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Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-28 · 96 added, 170 removed, 165 unchanged (62% 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 audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

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 Annual Report on Form 10-K.

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those described in or implied by these forward-looking statements contained in the following discussion and analysis.

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 AD.

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

Based on decades of research and supporting evidence, AßOs have gained increasing scientific acceptance as a primary toxin involved in the initiation and propagation of AD pathology.

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 the second quarter of 2021, which we named

“INTERCEPT-AD.”

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

is a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping SAD and 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.

ACU193 is a recombinant humanized IgG2 mAb that was designed to selectively target AßOs, has demonstrated functional and protective effects in in vitro assays, and has demonstrated in vivo safety and pharmacologic activity in multiple animal species, including transgenic models for AD.

We initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which we named “INTERCEPT-AD.” This trial enrolled 65 patients with mild dementia or MCI 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 SAD and MAD cohorts involving patients with early AD.

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

The primary trial endpoints are focused on safety and immunogenicity.

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Secondary endpoints include pharmacokinetics in plasma and 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

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

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.

is in the SAD portion of the trial.

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

Clinical scales typically used in AD trials as well as computerized cognitive testing and arterial spin labelling with MRI scans 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.

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.

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.

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 in exchange for 7,908,027 shares of Series B preferred stock.

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.

purchase additional shares at the public offering price less underwriting discounts and commissions.

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

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Our net losses were $42.9 million and $100.6 million for the years ended December 31, 2022 and 2021, respectively.

Approximately $81.2 million, or 81%, of the net loss for the year ended December 31, 2021 was due to 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.

Approximately $32.4 million, or 76%, of the net loss for the year ended December 31, 2022 was due to research and development spending.

As of December 31, 2022, we had an accumulated deficit of $170.4 million.

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

and year-to-year,

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

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

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See “Liquidity and Capital Resources.”

Business Update

In March 2020, the World Health Organization declared COVID-19

a global pandemic and the United States declared a national emergency with respect to COVID-19.

In response to the COVID-19

pandemic, a number of governmental orders and other public health guidance measures have been implemented across much of the United States, including in the locations of our office, clinical trial sites and third parties on whom we rely.

We implemented a work-from-home policy allowing employees and consultants who can work from home to do so.

Business travel has been limited, and online video and teleconference technology is used to meet virtually rather than in person.

We have taken measures to secure our research and development activities, while work in laboratories by our partners has been organized to reduce risk of COVID-19

transmission.

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

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

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.

is in the SAD portion of the trial.

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 year ended December 31, 2020, we derived revenue from a grant awarded by the National Institutes of Health, or the NIH, 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.

The full $3.9 million awarded to us was fully recognized as of December 31, 2020, as the final $1.4 million under the grant was recorded as revenue during the year ended December 31, 2020.

Operating Expenses

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Research and Development Expenses

Research and development costs primarily consist of direct costs associated with consultants and materials, biologic storage, third party, contract research organization costs and contract development and manufacturing expenses, salaries and other personnel-related expenses.

Research and development costs primarily consist of direct costs associated with consultants and materials, biologic storage, third party, contract research organizations, or CRO, costs and contract manufacturing organization, or CMO, expenses, salaries and other personnel-related expenses.

Research and development costs are expensed as incurred.

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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 years ended December 31, 2021 and 2020.

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

Further, we have historically relied primarily on consultants for research and development activities, and as such, our internal research and development costs for the years ended December 31, 2022 and 2021 represent 20% or less of our total research and development expenses.

Our research and development expenses increased substantially in the year ended December 31, 2022 in connection with initiating the clinical trial for our ACU193 program in 2021.

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 also include insurance, professional fees for legal, consulting, accounting, auditing, tax and patent services, investor and public relations, board of directors’ expenses, franchise taxes and rent.

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

General and administrative expenses also include professional fees for legal, consulting, accounting, auditing, tax and patent services, investor and public relations, board of directors’ expenses, franchise taxes and rent.

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.

These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses.

Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services

associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Additionally, we expect to continue to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

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, interest income, net and other expense, net.

The Series A-1

warrant 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.

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

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

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

Other income (expense), 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 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

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

Grant and other revenue

Year Ended December 31, Change

2022 2021 $ %

Costs and operating expenses

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Other income (expense)

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

Interest income, net 2,392 84 2,308 *

Other income, net (11) 51 (62) (122) %

Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability — (81,157) 81,157 *

Total other income (expense) 2,381 (81,022) 83,403 *

Other comprehensive loss

Unrealized loss on marketable securities

Comprehensive loss

Grant and Other Revenue

Revenue related to our NIH grant was nil and $1.4 million for the years ended December 31, 2021 and 2020, respectively.

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

Net loss $ (42,856) $ (100,606) $ 57,750 (57) %

* Not meaningful

Research and Development Expenses

Research and development expenses were $32.4 million and $12.3 million for the years ended December 31, 2022 and 2021, respectively.

The $4.3 million increase was primarily due to increases in expenses of $2.3 million for personnel-related expenses, $2.3 million for materials and $2.1 million for contract research organization services, which were partially offset by decreases in expenses of $1.6 million for drug safety testing, $0.6 million for consulting and $0.2 million for contract manufacturing.

The net increase in research and development expenses in 2021 from 2020 was primarily due to increased costs related to initiating our clinical trial in 2021.

The $20.1 million increase was primarily due to increases in expenses of $7.2 million for CRO costs, $5.0 million for consulting costs, $3.3 million for personnel-related expenses, $2.9 million for drug safety testing and $1.3 million for materials;

all related to our ongoing clinical trial which was initiated in 2021 and nonclinical research and development activity.

General and Administrative Expenses

General and administrative expenses were $12.9 million and $7.3 million for the years ended December 31, 2022 and 2021, respectively.

The $5.9 million increase was primarily due to increases of $2.2 million for personnel expenses, including stock compensation costs, $1.5 million for insurance expenses, $0.8 million for accounting and audit expenses, $0.5 million for legal expenses, $0.3 million for investor relations, as well as $0.1 million each for marketing/public relations, board of directors’ fees, rent, travel, other general and administrative costs and the write-off

of the remaining NIH grant receivable which was not submitted in a timely enough manner to

collect these funds from the NIH.

Following the IPO, we have added a number of new personnel and a large portion of the other increases are a direct result of our transition from a private to a public company.

The $5.6 million increase was primarily due to increased expenses as a public company, as well as additions to its financial and administrative infrastructure and included increases of $3.4 million for personnel expenses, including stock compensation costs, $1.1 million for insurance expenses, $0.5 million for marketing costs, including investor relations, $0.2 million for legal expenses, $0.2 million for recruiting costs and $0.2 million for travel and entertainment.

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 year ended December 30, 2021.

Additionally, these expenses were offset by interest income earned on our investments in marketable securities, net of amortization and accretion of premium and discount which are recorded in interest income, net and sublease income.

Other income (expense) for the year ended December 31, 2020 was related to decreases in the fair value of the Series B tranche liability and the Series A-1

warrant liability of $0.4 million and $0.2 million, respectively.

Other income was $2.4 million for the year ended December 31, 2022, which was due to net interest income on our portfolio of marketable securities.

Other expense was $81.0 million for the year ended December 31, 2021, primarily due to increases in the fair values of the Series B tranche liability and Series A-1 warrant liability of $76.2 million and $5.0 million, respectively, offset by $0.1 million of net interest income from our portfolio of marketable securities and $0.1 million of other income, net, which was primarily related to sublease income.

Liquidity and Capital Resources

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.

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

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

We have incurred net losses since inception.

We have not generated any revenue from product sales or any other sources and have incurred significant operating losses.

We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at least several years, if ever.

Our operations have been financed primarily by net proceeds from the sale and issuance of our common stock and convertible preferred stock, net proceeds from our IPO, the issuance of notes, grant revenue and, during our collaboration with Merck, certain payments received under our collaboration agreement.

On July 1, 2022, we filed a shelf registration statement on Form S-3, or the Registration Statement.

Pursuant to the Registration Statement, we may offer and sell securities having an aggregate public offering price of up to $200.0 million.

In connection with the filing of the Registration Statement, we also entered into a sales agreement with BofA Securities, Inc.

and Stifel, Nicolaus & Company, Incorporated, or the Sales Agents, pursuant to which we may issue and sell shares of our common stock for an aggregate offering price of up to $50.0 million under an at-the-market offering program, or ATM,

which is included in the $200.0 million of securities that may be offered pursuant to the Registration Statement.

Pursuant to the ATM, we will pay the Sales Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of our common stock.

We are not obligated to make any sales of shares of our common stock under the ATM.

In October 2022, the Company issued 422,160 shares of common stock under the ATM for net proceeds of $3.8 million, at a weighted average price of $10.06 per share.

As of December 31, 2022, our cash and cash equivalents totaled $130.1 million.

Additionally, we had $103.7 million of available-for-sale

marketable securities as of December 31, 2021, which mature over the next one to two years.

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 lease agreements for our leases in Carmel, Indiana and Charlottesville, Virginia total less than $0.3 million.

Additionally, we had $63.3 million of available-for-sale marketable securities as of December 31, 2022, which mature over the next two years.

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.

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.

We enter into contracts in the normal course of business with CROs and 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 cancellable by us after giving a certain amount notice.

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

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

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Net cash used in operating activities $ (35,153) $ (17,961)

Net cash used in investing activities

Net cash provided by (used in) investing activities 39,185 (104,120)

Net cash provided by financing activities 3,907 200,466

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Operating Activities

Net cash used in operating activities was $18.0 million and $7.5 million for the years ended December 31, 2021 and 2020, respectively.

Net cash used in operating activities during the year ended December 31, 2021 primarily consisted of our net loss of $100.6 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 and $0.9 million for stock compensation costs, plus $3.9 million of cash used for prepaid expenses mainly associated with research and development activities and insurance;

partially offset by cash provided of $3.6 million from accrued expenses and other current liabilities mainly related to research and development expenses and employee-related accruals, and $0.6 million of cash provided by accounts payable.

Cash used in operating activities during the year ended December 31, 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 year ended December 31, 2020 primarily consisted of our net loss of $7.3 million, which includes $0.6 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 and $0.2 million for stock compensation costs, partially offset by $0.3 million of cash provided by changes in our operating assets and liabilities.

Net cash used in operating activities was $35.2 million for the year ended December 31, 2022, which primarily consisted of net loss of $42.9 million, which was reduced by non-cash adjustments of $3.1 million for stock-based compensation expense and $0.5 million for amortization of premiums and accretion of discounts on marketable securities, net, plus cash provided of $2.6 million from accrued clinical trial expenses and $1.7 million from prepaid expenses mainly associated with research and development.

Cash used in operating activities during the year ended December 31, 2022, was mainly the result of our ongoing research and development activities as we continued our clinical trial, which we initiated in 2021.

Net cash used in operating activities was $18.0 million for the year ended December 31, 2021, which primarily consisted of net loss of $100.6 million, which was reduced by non-cash adjustments of $81.2 million related to the change in the fair values of the Series B tranche liability and the Series A-1 warrant liability and $0.9 million for stock-based compensation expenses, plus cash provided of $3.5 million from accrued expenses and other current liabilities mainly related to research and development expenses and employee-related accruals and $0.6 million of cash provided by accounts payable;

partially offset by $3.9 million of cash used for prepaid expenses mainly associated with research and development activities and insurance.

Cash used in operating activities during the year ended December 31, 2021, was the result of our 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.

Investing Activities

Cash used in investing activities for the year ended December 31, 2021 was $104.1 million and was predominantly related to the purchase of marketable securities, but also included less than $0.1 million for purchases of computer hardware.

Cash used in investing activities for the year ended December 31, 2020 was nil.

Net cash provided by investing activities for the year ended December 31, 2022 was $39.2 million and was predominantly related to the maturities and sales of marketable securities of $80.9 million, partially offset by $41.5 million in purchases of marketable securities and $0.2 million for purchases of computer hardware and furniture.

Net cash used in investing activities for the year ended December 31, 2021 was $104.1 million and was predominantly related to the purchase of marketable securities, but also included less than $0.1 million for purchases of computer hardware.

Financing Activities

Net cash provided by financing activities was $200.5 million and $44.7 million for the year ended December 31, 2021 and 2020, respectively.

Net cash provided by financing activities during the year ended December 31, 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.

Net cash provided by financing activities during the year ended December 31, 2020 was primarily due to the closing of the first tranche of the Series B financing for net proceeds of $44.7 million.

Net cash provided by financing activities for the year ended December 31, 2022 was $3.9 million primarily due to $3.8 million in proceeds from the issuance of common stock, net of issuance costs, and $0.1 million from the exercise of stock options.

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

Furthermore, we have incurred 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.

However, we may seek to commercialize our products at our own expense, which would require us to incur significant

additional expenses for marketing, sales, manufacturing and distribution., which costs we may seek to offset through entry into collaboration agreements with third parties.

However, we may seek to commercialize our products at our own expense, which would require us to incur significant additional expenses for marketing, sales, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties.

As a result, we expect that we will need to obtain substantial additional funding in connection with our future operations.

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 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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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.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our common stockholders.

Any debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

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Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with U.S.

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

generally accepted accounting principles, or U.S.

The preparation of these financial statements requires us to make estimates and assumptions that

affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods.

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

Our estimates and assumptions are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the notes to our financial statements included elsewhere in this Annual Report for Form 10-K,

we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

While our significant accounting policies are described in the notes to our financial statements included elsewhere in this Annual Report for Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Stock-Based Compensation Expense

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We calculate the fair value of options using the Black-Scholes option-pricing model, which requires the use of various highly subjective assumptions as follows:

Fair Value of Common Stock

—See the subsection titled “ Common Stock Valuations

Expected Term

—We have opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the mid-point

between the vesting date and the end of contractual term of the option (generally ten years).

Expected Volatility

—Due to our limited operating history and a lack of sufficient company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of industry peers that are publicly traded.

• Fair Value of Common Stock —See the su bsection titled “ Common Stock Valuations ” below.

• Expected Term —We have opted to use the “si mplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the mid-point between the vesting date and the end of contractual term of the option (generally ten years).

• Expected Volatility —Due to our limited operating h istory and a lack of sufficient company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of industry peers that are publicly traded.

We will continue to utilize a group of publicly traded peers to estimate volatility until a sufficient amount of historical information regarding the volatility of our own stock becomes available.

Risk-Free Interest Rate

—The risk-free rate assumption is based on the U.S.

• Risk-Free Interest Rate —The risk-free rate assu mption is based on the U.S.

Treasury yield in effect at the time of the grant with maturities consistent with the expected term of our options.

Expected Dividend Yield

—We have not issued any dividends in our history and do not expect to pay dividends on our common stock over the life of the options and therefore have estimated the dividend yield to be zero.

• Expected Dividend Yield —We have not issued any divid ends in our history and do not expect to pay dividends on our common stock over the life of the options and therefore have estimated the dividend yield to be zero.

We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.

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Common Stock Valuations

Given the absence of a public trading market of our common stock prior to the IPO, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity

Securities Issued as Compensation

, the Practice Aid, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock prior to the IPO, including, but not limited to:

Given the absence of a public trading market for our common stock prior to the IPO, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation , or the Practice Aid, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock prior to the IPO, including, but not limited to:

• relevant precedent transactions involving our capital stock;

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The enterprise value determined under the OPM and PWERM methods was weighted according to our board of directors’ estimate of the probability of the occurrence of a certain discrete event as of the valuation date.

The resulting equity value for the common stock was then divided by the number of shares of common stock outstanding at the date of the valuation to derive a per share value on a non-marketable

The resulting equity value for the common stock was then divided by the number of shares of common stock outstanding at the date of the valuation to derive a per share value on a non-marketable basis.

In order to determine the fair value of our common stock on a marketable basis, we then applied a discount for lack of marketability which we derived based on inputs including a company-specific volatility rate, a term equal to the expected time to a future liquidity event and a risk-free rate equal to the yield on treasuries of similar duration.

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Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and

the application of management judgment.

The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and the application of management judgment.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

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Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Accrued research and development expenses increased to $2.6 million as of December 31, 2021, compared with $0.1 million as of December 31, 2020, and prepaid research and development expenses increased to $2.6 million as of December 31, 2021, compared with $0.4 million as of December 31, 2020.

The increases in both accrued and prepaid research and development are due to commencement of our clinical trial.

Clinical trial costs are a significant component of accrued research and development expenses and include costs associated with third-party contractors.

We accrue and expense costs for clinical trial activities performed by third parties based upon the work completed to date for each clinical trial in accordance with established agreements.

Management determines costs through discussions with internal clinical stakeholders and outside service providers as to the progress or stage of completion of clinical trials or services and the contracted fee to be paid for such services.

In the event advance payments are made to an outside service provider, the payments are recorded within prepaid expenses and other current assets on the Balance Sheet and subsequently recognized as research and development expense in the Statement of Operations when the associated services have been performed.

As actual costs become known, we adjust our estimates, liabilities and assets.

Inputs used in the determination of estimates discussed above may vary from actual, which will result in adjustments to research and development expense in future periods.

Accrued research and development expenses, including accrued clinical trial expenses, increased to $3.9 million as of December 31, 2022, compared with $2.6 million as of December 31, 2021, and prepaid research and development expenses decreased to $1.1 million as of December 31, 2022, compared with $2.6 million as of December 31, 2021.

Emerging Growth Company and Smaller Reporting Company Status

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• reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements;

exemptions from the requirements of holding non-binding

advisory votes on executive compensation or golden parachute arrangements;

• exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements;

• an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements.

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We will cease to qualify as an emerging growth company on the date that is the earliest of:

(i) December 31, 2025, (ii) the last day of the fiscal year in which we have more than $1.07 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates

exceeds $700 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of non-convertible

debt over the prior three-year period.

(i) December 31, 2025, (ii) the last day of the fiscal year in which we have more than $1.235 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of non-convertible debt over the prior three-year period.

We may choose to take advantage of some but not all of these reduced reporting burdens.

We have taken advantage of certain reduced reporting requirements in this Annual Report on Form 10-K

and our other filings with the SEC.

We have taken advantage of certain reduced reporting requirements in this Annual Report on Form 10-K and our other filings with the SEC.

Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests.

We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates

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 are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates 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.

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 Annual Report on Form 10-K 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.

Not applicable to a smaller reporting company.

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-K

Item 7. Management’s Discussion and Analysis