What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 99 added, 69 removed, 230 unchanged (42% of the section changed)

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Alzheimer’s disease is a progressive neurodegenerative disease of the brain that leads to loss of memory and cognitive functions and ultimately results in death.

Our scientific founders pioneered research on soluble amyloid-beta oligomers (“AßOs”), globular assemblies of the amyloid-beta (“Aß”) peptide that are distinct from other forms of Aß and amyloid.

Our scientific founders pioneered research on soluble amyloid-beta oligomers (“A b

Os”), globular assemblies of the amyloid-beta (“A b

”) peptide that are distinct from other forms of A b

We are currently focused on advancing a targeted immunotherapy drug candidate, ACU193, through clinical proof of mechanism in early AD patients.

We initiated our Phase 1 clinical trial of ACU193 in the second quarter of 2021.

We initiated a Phase 1 clinical trial of ACU193 in patients with early AD in April 2021, which we have named “INTERCEPT-AD.” Approximately 62 individuals with early AD (mild cognitive impairment or mild dementia due to AD) are expected to be randomized into this double-blind, placebo-controlled, first-in-human study of ACU193.

INTERCEPT-AD is designed to establish safety and proof of mechanism.

It consists of SAD and MAD cohorts and is designed to evaluate the safety, tolerability, PK, and target engagement of intravenous doses of ACU193.

In October 2021, we announced the initial dosing of the first patient in the INTERCEPT-AD trial and subsequently successfully cleared the sentinel safety review.

Clinical trial site activation and patient recruitment and enrollment is ongoing and, subject to the rate of site activation and patient recruitment, we continue to anticipate topline data from this trial by the end of 2022.

We were incorporated in 1996 and were party to an exclusive license and research collaboration with Merck in 2003.

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We have funded our operations primarily through the sale of our convertible preferred stock and common stock, the issuance of notes, grant revenue and during our collaboration with Merck, certain payments received under our collaboration agreement.

From inception through June 30, 2021, we raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series A-1

Prior to our IPO, which closed on July 6, 2021, we raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series A-1

convertible preferred stock, or Series A-1,

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On June 17, 2021, we closed the second tranche of our Series B preferred stock financing, pursuant to which certain of our investors funded an additional $30.0 million.

On July 6, 2021, we issued 9,999,999 shares of our common stock in the IPO, and on July 8, 2021, we issued an additional 1,499,999 shares of our common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price less underwriting discounts and commissions.

The price to the public for each share was $16.00.

The aggregate net proceeds from the IPO, after underwriting discounts and commissions and other offering expenses of $15.4 million, were $168.6 million.

We have incurred net losses and negative cash flows from operations since our inception.

Our net loss was $88.4 million and $7.3 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

As of June 30, 2021, we had an accumulated deficit of $115.3 million.

Our net loss was $92.3 million and $7.3 million for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $119.2 million.

Our net losses and cash flows from operations may fluctuate significantly from quarter-to-quarter

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depending on the timing of nonclinical studies, clinical trials and our expenditures on other research and development activities.

We expect our expenses and operating losses will increase substantially for the foreseeable future as we advance ACU193 into clinical trials, seek to expand our product candidate portfolio through developing additional product candidates, grow our clinical, regulatory and quality capabilities, and incur additional costs associated with operating as a public

We expect our expenses and operating losses will increase substantially for the foreseeable future as we advance ACU193 in clinical trials, seek to expand our product candidate portfolio through developing additional product candidates, grow our clinical, regulatory and quality capabilities, and incur additional costs associated with operating as a public company.

It is likely that we will seek third-party collaborators for the future commercialization of ACU193 or any other product candidate that is approved for marketing.

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Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition.

As of June 30, 2021, we had cash and cash equivalents of $68.8 million.

In July 2021, we raised an additional $168.6 million in net proceeds from our IPO.

Based on our current operating plan, we expect that the net proceeds from our IPO, together with our existing cash and cash equivalents as of June 30, 2021, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through 2024.

As of September 30, 2021, we had cash and cash equivalents of $135.8 million.

Based on our current operating plan, we expect that our existing cash and cash equivalents and marketable securities will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through 2024.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

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transmission.

Although to date, our business has not been materially impacted by COVID-19,

it is possible that our clinical development timelines could be negatively affected by COVID-19,

which could materially and adversely affect our business, financial condition and results of operations.

In October 2021, we announced the initial dosing of the first patient in the INTERCEPT-AD trial and subsequently successfully cleared our sentinel safety review.

Clinical trial site activation and patient recruitment and enrollment is ongoing.

We have experienced delays in clinical site activation and patient enrollment in INTERCEPT- AD, which we believe is a result of the ongoing COVID-19

pandemic, which may delay the expected timeline of INTERCEPT-AD.

We believe that early in the third quarter of 2021, the Delta variant of COVID-19,

in particular, negatively impacted our ability to activate clinical trial sites as planned as a result of trial sites, especially in certain geographies within the United States that have been experiencing relatively higher rates of COVID-19, requiring more time to implement site activation requirements and enrollment efforts being impeded by lower-than-expected willingness of potential patients to visit active sites for screening.

We believe that the decline in COVID-19

infections late in the third quarter of 2021and continuing into the fourth quarter of 2021 should enable us to move forward in activating more sites and expanding the overall clinical trial footprint of INTERCEPT-AD.

Subject to the rate of site activation and patient recruitment, we continue to anticipate topline data from this trial by the end of 2022.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions.

These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted.

If the financial markets and/or the overall economy are impacted for an extended period, our business, results of operations, financial position and cash flows may be materially adversely affected.

Components of Results of Operations

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For the years ended December 31, 2019 and 2020, we derived revenue from a grant awarded by the National Institutes of Health in September 2017 and renewed annually in 2018 through 2020.

The grant provides us with funding to support the completion of preclinical chemistry, manufacturing and control studies, toxicology and pharmacokinetic studies, submit an IND dossier to the FDA, and then conduct first in human clinical safety trials for ACU193.

We recognize revenue from this grant when the related costs are incurred and the right to payment is realized.

As of December 31, 2020, we had been awarded a total of $3.9 million under this grant, all of which has been recognized as revenue prior to or during the years ended December 31, 2019 and 2020.

The grant provided us with funding to support the completion of preclinical chemistry, manufacturing and control studies, toxicology and pharmacokinetic studies, submit an IND dossier to the FDA, and then conduct first in human clinical safety trials for ACU193.

We recognized revenue from this grant when the related costs were incurred and the right to payment was realized.

There was no revenue recognized under this grant during the nine months ended September 30, 2021, as the full $3.9 million that was awarded had been fully recognized as revenue prior to or during the years ended December 31, 2019 and 2020.

Operating Expenses

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Our operating expenses consist of research and development expenses and general and administrative expenses.

Research and Development Expenses

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costs related to compliance with clinical regulatory requirements;

employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel.

employee-related expenses, including salaries, benefits and share-based compensation expense for our research and development personnel.

Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our nonclinical and clinical studies or other services performed.

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As we currently only have one product candidate, ACU193, in development, we do not separately track expenses by program.

Further, as we have historically relied exclusively on consultants for research and development activities, we did not have any material internal research and development costs for the year ended December 31, 2020 or for the six months ended June 30, 2021.

We expect that our research and development expenses will increase substantially in connection with our clinical development activities for our ACU193 program.

At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of, or obtain regulatory

approval for, any of our current or future product candidates.

At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of, or obtain regulatory approval for, any of our current or future product candidates.

This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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General and Administrative Expenses

General and administrative expenses consist primarily of management and business consultants and other related costs, including stock-based compensation.

General and administrative expenses consist primarily of management and business consultants and other related costs, including share-based compensation.

General and administrative expenses also include board of directors’ expenses and professional fees for legal, patent, consulting, accounting, auditing, tax services and insurance costs.

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Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended September 30,

Grant and other revenue

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Interest income

Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability

Total other income (expense)

Interest expense

Total other income

Other comprehensive loss

Unrealized loss on marketable securities

Comprehensive loss

Grant and Other Revenue

Revenue related to our NIH grant was nil and $0.2 million for the three months ended June 30, 2021 and 2020, respectively.

Revenue under the NIH grant is recognized when the related costs were incurred and the right to payment was realized.

Revenue related to our NIH grant was nil and $0.7 million for the three months ended September 30, 2021 and 2020, respectively.

Revenue under the NIH grant was recognized when the related costs were incurred and the right to payment was realized.

Research and Development Expenses

Research and development expenses were $2.3 million and $1.9 million for the three months ended June 30, 2021 and 2020, respectively.

The $0.3 million increase was primarily due to increases in costs for contract research organizations and personnel of $0.9 million and $0.5 million, respectively, net of decreases in costs for consulting and drug safety testing of $0.6 million and $0.5 million, respectively.

Research and development expenses were $1.8 million and $3.0 million for the three months ended September 30, 2021 and 2020, respectively.

The $1.2 million decrease was primarily due to decreases of $1.1 million in consulting expenses, $0.5 million in contract manufacturing expenses and $0.3 million in drug safety testing expenses;

partially offset by increases of $0.4 million in personnel expenses and $0.3 million in contract research organization expenses.

The net decrease in research and development expenses in the three months ended September 30, 2021 from the three months ended September 30, 2020 was primarily due to a decrease in preclinical development activity as we approached initiating our clinical trial in the second quarter of 2021.

General and Administrative Expenses

General and administrative expenses were $1.2 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.

The $0.9 million increase was primarily due to increased accounting expenses incurred of $0.4 million in anticipation of becoming a public company and increased personnel expenses of $0.4 million due to employees hired during the first three months of 2021.

The remainder of the increase relates to increases for marketing and public relations costs and rent expense.

General and administrative expenses were $2.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively.

The $1.9 million increase was primarily due to increases of $0.8 million each in insurance expenses and personnel expenses, and $0.1 million each for consulting, investor relations and legal expenses as we incurred additional costs as a public company.

Other Income (Expense)

Increases in the fair value of the Series B tranche liability and the Series A-1

warrant liability of $54.6 million and $3.3 million, respectively, were primarily responsible for total other expense for the three months ended June 30, 2021.

Other income (expense) was nil for the three months ended June 30, 2020.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30,

Other income (expense) was de minimis and nil for the three months ended September 30, 2021 and 2020, respectively.

During the three months ended September 30, 2021, other income and expense primarily related to interest earned on marketable securities and income from the sublease of a portion of our leased offices in Indiana, offset by net amortization of premiums on marketable securities.

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended September 30,

Grant and other revenue

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Other income (expense)

Interest income

Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability

Interest income

Interest expense

Total other income (expense)

Other comprehensive loss

Unrealized loss on marketable securities

Comprehensive loss

Grant and Other Revenue

Revenue related to our NIH grant was nil and $0.4 million for the three months ended June 30, 2021 and 2020, respectively.

Revenue under the NIH grant is recognized when the related costs were incurred and the right to payment was realized.

Revenue related to our NIH grant was nil and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Revenue under the NIH grant was recognized when the related costs were incurred and the right to payment was realized.

Research and Development Expenses

Research and development expenses were $4.8 million and $4.0 million for the six months ended June 30, 2021 and 2020, respectively.

The $0.8 million increase was primarily due to increases in costs for contract research organizations and personnel of $1.7 million and $1.0 million, respectively, net of decreases in costs for drug safety testing and consulting of $1.1 million and $0.5 million, respectively, and a $0.2 million decrease for materials.

Research and development expenses were $6.6 million and $7.0 million for the nine months ended September 30, 2021 and 2020, respectively.

The $0.4 million decrease was primarily due to decreases of $1.6 million in consulting expenses, $1.5 million in drug safety testing expenses, $0.5 million in contract manufacturing expenses and $0.1 million in materials expenses;

partially offset by increases of $2.0 million in contract research organization expenses and $1.3 million in personnel expenses.

The net decrease in research and development expenses in the nine months ended September 30, 2021 from the nine months ended September 30, 2020 was primarily due to a decrease in preclinical development activity, partially offset by increased costs related to initiating our clinical trial in the second quarter of 2021.

General and Administrative Expenses

General and administrative expenses were $2.4 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.

The $1.9 million increase was primarily due to increased accounting expenses incurred of $0.9 million in anticipation of becoming a public company, increased personnel expenses of $0.9 million due to employees hired during the first three months of 2021 and increased marketing and public relations expenses of $0.1 million.

General and administrative expense was $4.5 million and $0.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The $3.8 million increase was primarily due to increases of $1.6 million in personnel expenses, $0.8 million each in insurance expenses and accounting and audit expenses, and $0.2 million in investor relations expenses, as well as $0.1 million each in legal, consulting and office rent expenses as we transitioned from a private to a public company.

Other Income (Expense)

Increases in the fair value of the Series B tranche liability and the Series A-1

warrant liability of $76.2 million and $5.0 million, respectively, were primarily responsible for total other expense for the six months ended June 30, 2021.

Other income (expense) was de minimis for the six months ended June 30, 2020.

Increases in the fair value of the Series B tranche liability and the Series A-1 warrant

liability of $76.2 million and $5.0 million, respectively, were primarily responsible for total other expense for the nine months ended September 30, 2021.

For further discussion of the Series B tranche liability and the Series A-1

warrant liability, see Note 5 to our unaudited condensed financial statements located in “Part I—Financial Information, Item 1.

Financial Statements” in this Quarterly Report on Form 10-Q.

Other income (expense) was de minimis for the nine months ended September 30, 2020.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception up until the time of our IPO in July 2021, we have funded our operations primarily through the sale of our convertible preferred stock and common stock, the issuance of notes, grant revenue and, during our collaboration with Merck, certain payments received under our collaboration agreement.

Since our inception up until the time of our IPO in July 2021, we had funded our operations primarily through the sale of our convertible preferred stock and common stock, the issuance of notes, grant revenue and, during our collaboration with Merck, certain payments received under our collaboration agreement.

We do not have any products approved for sale and have not generated any revenue from product sales.

From inception through June 30, 2021, we have raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series A-1 financing

Prior to our IPO, we had raised an aggregate of $99.4 million of gross proceeds through the issuance of convertible preferred stock, as well as sales of common stock and issuance of notes that were converted to preferred stock, with the vast majority of this capital being raised since our Series A-1 financing

In 2020, we conducted a Series B financing, with the funding to occur in two tranches.

We closed the first tranche of the Series B financing in November 2020 for gross proceeds of $45.1 million and the second tranche closed on June 17, 2021 for gross proceeds of $30.0 million following the election of our board of directors and a majority of the Series B investors to waive the requirement for a certain milestone event for ACU193 to be achieved prior to funding the second tranche on June 9, 2021.

As of June 30, 2021, our cash and cash equivalents totaled $68.8 million.

On July 6, 2021, we issued 9,999,999 shares of common stock in our IPO, and on July 8, 2021, we issued an additional 1,499,999 shares of common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price less underwriting discounts and commissions.

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The aggregate net proceeds from our IPO, after underwriting discounts and commissions and other offering expenses of $15.4 million, were $168.6 million.

As of September 30, 2021, we had cash and cash equivalents totaling $135.8 million and $94.1 million of available-for-sale

marketable securities.

The following table summarizes our sources and uses of cash (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities

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Operating Activities

Net cash used in operating activities was $6.6 million and $3.3 million for the six months ended June 30, 2021 and 2020, respectively.

Net cash used in operating activities during the six months ended June 30, 2021 was primarily due to our net loss of $88.4 million, which includes $81.2 million of expense related to the change in the fair values of the Series B tranche liability and the Series A-1

warrant liability, plus $1.1 million of cash used for prepaid expenses associated with research and development activities;

partially offset by cash provided of $0.7 million for both accounts payable and accrued expenses and other current liabilities.

Net cash used in operating activities during the six months ended June 30, 2020 was primarily due to our net loss of $4.1 million, partially offset by $0.7 million of cash provided by changes in our operating assets and liabilities.

Net cash used in operating activities was $14.3 million and $4.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Net cash used in operating activities during the nine months ended September 30, 2021 primarily consisted of our net loss of $92.3 million, which includes $81.2 million of non-cash

expense related to the change in the fair values of the Series B tranche liability and the Series A-1

warrant liability, plus $4.3 million of cash used for prepaid expenses associated with research and development activities and insurance;

partially offset by cash provided of $0.7 million from accrued expenses and other current liabilities.

The increase in cash used in operating activities during the nine months ended September 30, 2021, was the result of ongoing research and development activities as we commenced our clinical trial, as well as costs associated with the transition from a private to a public company.

Net cash used in operating activities during the nine months ended September 30, 2020 primarily consisted of our net loss of $6.6 million, partially offset by $1.9 million of cash provided by changes in our operating assets and liabilities.

Investing Activities

Our cash used in investing activities for the six months ended June 30, 2021 was de minimis and was associated with computer hardware acquired.

Cash used in investing activities for the nine months ended September 30, 2021 was $94.1 million and was predominantly related to the purchase of marketable securities, but also included nominal purchases of computer hardware.

Cash used in investing activities for the nine months ended September 30, 2020 was nil.

Financing Activities

Net cash provided by financing activities was $31.7 million and nil for the six months ended June 30, 2021 and 2020, respectively.

Net cash provided by financing activities during the six months ended June 30, 2021 was primarily due to the closing of the second tranche of our Series B convertible preferred stock for gross proceeds of $30.0 million, plus a total of $1.9 million received from the exercise of a Series A-1

preferred warrant, as well as exercises of common stock warrants, partially offset by $0.2 million of costs that were paid in connection with our IPO.

Net cash provided by financing activities was $200.5 million and nil for the nine months ended September 30, 2021 and 2020, respectively.

Net cash provided by financing activities during the nine months ended September 30, 2021 was primarily due to our IPO for net proceeds of $168.6 million, the closing of the second tranche of our Series B convertible preferred stock for gross proceeds of $30.0 million, plus a total of $1.9 million received from the exercise of a Series A-1

preferred warrant, as well as exercises of common stock warrants.

Funding Requirements

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If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.

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Contractual Obligations

As of June 30, 2021, we have an operating lease obligation associated with a lease for our executive office space that totals less than $1,000 for the remainder of the lease term.

This amount is due in equal monthly installments over the remaining lease term, which expires on August 31, 2021.

We have been subleasing space in Indiana since March 1, 2020 under a lease that expired on December 31, 2020.

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We pay monthly rent of $12,719 and we are also allowing others to sublease a portion of the space from us for less than a one-year period.

As of June 30, 2021, the remaining aggregate minimum rent obligation over the remaining term was approximately $331,000.

As of June 30, 2021, future minimum lease payments under lease agreements (including short-term leases) associated with our operations were as follows (in thousands):

As of September 30, 2021, the remaining aggregate minimum rent obligation over the remaining term was approximately $293,000.

As of September 30, 2021, future minimum lease payments under this lease agreement associated with our operations were as follows (in thousands):

Year ended December 31, 2021 (remaining 3 months)

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In accordance with U.S.

GAAP, we evaluate our estimates and judgments on an ongoing basis, including those related to accrued expenses, the preferred stock tranche and warrant liabilities and stock-based compensation.

GAAP, we evaluate our estimates and judgments on an ongoing basis, including those related to accrued expenses, the preferred stock tranche and warrant liabilities and share-based compensation.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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We define our critical accounting policies as those accounting principles 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 to our unaudited condensed financial statements located in “Part I – Financial Information, Item 1.

Our significant accounting policies are more fully described in Note 2 to our unaudited condensed financial statements located in “Part I – Financial Information, Item 1.

Financial Statements” in this Quarterly Report on Form 10-Q.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis