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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 92 added, 207 removed, 122 unchanged (71% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q

and the audited financial statements and notes thereto as of and for the year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our final prospectus dated June 30, 2021 and filed with the Securities and Exchange Commission (the “SEC”), on July 2, 2021, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q

and in the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report.

This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, plans and objectives of management for future operations and the potential impact that the ongoing COVID-19

pandemic may have on our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q

for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

We are a clinical-stage biopharmaceutical company developing a novel disease-modifying approach to target what we believe to be a key underlying cause of Alzheimer’s disease (AD).

You should review the disclosure under the heading “Risk Factors” in the Annual Report for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

We are a clinical-stage biopharmaceutical company developing a novel disease-modifying approach to target what we believe to be a key underlying cause of Alzheimer’s Disease, or AD.

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 (“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 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.

Although we acquired the exclusive rights to ACU193 from Merck in 2011 following Merck’s strategic decision to focus its AD development efforts on a different product candidate, we did not recommence meaningful operations until we completed our first institutional fundraising in 2018.

Since 2018, we have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, conducting discovery, research and development activities, and providing general and administrative support for these operations.

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

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.

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,

financing in 2018.

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

We closed the first tranche of the Series B financing in November 2020, selling 11,862,043 shares of Series B at $3.80 per share for gross proceeds of $45.1 million.

On June 9, 2021, our board of directors and the holders of more than 67% of the outstanding shares of Series B preferred stock elected to waive the achievement of the milestone event.

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.

Our scientific founders pioneered research on soluble amyloid-beta oligomers, or AβOs, which are globular assemblies of the Aß peptide that are distinct from Aß monomers and amyloid plaques.

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

We initiated a Phase 1 clinical trial of ACU193 in 2021, which we named “INTERCEPT-AD.”

This trial is enrolling patients with mild dementia or mild cognitive impairment due to AD, conditions referred to as “early AD.” INTERCEPT-AD

is a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping single ascending dose, or SAD, and multiple ascending dose, or MAD, cohorts involving a total of approximately 62 patients with early AD.

The overall objective of the trial is to evaluate the safety and tolerability and establish clinical proof of mechanism of ACU193 administered intravenously.

The primary trial endpoints are focused on safety and immunogenicity.

An important safety measure will be the use of magnetic resonance imaging, or MRI, to assess the presence or absence of amyloid-related imaging abnormalities.

Secondary endpoints include pharmacokinetics in plasma and cerebrospinal fluid, or CSF, and target engagement as evidenced by detection of ACU193 bound to AßOs in CSF.

Clinical scales typically used in AD trials as well as computerized cognitive testing are included as exploratory measures.

In October 2021, we announced the initial dosing of the first patient in the INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two patients.

Due to delays in clinical trial site activation and patient enrollment that we believe are principally related to the effects of the COVID-19

pandemic, we are expanding the anticipated number of trial sites to support our enrollment objectives and anticipated timelines.

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

Based on current site activations and enrollment rates, we anticipate reporting our topline data from the INTERCEPT-AD

trial in the first half of 2023.

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

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 were $9.1 million and $27.0 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $136.7 million.

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

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

As of March 31, 2022, we had cash, cash equivalents and marketable securities totaling $216.7 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 2025.

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transmission.

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.

In October 2021, we announced the initial dosing of the first patient in the INTERCEPT-AD trial

and the subsequent successful sentinel safety review of the first two patients.

Due to delays in clinical trial site activation and patient enrollment that we believe are principally related to effects of the COVID-19 pandemic,

we are expanding the anticipated number of trial sites to support our enrollment objectives and anticipated timelines.

However, we cannot assure that we will not experience additional delays in site activation or enrollment.

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.

Based on current site activations and enrollment rates, we anticipate reporting our topline data from this trial in the first half of 2023.

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

Grants and Other Revenue

To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever.

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 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

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costs related to compliance with clinical regulatory requirements;

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.

Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.

Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

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

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 nine months ended September 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.

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

our ability to add and retain key research and development personnel;

our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates;

our successful enrollment in and completion of clinical trials, including our ability to generate positive data from any such trials;

the size and cost of any future clinical trials for existing or future product candidates in our pipeline;

the costs associated with the development of any additional programs we identify in-house

or acquire through collaborations and other arrangements and the success of such collaborations;

the terms and timing of any additional collaborations, license or other arrangement, including the timing of any payments thereunder;

our ability to establish and maintain agreements and operate with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved;

costs related to manufacturing of our product candidates or to account for any future changes in our manufacturing plans;

our ability to obtain and maintain patents, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates, both in the United States and internationally;

our ability to obtain and maintain third-party insurance coverage and adequate reimbursement for our product candidates, if and when approved;

the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;

effectively competing with other products if our product candidates are approved;

the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our manufacturers, suppliers, or other vendors resulting from the COVID-19

pandemic or similar public health crisis;

our ability to maintain a continued acceptable safety profile for our therapies following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

We may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

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.

General and administrative expenses consist primarily of salaries and other personnel related expenses, including stock-based compensation, as well as costs for insurance, professional fees for legal, consulting, accounting, auditing, tax and recruiting services, investor and public relations, board of directors’ expenses, franchise taxes, meetings, travel and rent, among others.

We expect that our general and administrative expenses will increase as our organization and headcount needed in the future grows to support continued research and development activities and potential commercialization of our product candidates.

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Other Income (Expense)

Other income (expense) primarily includes changes in fair value of the Series A-1 warrant

liability and the Series B tranche rights, other income and interest income, net.

Other income (expense) primarily includes interest income, net and other income, net.

Following our initial public offering, or IPO, we made investments in marketable securities and the interest income earned, as well as the amortization and accretion of premiums and discounts are recorded in interest income, net.

Other income, net generally consists of sublease income offset by fees incurred on our investments in marketable securities.

Prior to our IPO on July 6, 2021, changes in the fair values of the Series A-1

warrant liability and the Series B tranche rights were recognized as a component of other income (expense).

The Series A-1 warrant

was issued in October 2018 in connection with the Series A-1 preferred

The warrant liability met the definition of a freestanding financial instrument, as it was legally detachable and separately exercisable from the initial closing of the Series A-1 convertible

preferred stock.

The warrant liability was initially recorded at fair value as a liability on our balance sheet and was subsequently re-measured at

fair value at the end of each reporting period and upon its exercise on June 22, 2021.

The changes in the fair value were recognized as a component of other income (expense).

Included in the terms of the Series B stock purchase agreement in November 2020 were tranche rights granted to the holders of the Series B convertible preferred stock.

The tranche rights provide the Series B holders with the right to purchase additional shares of Series B at $3.80 per share in an additional tranche after the achievement of a certain milestone event.

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

The tranche rights met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the Series B convertible preferred stock.

The tranche rights were initially recorded at fair value as a liability on our balance sheet.

The tranche rights were subsequently re-measured at

fair value at the end of each reporting period and at settlement.

Changes in the fair value were recognized as a component of other income (expense).

liability and the Series B tranche rights were initially recorded at fair value as liabilities on our balance sheet.

Each was subsequently re-measured

at fair value at the end of each reporting period and also upon the exercise of the warrant on June 22, 2021, and upon settlement of the tranche rights with the milestone closing for the Series B on June 17, 2021.

Results of Operations

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

Costs and operating expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense)

Interest income

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 $0.7 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 $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 $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)

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

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Costs and operating expenses

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

Interest income

Interest expense

Interest income, net

Other income, net

Total other income (expense)

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Comprehensive loss

Grant and Other Revenue

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 $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.

Research and development expenses were $6.0 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively.

The $3.4 million increase was primarily due to increases of $1.5 million in consulting expenses, $0.8 million in contract research organization expenses, $0.6 million in personnel related expenses, $0.3 million in drug safety testing and $0.2 million in materials expenses.

The net increase in research and development expenses during the three months ended March 31, 2022 from the three months ended March 31, 2021 was primarily due to our ongoing clinical trial which was initiated in 2021.

General and Administrative Expenses

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.

General and administrative expenses were $3.2 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.

The $2.0 million increase was primarily due to increases of $0.7 million in insurance expenses, $0.7 million in personnel expenses, $0.4 million in legal expenses, $0.1 million for investor relations and $0.1 million for other office expenses, including rent.

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 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.

Other income was $0.1 million for the three months ended March 31, 2022, which was primarily due to net interest income on the Company’s portfolio of marketable securities.

Other expense was $23.2 million for the three months ended March 31, 2021, due almost entirely to the changes in the fair values of the Series A-1 warrant

liability and the Series B tranche rights.

Liquidity and Capital Resources

Sources of Liquidity

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.

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.

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.

As of March 31, 2022, our cash, cash equivalents and marketable securities totaled $216.7 million.

Our available-for-sale

marketable securities mature over the next one and one-half

We enter into contracts in the

normal course of business with contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, for clinical trials, nonclinical research studies and testing, manufacturing and other services and products for operating purposes.

These contracts do not contain any minimum purchase commitments and are generally cancelable by us upon prior notice of 30 days.

Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

Future minimum lease payments under our Indiana lease agreement total approximately $0.2 million.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net change in cash and cash equivalents

Operating Activities

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.

Net cash used in operating activities was $8.3 million and $2.4 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in operating activities during the three months ended March 31, 2022 primarily consisted of our net loss of $9.1 million, which was reduced by non-cash

adjustments of $0.6 million for stock-based compensation and $0.2 million for net accretion and amortization on marketable securities, plus cash used of $1.5 million in accrued expenses and other current liabilities mainly due to research and development and employee liabilities;

partially offset by $1.4 million of cash provided by prepaid expenses mainly associated with research and development and insurance, and $0.1 million from an increase in accounts payable.

Net cash used in operating activities during the three months ended March 31, 2021 was primarily due to our net loss of $27.0 million, including other expenses of $23.2 million related to the change in the fair values of the Series A-1

warrant liability and the Series B tranche liability, partially offset by increases in accounts payable of $0.4 million and accrued expenses and other current liabilities of $1.0 million.

Investing Activities

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 $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.

Cash used in investing activities for the three months ended March 31, 2022 was $5.1 million and was predominantly related to purchases and maturities of marketable securities of $9.1 million and $4.0 million, respectively.

Cash used in invested activities for the three months ended March 31, 2021 was nil.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, conduct clinical trials, and seek marketing approval for our current and any of our future product candidates.

Furthermore, we expect to incur additional costs associated with operating as a public company following our July 2021 IPO.

Furthermore, we have and expect to incur additional costs associated with operating as a public company following our July 2021 IPO.

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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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.

Based on our current operating plan, we expect that our existing cash and cash equivalents and our marketable securities will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through 2025.

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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the scope, progress, results and costs of discovery, nonclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;

the costs, timing and outcome of regulatory review of our product candidates;

the costs, timing and outcome of regulatory review of ACU193 or any future product candidates;

our ability to establish and maintain collaborations on favorable terms, if at all;

the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time;

the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of ACU193 or any future product candidates for which we receive marketing approval;

the amount of revenue, if any, received from commercial sales of ACU193 or any future product candidates, should any of our product candidates receive marketing approval;

the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our longer-term cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

We do not have any committed external source of funds.

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If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Off-Balance Sheet

During the periods presented we did not have, nor do we currently have, any off-balance sheet

arrangements as defined under SEC rules.

Contractual Obligations

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

We executed a new sublease for this space that was effective February 1, 2021.

The term of the sublease is for 31 months, expiring on August 30, 2023.

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 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)

Year ended December 31, 2022

Year ended December 31, 2023

We enter into contracts in the normal course of business with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) for clinical trials, nonclinical research studies and testing, manufacturing and other services and products for operating purposes.

These contracts do not contain any minimum purchase commitments and are generally cancelable by us upon prior notice of 30 days.

Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

Critical Accounting Estimates and Policies

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles, or U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements.

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 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.

Actual results may differ from these estimates under different assumptions or conditions.

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.

Critical Accounting Policies, Significant Judgments and Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period.

A description of our significant accounting policies is included in our Annual Report.

You should read the unaudited condensed financial statements in conjunction with our audited financial statements and accompanying notes in our Annual Report.

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.

There have been no significant changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our final prospectus dated June 30, 2021, and filed with the SEC on July 2, 2021 pursuant to Rule 424(b)(4).

Recent Accounting Pronouncements

See 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

for a description of recent accounting pronouncements applicable to our financial statements.

Emerging Growth Company and Smaller Reporting Company Status

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is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year.

We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is

less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is

less than $700 million.

We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates

is less than $700 million.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and,

similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Quarterly Report on Form 10-Q

and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K,

the Company is not required to provide the information required by this item.

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