 3.0% of the then outstanding principal until maturity on June 30, 2025. The Perceptive Credit Facility is secured by substantially all of the assets of the Company, including our intellectual property. The Perceptive Credit Facility requires the Company to (i) maintain a minimum aggregate cash balance of $5.0 millionin one or more controlled accounts, and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2022, report revenues for the trailing 12-month period that exceed the amounts that range from $5.8 millionfor the fiscal quarter ending March 31, 2022, to $125.0 millionfor the fiscal quarter ending March 31, 2025. The Perceptive Credit Facility contains various affirmative and negative covenants that limit the Company's ability to engage in specified types of transactions. The Company was in compliance with the covenants under the Perceptive Credit Agreement as of June 30, 2022. See Note 7 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. In the future, we may seek to obtain other additional sources of financing, including incurring term debt or issuing equity or debt securities.
Pear Therapeutics, Inc.| Form 10-Q |Page 36
Contractual obligations, commitments and contingencies
We lease our headquarters in
Boston, Massachusetts, under a non-cancelable operating lease with an expiration date of June 1, 2028. We also lease office space in San Francisco, California, under a non-cancelable operating lease that expires on July 31, 2025, and office space in Raleigh, North Carolina, under a non-cancelable operating lease that expires on May 31, 2026. See Note 8 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. We enter into agreements in the normal course of business with various vendors, which are generally cancellable upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation. In addition, under various licensing agreements to which we are a party, we are obligated to pay annual license maintenance fees and may be required to make milestone payments and to pay royalties and other amounts to third parties. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified milestones or generating product revenue, and the amount, timing and likelihood of such payments are not known. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain milestones. These contingent milestones may not be achieved. We cannot estimate or predict when, or if, these amounts will become due. See Note 9 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. On June 17, 2021, and later amended on August 3, 2021, we entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates, and related professional services with Palantir for $9.3 millionpayable over three years, we have paid $3.0 millionand the remaining $6.3 millionis due in quarterly installments starting on October 1, 2022continuing through September 30, 2024.
See Note 9 in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for more information.
Indemnification of directors and officers
We have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of stockholders' equity, or condensed consolidated statements of cash flows.
The following table provides a summary of cash flow data for each applicable period: Six Months Ended June 30, (in thousands) 2022 2021 Net cash used in operating activities
$ (66,345) $ (43,866)Net cash (used in) provided by investing activities (43,807) 5,503 Net cash provided by financing activities 836 19,682
Net decrease in cash, cash equivalents and restricted cash
Net cash used in operating activities was
$66.3 millionfor the six months ended June 30, 2022. Net cash used in operating activities consists of a net loss of $18.4 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include the change in fair value of earn-out liabilities of Pear Therapeutics, Inc.| Form 10-Q |Page 37
Net cash used in operating activities was
$43.9 millionfor the six months ended June 30, 2021. Net cash used in operating activities consists of a net loss of $52.6 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments that offset the net loss for the period primarily include the change in fair value of Legacy Pear warrants of $5.4 million, a loss on the issuance of convertible preferred stock of Legacy Pear of $2.1 million, and stock-based compensation expense of $1.0 million.
Net cash used in investing activities was
$43.8 millionfor the six months ended June 30, 2022, and related primarily to the purchase of investments of $66.0 million, offset by proceeds from the maturity and sale of investments of $24.0 million.
Net cash from investing activities was
June 30, 2022, Pear has financed its operations primarily through the Business Combination, the sale of Legacy Pear convertible preferred stock, payments received in connection with collaboration agreements, payments received from product sales, and borrowings under various credit facilities. Net cash provided by financing activities was $0.8 millionfor the three and six months ended June 30, 2022, and related to proceeds from the exercise of stock options. Net cash provided by financing activities was $19.7 millionfor the six months ended June 30, 2021, and related to net proceeds from the issuance of Legacy Pear Series D convertible preferred stock of $19.9 millionand proceeds of $0.7 millionfrom the exercise of stock options, partially offset by the payment of deferred offering costs of $0.9 million.
Transactions with related parties
March 15, 2022, we entered into a development agreement with SoftBank Corp., an entity under common control with SVF II Cobbler (DE) LLC(a greater than 5% shareholder of Pear), to develop a Japanese-language digital therapeutic for the treatment of sleep/wake disorders for the Japanese market. See Note 10 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Recent accounting pronouncements
Refer to the accompanying notes to consolidated financial statements as of and for the six months ended
June 30, 2022and 2021, included in Part I, Item 1 of this Form 10-Q for more information regarding recently issued accounting pronouncements, the timing of their adoption, and its assessment, to the extent it has made one, of their potential impact on its financial condition and results of operations.
Significant Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with US generally accepted accounting principles, or US GAAP, and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported. Management bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities. Actual results may differ materially from these estimates if past experience or other assumptions do not turn out to be substantially accurate.
Pear Therapeutics, Inc.| Form 10-Q |Page 38
The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. We have determined that our most critical accounting policies are those relating to Legacy Pear Preferred and Common stock valuations, revenue recognition, valuation of earn-out liabilities, and stock-based compensation. There have been no significant changes to our existing critical accounting policies and significant accounting policies discussed in the Annual Report on Form 10-K for the year ended
December 31, 2021.
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