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Item 7. Management’s Discussion and Analysis

2024-03-26 compared with 2023-03-27 · 123 added, 127 removed, 134 unchanged (65% of the section changed)

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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.

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 AßOs, which are globular assemblies of the Aß peptide that are distinct from Aß monomers and amyloid plaques.

Our scientific founders pioneered research on soluble amyloid-beta oligomers, or AßOs, which are globular assemblies of the amyloid-beta, or 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.

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.

An important safety measure will be the use of MRI to assess the presence or absence of ARIA.

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 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 are currently focused on advancing a targeted immunotherapy drug candidate, sabirnetug, in clinical development following Phase 1 results in “early AD” patients (patients with mild cognitive impairment or mild dementia due to Alzheimer’s pathology) that were reported in July 2023.

Sabirnetug 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 mouse models for AD.

In July 2023, we announced topline results from our Phase 1 clinical trial of sabirnetug, called INTERCEPT-AD, which demonstrated that sabirnetug met the primary and secondary objectives of this study in 62 participants with early AD.

We expect to initiate a Phase 2 clinical trial of sabirnetug, called ALTITUDE-AD, in the first half of 2024.

ALTITUDE-AD is a randomized, double-blind, placebo-controlled, three arm study designed to evaluate the clinical efficacy, safety and tolerability of sabirnetug, with up to 180 participants per arm for a total of up to 540 participants with mild cognitive impairment or mild dementia due to AD.

We intend to use the Integrated Alzheimer’s Disease Rating Scale, or iADRS, at 18 months as the primary outcome measure.

Our planned doses for ALTITUDE-AD are 35 mg/kg and 50 mg/kg both dosed every four weeks, or Q4W.

These dose levels and frequency were selected based on extensive pharmacokinetic, or PK, and pharmacodynamic, or PD, modeling of our Phase 1 data.

Based on regulatory feedback from the European Medicines Agency, or EMA, and to enhance the probability that the EMA will consider our Phase 2 study a registration-eligible study for sabirnetug, we anticipate amending the ALTITUDE-AD protocol later this year to change the current Phase 2/3 study to a Phase 2 standalone study.

If this happens, any interim analysis may then lead to an initiation of a confirmatory Phase 3 study.

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.

Although we acquired the exclusive rights to sabirnetug 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 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.

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

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

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

On July 21, 2023, we issued 16,774,193 shares of our common stock in an underwritten public offering, or the Offering, at a price to the public of $7.75 per share.

The net proceeds from the offering, after underwriting discounts and commissions and other offering expenses, were $121.9 million.

In November 2023, we entered into a loan and security agreement, or the Loan Agreement, with K2 HealthVentures LLC, or, together with its affiliates, K2HV.

The Loan Agreement provides us with a term loan facility in the aggregate principal amount of up to $50.0 million, of which we have borrowed $30.0 million in the first tranche and which was funded upon closing.

The remaining $20.0 million is available for borrowing upon our request, subject to review by the lenders of certain information from us and discretionary approval by the lenders.

The term loan facility matures on November 1, 2027 and can be extended to November 1, 2028, subject to our achievement of certain financing milestones.

In accordance with

the Loan Agreement, we issued to K2HV a warrant to purchase up to 730,769 shares of our common stock at an exercise price of $1.95 per share.

In January 2024, we issued 2,068,246 shares of our common stock under our at-the-market offering program, or the ATM, for net proceeds of $7.9 million, or $3.84 per share.

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

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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.

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.

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

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

Should we seek to commercialize our products at our own expense, we would incur significant additional expenses for marketing, sales, manufacturing and distribution.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates.

In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

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We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all.

In addition, global economic conditions may impact our ability to raise additional funds, and we may be impacted by disruptions to, and volatility in, the credit and financial markets in the U.S.

and worldwide, rising inflation and supply disruptions, the ongoing conflict between Russia and Ukraine and Israel and Hamas and related sanctions, and otherwise.

If these conditions persist and deepen, we could experience an inability to access additional capital, or our liquidity could otherwise be impacted.

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

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 December 31, 2022, we had cash and cash equivalents of $130.1 million and $63.3 million in marketable securities.

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.

As of December 31, 2023, we had cash and cash equivalents and marketable securities of $306.1 million;

included in this amount is the first tranche of $30.0 million that we received under our Loan Agreement, which was received on November 10, 2023.

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 into the first half of 2027.

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, including based on our decision to initiate other clinical trials or programs.

See “Liquidity and Capital Resources.”

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• costs of conducting nonclinical studies and clinical trials of our product candidates;

• consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;

• consulting and professional fees related to research and development activities, including stock-based compensation to non-employees;

• costs related to compliance with clinical regulatory requirements;

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

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

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

Further, we have historically relied primarily on consultants for research and development activities;

our internal research and development personnel costs currently represent approximately 22% of our total research and development expenses.

Our research and development expenses increased substantially since initiating the clinical trial program for sabirnetug in 2021.

We expect that our research and development expenses will continue to increase, substantially in connection with our continued clinical development activities for sabirnetug.

General and Administrative Expenses

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 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.

Additionally, we expect to continue to incur significant 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 Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense)

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.

Other income (expense) primarily includes interest income, interest expense, change in fair value of embedded derivatives and other expense, net.

The interest income earned, as well as amortization and accretion of premiums and discounts, related to our investments in marketable securities are recorded in interest income.

Interest expense includes interest due under the Loan Agreement, as well as the amortization of the related debt discount.

The change in fair value of embedded derivatives relates to the embedded derivatives that were bifurcated from the term loan, borrowed under the Loan Agreement, and accounted for as a derivative at fair value and is remeasured at each reporting period for the term of the loan.

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

Results of Operations

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Other income (expense)

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 *

Interest income 10,791 2,392 8,399 *

Change in fair value of embedded derivatives (1,360) — (1,360) 100 %

Interest expense (581) — (581) 100 %

Other expense, net (83) (11) (72) *

Total other income 8,767 2,381 6,386 *

Net loss $ (52,371) $ (42,856) $ (9,515) 22 %

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Research and development expenses were $42.3 million and $32.4 million for the years ended December 31, 2023 and 2022, respectively.

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.

The $9.9 million increase was primarily due to increases in expenses of $4.0 million for personnel-related expenses, including an increase of $1.0 million for non-cash stock-based compensation expenses, $3.2 million for services provided by contractors and consultants, $1.0 million for license agreements, $0.8 million for other clinical trial expenses, $0.6 million for storage, shipping and packaging, $0.3 million for materials, $0.3 million for CRO costs and $0.1 million for travel expenses;

all of which was primarily related to increases in costs associated with the planning phase of our anticipated Phase 2 clinical trial and decreases associated with the conclusion of our Phase 1 clinical trial, which was initiated in 2021 with topline results announced in July 2023.

All of the above increases were partially offset by a $0.4 million decrease in assay development costs.

General and Administrative Expenses

General and administrative expenses were $18.8 million and $12.9 million for the years ended December 31, 2023 and 2022, respectively.

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.

The $5.9 million increase was primarily due to increases of $4.7 million for personnel costs, including an increase of $2.1 million for non-cash stock-based compensation expenses, $0.8 million for consulting expenses, $0.6 million for legal/patent expenses, $0.2 million for audit-related expenses, and $0.2 million for software licenses and computer equipment, partially offset by a reduction of $0.7 million in corporate insurance expenses.

Other Income (Expense)

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.

Other income increased $6.4 million to $8.8 million for the year ended December 31, 2023 from $2.4 million for the year ended December 31, 2022.

The increase was primarily attributable to an $8.4 million increase in interest income on our portfolio of marketable securities due to both higher interest rates and increased investment in marketable securities following the Offering;

partially offset by a $1.4 million increase in change in the fair value of embedded derivatives due to the increase in fair value of the embedded derivatives that are bifurcated from the term loan under the Loan Agreement, from the time of the closing of the Loan Agreement until December 31, 2023 and an increase in interest expense of $0.6 million related to our Loan Agreement funded in November 2023.

Liquidity and Capital Resources

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 generated any revenue from product sales or any other sources other than grant revenue 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.

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 and Offering, the issuance of notes, grant revenue and, during our collaboration with Merck & Co.

which was in place from 2003 to 2011, certain payments received under our collaboration agreement.

On July 21, 2023, we issued 16,774,193 shares of our common stock, $0.0001 par value per share, or Common Stock, in the Offering at a price of $7.75 per share.

The aggregate net proceeds from the Offering, after underwriting discounts and commissions and other offering expenses, were $121.9 million.

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.

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

and Stifel, Nicolaus & Company, Incorporated, as 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.

On April 23, 2023, we entered into an amendment to the Sales Agreement, or, as amended, the Amended Sales Agreement, to add BTIG, LLC as a sales agent under the Amended Sales Agreement.

Pursuant to the Amended Sales Agreement, 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 $63.3 million of available-for-sale marketable securities as of December 31, 2022, which mature over the next two years.

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 did not sell any shares of our Common Stock under the ATM during the year ended December 31, 2023.

In January 2024, we issued 2,068,246 shares of Common Stock under the ATM for net proceeds of $7.9 million, or $3.84 per share.

On November 10, 2023, we received the first tranche of $30.0 million under the Loan Agreement.

As of December 31, 2023, we had cash and cash equivalents and marketable securities totaling $306.1 million.

Our available-for-sale marketable securities mature over the next two years.

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.

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Operating Activities

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.

Net cash used in operating activities increased by $7.9 million to.$43.1 million for the year ended December 31, 2023 from $35.2 million for the year ended December 31, 2022.

The $9.5 million increased net loss for the year ended December 31,

2023, as adjusted for non-cash net expenses totaling $1.7 million, some of which included an increase in stock-based compensation of $3.1 million, a decrease in amortization and accretion on marketable securities of $3.6 million, an increase in change in fair value of embedded derivatives of $1.4 million and an increase in non-cash equipment lease costs of $0.7 million, was responsible for $7.8 million of the increase in cash used in operating activities as compared to the prior year.

Working capital changes, including increases in cash used for prepaid expenses and other current assets of $2.1 million, related primarily to advances for research and development, accrued clinical trial expenses of $0.9 million and accounts payable of $0.8 million, were partially offset by increases in cash provided by accrued expenses and other current liabilities of $3.6 million.

Investing Activities

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.

Net cash used in investing activities increased by $210.9 million to $171.7 million for the year ended December 31, 2023 from cash provided by investing activities of $39.2 million for the year ended December 31, 2022, and was primarily due to an increase in purchases of marketable securities of $209.1 million and a decrease in maturities of marketable securities of $1.9 million.

Financing Activities

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.

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 the Series A-1 preferred warrant, as well as proceeds from exercises of common stock warrants.

Net cash provided by financing activities increased by $147.9 million to $151.8 million for the year ended December 31, 2023 from $3.9 million for the year ended December 31, 2022.

The increase was primarily due to $121.9 million of net proceeds from the Offering, and $29.5 million of net proceeds under the Loan Agreement for the year ended December 31, 2023, as compared to $3.8 million of net proceeds from the issuance of Common Stock under our ATM for the year ended December 31, 2022.

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 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.

Furthermore, we expect to incur additional costs associated with operating as a public company.

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

Should we seek to commercialize our products at our own expense, we would 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.

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.

Our future capital requirements will depend on many factors, including:

• 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 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 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;

• our headcount growth and associated costs as we expand our business operations and our research and development activities;

• 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 longer-term cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

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.

If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

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.

Based on our current operating plan, we believe 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 into the first half of 2027.

In addition, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.

We may need to raise additional funds sooner than anticipated if we choose to expand more rapidly than we presently anticipate.

The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to :

• the progress, costs, timing and results of ALTITUDE-AD and other potential clinical trials of sabirnetug, including for potential additional indications that we may pursue beyond AD;

• the requirements of the U.S.

Food and Drug Administration, or the FDA, and European Medicines Agency, or EMA, and comparable foreign regulatory authorities, for clinical trials and nonclinical studies and other work, for review and approval of sabirnetug for AD;

• the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;

• the number and characteristics of product candidates that we pursue;

• our ability to obtain sufficient quantities of our product candidates from our third-party manufacturers;

• our need to expand our research and development activities;

• the costs associated with securing and establishing commercialization capabilities if we were to elect to commercialize one or more products on our own;

• the economics and other terms, timing of and success of any collaboration, licensing or other arrangements into which we may enter for the commercialization of our products;

• the costs and other terms, timing and success, of acquiring, in-licensing or investing in businesses, product candidates and technologies;

• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

• our need and ability to retain management and hire scientific and clinical personnel;

• the effect of competing drugs and product candidates and other market developments;

• our need to implement additional internal systems and infrastructure, including financial and reporting systems.

Additional funding may not be available to us on acceptable terms or at all.

Any such funding may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us.

Any funds we raise may not be sufficient to enable us to continue to implement our long-term business strategy.

Further, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide.

Additionally, escalation in interest rates, in conjunction with banking failures, may lead to financial institutions being more prudent with capital deployment and tightening lending.

If we are unable to raise sufficient additional capital on a timely basis, we could be forced to curtail our planned operations and the pursuit of our business strategy, which would have a material adverse effect on the value of our common stock.

Critical Accounting Policies, Significant Judgments and Use of Estimates

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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 su bsection titled “ Common Stock Valuations ” below.

• Fair Value of Common Stock —We use the closing price of our publicly traded Common Stock.

• 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.

• 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 a blended volatility of the volatility of our stock price following our IPO and the historical volatility of a group of industry peers that are publicly traded.

We will continue to utilize this blended approach to estimate volatility until a sufficient amount of historical information regarding the volatility of our own stock is available.

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

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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.

For the years ended December 31, 2022 and 2021, stock-based compensation expense was $3.1 million and $0.9 million, respectively.

As of December 31, 2022, we had approximately $8.9 million of total unrecognized stock-based compensation costs, which we expect to recognize over an estimated weighted-average period of 2.6 years.

We expect to continue to grant options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

Common Stock Valuations

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;

• contemporaneous valuations of our common stock performed by third-party specialists;

• rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

• our business, financial condition and results of operations, including related industry trends affecting our operations;

• likelihood of achieving a liquidity event, such as an initial public offering or a sale of our business;

• the lack of marketability of our common stock, and the illiquidity of stock-based awards involving securities in a private company;

• market multiples of comparable publicly-traded companies;

and global capital and macroeconomic conditions.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

In accordance with the Practice Aid, we considered the following methods:

• Option Pricing Method, or OPM.

Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The estimated fair values of the preferred and common stock are inferred by analyzing these options.

This method is appropriate to use when the range of possible future outcomes is so difficult to predict that estimates would be highly speculative, and dissolution or liquidation is not imminent.

• Probability-Weighted Expected Return Method, or PWERM.

The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

For valuations performed during fiscal years 2018 through 2020 we used the OPM.

For valuations performed beginning in 2021, prior to the IPO, in accordance with the Practice Aid, we used a hybrid approach of the OPM and the PWERM methods to determine the estimated fair value of our common stock as a result of the increasing likelihood of the occurrence of certain discrete events, such as a potential IPO, improving market conditions and receptivity of the market to initial public offerings.

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 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.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, cash flows, discount rates, market multiples, the selection of comparable companies and the probability of future events.

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.

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.

Following the closing of the initial public offering, the fair value of our common stock has been determined based on the quoted market price of our common stock.

Accrued Research and Development Expenses

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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.

In the event advance payments are made to an outside service provider, the payments are recorded within prepaid expenses and other current assets in the balance sheet and subsequently recognized as research and development expense in the statement of operations and comprehensive loss 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.

Embedded Derivatives

We evaluate embedded derivatives within convertible debt to determine whether the embedded derivatives should be bifurcated from the host instrument and accounted for as a derivative at fair value that will be remeasured at each reporting period for the term of the loan with changes in fair value recorded in the statements of operations and comprehensive loss.

We initially assess the probability of the occurrence of trigger events for bifurcated embedded derivatives in determining fair value.

The probability is reassessed at each reporting period during the term of a loan.

We calculate the fair value of embedded derivatives using the Monte Carlo option-pricing model, which requires the use of various highly subjective assumptions, including the expected term, expected volatility, risk-free interest rate and expected

dividend yield.

Our selection of the expected volatility, risk-free interest rate and expected dividend yield are discussed above under Stock-Based Compensation Expense.

Emerging Growth Company and Smaller Reporting Company Status

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Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

We elected to use the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis