What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-07 · 109 added, 75 removed, 273 unchanged (40% of the section changed)

34 unchanged sentences

Two subjects withdrew from the trial during the treatment period, one in the treatment arm and one in the placebo arm.

The subject in the treatment arm withdrew due to palpitations, which were unrelated to the trial medication, and an elevated creatine phosphokinase, or CPK, which was determined by the site investigator to be treatment-related.

The subject in the treatment arm withdrew due to an elevated creatine phosphokinase, or CPK, level, which was determined by the site investigator to be treatment-related;

this subject also had palpitations and ventricular extrasystoles, which were unrelated to the trial medication.

The subject in the placebo arm withdrew as a result of prohibited medication needed to treat muscle strain.

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We plan to submit for publication a full analysis of the Phase 2a data in a peer-reviewed scientific journal which will include data from other secondary and exploratory endpoints evaluated in the trial, including the 4-week follow-up data and a full analysis of MRI, pharmacodynamic and pharmacokinetic data.

Based on the results observed in the Phase 2a trial, we intend to progress ATI-450 into a Phase 2b trial in moderate to severe rheumatoid arthritis in the second half of 2021.

Based on the results observed in the Phase 2a trial, we intend to progress ATI-450 into a Phase 2b trial in moderate to severe rheumatoid arthritis in the fourth quarter of 2021.

Hidradenitis Suppurativa and Psoriatic Arthritis

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In October 2020, we initiated a Phase 2a, multicenter, randomized, double-blind, vehicle-controlled, parallel-group clinical trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in subjects with moderate to severe atopic dermatitis (ATI-1777-AD-201).

We completed enrollment in March 2021 and expect data to be available in the second quarter of 2021.

In the trial, which consisted of a 4-week treatment period and a 2-week follow-up period during which no treatment was given, 50 subjects with moderate to severe atopic dermatitis were randomized in a 1:1 ratio into one of two arms:

ATI-1777 topical solution 2.0% w/w or vehicle applied twice daily.

In June 2021, we announced that the trial achieved its primary endpoint, which was the percent change from baseline in the modified Eczema Area and Severity Index, or mEASI, score at week 4, with a high degree of statistical significance

(p<0.001) (one-sided p-value), which corresponded to a 74.4% reduction in mEASI score from baseline at week 4 in subjects applying ATI-1777 compared to a 41.4% reduction in subjects applying vehicle.

The preliminary topline data was based on the full analysis set, or FAS, which was comprised of 48 subjects randomized and documented to have received at least one dose of trial medication.

Positive trends in favor of ATI-1777 were observed in key secondary efficacy endpoints, such as improvement in itch, percent of mEASI-50 responders, investigator’s global assessment responder analysis, and reduction in body surface area impacted by disease.

In addition, the FAS analysis also showed positive trends in favor of ATI-1777 in percent of mEASI-75 responders (65.2% for ATI-1777 compared to 24.0% for vehicle) and mEASI-90 responders (30.4% for ATI-1777 compared to 20.0% for vehicle).

These secondary efficacy endpoints were not powered for statistical significance.

Based on an analysis of pharmacokinetic plasma samples in the ATI-1777 arm at multiple timepoints, minimal systemic exposure was observed which supports a “soft” topical JAK inhibitor approach.

ATI-1777 was generally well tolerated.

No serious adverse events were reported.

The most common adverse events (reported in at least 2 subjects in the trial) were increased blood CPK levels and headache in subjects in the ATI-1777 arm and urinary tract infection (one in each of the ATI-1777 and the vehicle arm);

none of these adverse events in the ATI-1777 arm were determined by the clinical trial investigators to be related to ATI-1777.

One treatment-related adverse event, application site pruritus, was reported in one subject in the ATI-1777 arm.

We plan to submit the final trial results for publication in a peer-reviewed scientific journal.

Based on the results observed in the Phase 2a trial, we intend to progress ATI-1777 into a Phase 2b trial in moderate to severe atopic dermatitis.

ATI-2138, an Investigational ITJ Inhibitor

We are also developing ATI-2138, an investigational oral ITK/TXK/JAK3, or ITJ, inhibitor compound, as a potential treatment for psoriasis and/or inflammatory bowel disease, which are both T-cell mediated autoimmune diseases.

We are developing ATI-2138, an investigational oral ITK/TXK/JAK3, or ITJ, inhibitor compound, as a potential treatment for psoriasis and/or inflammatory bowel disease, which are both T-cell mediated autoimmune diseases.

The ITJ compound interrupts T cell signaling through the combined inhibition of ITK/TXK/JAK3 pathways in lymphocytes.

We expect to file an IND for ATI-2138 in the second half of 2021.

We expect to submit an IND for ATI-2138 in the second half of 2021.

ATI-2231, an Investigational Oral MK2 Inhibitor

We are exploring the use of ATI-2231, an investigational oral MK2 inhibitor compound designed to have a long half-life, as a potential treatment for metastatic breast cancer and pancreatic cancer as well as use in preventing bone loss in this patient population.

We are currently conducting IND-enabling studies.

Discovery Assets

We are developing oral gut-restricted JAK inhibitors with limited systemic exposure as potential treatments for inflammatory bowel disease.

In addition, we are engaged in research to identify brain penetrant kinase inhibitor candidates as potential treatments for neurodegenerative diseases.

Our Other Drug Candidates

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Since our inception, we have incurred significant operating losses.

Our net loss was $28.8 million for the three months ended March 31, 2021 and $51.0 million for the year ended December 31, 2020.

As of March 31, 2021, we had an accumulated deficit of $533.3 million.

Our net loss was $46.9 million for the six months ended June 30, 2021 and $51.0 million for the year ended December 31, 2020.

As of June 30, 2021, we had an accumulated deficit of $551.5 million.

We expect to incur significant expenses and operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical and clinical development.

In addition, our drug candidates, even if they are approved by regulatory agencies for marketing, may not achieve commercial success.

We may also not be successful in pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates.

We may also not be successful in pursuing strategic alternatives, including identifying and consummating transactions with

third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates.

Furthermore, we have incurred and expect to continue to incur significant costs associated with operating as a public company, including legal, accounting, investor relations and other expenses.

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However, COVID-19 has caused disruptions to our business.

For example, due to the COVID-19 pandemic subject enrollment in our Phase 2a trial of ATI-450 in subjects with cryopyrin-associated periodic syndrome was paused as a result of which, among other reasons, we decided to focus our efforts and resources on other immuno-inflammatory diseases.

If COVID-19 continues to spread, we may experience additional disruptions that could severely impact our business, results of operations and prospects, including the timing of our development programs and our clinical trials, including our trials of ATI-450 as a potential treatment for moderate to severe rheumatoid arthritis and ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and the supply of active pharmaceutical ingredients and drug product for our clinical trials.

The extent to which the COVID-19 pandemic impacts our business, our preclinical and clinical development and our regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted, such as the geographic spread of the disease, the duration of the pandemic, travel restrictions, quarantines, stay-at-home orders, social distancing requirements, business closures and supply chain and other disruptions in the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including the administration of vaccines.

The extent to which the COVID-19 pandemic impacts our business, our preclinical and clinical development and our regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted, such as the spread of the disease, the duration of the pandemic, travel restrictions, quarantines, stay-at-home orders, social distancing requirements, business closures and supply chain and other disruptions in the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including the administration of vaccines.

Accordingly, we do not yet know the full extent of the potential impacts on our business, our preclinical and clinical development and regulatory activities.

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In addition, we have agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product.

In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party,

we will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

Asset Purchase Agreement with EPI Health

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Other Revenue

Other revenue consists of royalties earned on net sales of RHOFADE pursuant to the asset purchase agreement with EPI Health described above.

Other revenue primarily consists of royalties earned on net sales of RHOFADE pursuant to the asset purchase agreement with EPI Health described above.

Cost of Revenue

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A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate.

For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate,

or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

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Revaluation of contingent consideration consists of changes in the fair value of our contingent consideration liability between reporting dates.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest earned on our cash, cash equivalents and marketable securities, interest expense related to our debt obligations, and gains and losses on transactions denominated in foreign currencies.

Other Expense, Net

Other expense, net primarily consists of interest earned on our cash, cash equivalents and marketable securities, interest expense related to our debt obligations, and gains and losses on transactions denominated in foreign currencies.

Critical Accounting Policies and Significant Judgments and Estimates

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Contingent Consideration

achievement of the development, regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments.

We initially recorded a contingent consideration liability at fair value on the date of acquisition related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of development, regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments.

Significant judgement was involved in determining the appropriateness of these assumptions.

1 unchanged sentence

Revaluation of our contingent consideration liability can result from changes to one or more of these assumptions.

We evaluate the fair value estimate of our contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in our condensed consolidated statement of operations and which could have a material impact on our financial results.

Any such changes could have a material impact on our financial results.

The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments.

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The discount rate ranged between 5.7% and 8.0% depending on the year of each potential payment.

During the three months ended March 31, 2021, we updated assumptions for probability of success and estimated future sales levels as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis.

We also included estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450.

During the six months ended June 30, 2021, we updated assumptions for probability of success and estimated future sales levels as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis and as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

We also included estimated future sales of ATI-450 as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for ATI-450.

These updates resulted in a charge of $21.2 million.

Recently Issued Accounting Pronouncements

Results of Operations

Comparison of Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31,

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

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Loss from operations

Other income (expense), net

Other expense, net

Loss from continuing operations

Loss from discontinued operations

Contract research revenue was $1.5 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively, and was comprised of fees earned from the provision of laboratory services.

The $0.3 million increase was primarily driven by higher average billing rates.

Other revenue for each of the three months ended March 31, 2021 and 2020 consisted of $0.2 million of royalties earned on net sales of RHOFADE.

Contract research revenue was $1.6 million and $1.9 million for the three months ended June 30, 2021 and 2020, respectively, and was comprised of fees earned from the provision of laboratory services.

The $0.3 million decrease was primarily driven by a reduction in overall hours billed partially offset by higher average billing rates.

Other revenue for each of the three months ended June 30, 2021 and 2020 primarily consisted of $0.2 million of royalties earned on net sales of RHOFADE.

Contract research revenue was $3.1 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively, and was comprised of fees earned from the provision of laboratory services.

Other revenue for the six months ended June 30, 2021 and 2020 primarily consisted of $0.5 million and $0.4 million of royalties earned on net sales of RHOFADE, respectively.

Cost of Revenue

Cost of revenue was $1.2 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively, and related to providing laboratory services to our clients.

Cost of revenue was $1.3 million and $2.5 million for the three and six months ended June 30, 2021, respectively, and $1.4 million and $2.7 million for the three and six months ended June 30, 2020, respectively, and in each case related to providing laboratory services to our customers.

Changes in cost of revenue generally correlate to changes in contract research revenue.

Research and Development Expenses

The following table summarizes our research and development expenses:

The following table summarizes our research and development expenses by drug candidate or, for unallocated expenses, by type:

Three Months Ended

Six Months Ended

(In thousands)

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Total research and development expenses

Expenses for ATI-450 during the three months ended March 31, 2021 primarily consisted of costs associated with multiple clinical trials, including a Phase 2a trial in subjects with moderate to severe rheumatoid arthritis, drug product manufacturing expenses, and other development expenses.

ATI-450 expenses during the three months ended March 31, 2020 primarily consisted of preclinical development activities and activities related to a Phase 1 clinical trial that was completed in January 2020.

Expenses for ATI-1777 were higher during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to costs associated with a Phase 2a clinical trial in subjects with moderate to severe atopic dermatitis which commenced in late 2020, partially offset by lower preclinical development activities.

Expenses for ATI-2138 were higher during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to preclinical development activities and IND-enabling studies.

The increase in expenses for ATI-450 during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to additional costs associated with multiple clinical trials, including preparation activities for a Phase 2b trial in subjects with moderate to severe rheumatoid arthritis.

Additional costs associated with drug product manufacturing expenses and other development expenses also contributed to the increase.

The increase in expenses for ATI-450 during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to additional development costs, including drug product manufacturing expenses and toxicology studies.

Costs associated with preparation activities for a Phase 2b trial in subjects with moderate to severe rheumatoid arthritis also contributed to the increase.

The decrease in expenses for ATI-1777 during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to lower costs associated with a Phase 2a clinical trial in subjects with moderate to severe atopic dermatitis as well as other development costs.

The decrease in expenses for ATI-1777 during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to a decrease in development costs, including toxicology studies, partially offset by an increase in costs associated with a Phase 2a clinical trial in subjects with moderate to severe atopic dermatitis.

Expenses for ATI-2138 were higher during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily due to preclinical development activities and IND-enabling studies.

Discovery and other research and development

Expenses related to discovery increased during the three months ended March 31, 2021 compared to March 31, 2020 due to increased investment in our discovery-stage programs.

Other research and development expenses, which primarily include expenses for our legacy dermatology assets and medical affairs activities, were lower during the three months ended March 31, 2021 compared to March 31, 2020 due to a decrease in costs for our legacy dermatology assets following the decision to discontinue investment in those programs.

Additionally, travel expenses were lower during the three months ended March 31, 2021 compared to March 31, 2020 due to the COVID-19 pandemic.

Expenses related to discovery increased during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 due to increased investment in our discovery-stage programs.

Other research and development expenses, which primarily include expenses for our legacy dermatology assets and medical affairs activities, were lower during the three and six months ended June 30, 2021 compared to June 30, 2020 due to a decrease in costs for our legacy dermatology assets following the decision to discontinue investment in those programs.

Personnel and stock-based compensation

Personnel expenses and stock-based compensation decreased during the three months ended March 31, 2021 compared to March 31, 2020 due to lower headcount.

Compensation related expenses increased during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase in stock-based compensation expense associated with new equity awards granted in 2021.

Compensation related expenses decreased during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to lower headcount and payroll taxes primarily resulting from employee-retention tax credits taken during the six months ended June 30, 2021, partially offset by an increase in stock-based compensation expense associated with new equity awards granted in 2021.

General and Administrative Expenses

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Three Months Ended

Six Months Ended

(In thousands)

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Total general and administrative expenses

Personnel and stock-based compensation expenses decreased during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to lower headcount.

Professional and legal fees included accounting, legal, investor relations and corporate communication costs, as well as legal fees related to patents and current lawsuits described in this report and were higher during the three months ended March 31, 2021 compared to March 31, 2020 primarily as a result of a non-cash write-off of previously capitalized expenses related to an equity line of credit which was terminated in January 2021.

Facility and support services included general office expenses, information technology costs and other expenses, and decreased during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to lower information technology costs resulting from lower headcount.

Other general and administrative expenses were

lower during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to reduced travel-related activities in light of the COVID-19 pandemic.

Compensation related expenses decreased during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily due to lower headcount and restructuring related expenses.

Professional and legal fees, including accounting, investor relations and corporate communication costs, were higher during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily as a result of increased costs associated with Sarbanes-Oxley compliance and costs associated with patents and ongoing litigation.

Facility and support services, including general office expenses, information technology costs and other expenses, decreased during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily due to lower information technology costs resulting from lower headcount.

Other general and administrative expenses increased during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily due to an increase in insurance premiums resulting from additional coverage in 2021 as compared to the prior year.

Revaluation of Contingent Consideration

The increase in revaluation of contingent consideration during the three months ended March 31, 2021 compared to March 31, 2020 primarily resulted from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450.

Other Income (Expense), net

The $0.4 million decrease in other income (expense), net during the three months ended March 31, 2021 compared to March 31, 2020 was primarily due to higher interest expense and fees associated with outstanding debt balances and lower interest income associated with marketable securities.

The increase in revaluation of contingent consideration during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 resulted from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

The increase in revaluation of contingent consideration during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 resulted from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis, as well as the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

Additionally, the inclusion of estimated future sales of ATI-450 as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for ATI-450, also contributed to the increase.

Other Expense, net

Other expense, net during the three months ended June 30, 2021 was consistent compared to the three months ended June 30, 2020.

The increase in other expense, net during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to both higher interest expense associated with outstanding debt balances and lower interest income associated with marketable securities.

Liquidity and Capital Resources

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In addition, to the extent we are able to consummate transactions with potential third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates, we may receive upfront payments, milestone payments or royalties from such arrangements that would increase our liquidity.

As of March 31, 2021, we had cash, cash equivalents and marketable securities of $142.7 million.

As of June 30, 2021, we had cash, cash equivalents and marketable securities of $266.2 million.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards liquidity and capital preservation.

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity, other than our term loan facility, lease obligations, and contingent obligations under the Confluence Agreement, which is summarized above under “Overview—Acquisition and License Agreements.

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity, other than our contingent obligations under the Confluence Agreement, which is summarized above under “Overview—Acquisition and License Agreements, ” and our lease obligations.

Equity Financing

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As a result, the net offering proceeds received by us, after deducting underwriting discounts, commissions and offering expenses, were $103.3 million.

June 2021 Public Offering

In June 2021, we closed a public offering in which we sold 8,098,592 shares of common stock at a price to the public of $17.75 per share, for aggregate gross proceeds of $143.8 million.

We paid underwriting discounts and commissions of $8.6 million, and also incurred expenses of $0.3 million in connection with the offering.

As a result, the net offering proceeds received by us, after deducting underwriting discounts, commissions and offering expenses, were $134.9 million.

Equity Purchase Agreement with Lincoln Park Capital Fund, LLC

In August 2020, we entered into a purchase agreement, or the Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we could sell to Lincoln Park, at our discretion, up to $15.0 million of shares of our common stock over the 36-month term of the Purchase Agreement.

U pon execution of the Purchase Agreement, we issued 121,584 shares of our common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the

Purchase Agreement.

U pon execution of the Purchase Agreement, we issued 121,584 shares of our common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement.

The commitment shares were valued using the closing price of our common stock on the effective date of the Purchase Agreement resulting in an aggregate fair value of $0.3 million.

1 unchanged sentence

We terminated the Purchase Agreement in January 2021 in connection with the public offering of common stock described above.

We did not sell any additional shares during the three months ended March 31, 2021 prior to terminating the Purchase Agreement.

We did not sell any additional shares prior to terminating the Purchase Agreement.

Debt Financing

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In March 2020, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB.

The Loan and Security Agreement provides for $11.0 million in term loans, of which we borrowed the entire amount on March 30, 2020.

The Loan and Security Agreement is secured by substantially all of our assets other than intellectual property.

The term loan repayment schedule provides for interest only payments beginning April 1, 2020 and continuing through March 1, 2022, followed by 24 consecutive equal monthly installments of principal, plus monthly payments of accrued interest, starting on April 1, 2022 and continuing through the maturity date of March 1, 2024.

All outstanding principal and accrued and unpaid interest will be due and payable on the maturity date.

The Loan and Security Agreement provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2% and (ii) 6.75%.

The Loan and Security Agreement includes a final payment fee equal to 5% of the original principal amount borrowed.

We have the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3% of the original principal amount borrowed for any prepayment on or prior to the first anniversary of March 30, 2020, (ii) 2% of the original principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of March 30, 2020 or (iii) 1% of the original principal amount borrowed for any prepayment after the second anniversary of March 30, 2020 but before March 1, 2024.

The Loan and Security Agreement contains a customary covenant that limits our ability, subject to specified exceptions, to incur additional indebtedness without the prior written consent of SVB.

The Loan and Security Agreement provided for $11.0 million in term loans, of which we borrowed the entire amount on March 30, 2020.

In July 2021, we repaid in full the $11.0 million that was outstanding under the Loan and Security Agreement, together with all accrued and unpaid interest and fees as of the payoff date, for a total payment of $11.7 million.

The term loan repayment schedule provided for interest only payments beginning April 1, 2020 and continuing through March 1, 2022, followed by 24 consecutive equal monthly installments of principal, plus monthly payments of accrued interest, starting on April 1, 2022 and continuing through the maturity date of March 1, 2024.

The Loan and Security Agreement provided for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2% and (ii) 6.75%.

The Loan and Security Agreement included a final payment fee equal to 5% of the original principal amount borrowed.

We had the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3% of the original principal amount borrowed for any prepayment on or prior to the first anniversary of March 30, 2020, (ii) 2% of the original principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of March 30, 2020 or (iii) 1% of the original principal amount borrowed for any prepayment after the second anniversary of March 30, 2020 but before March 1, 2024.

Liquidity and Cash Flows

Cash and cash equivalents were $35.3 million as of March 31, 2021 compared to $22.1 million as of December 31, 2020.

We also had $107.4 million in short- and long-term marketable securities as of March 31, 2021 compared to $32.1 million as of December 31, 2020.

Cash and cash equivalents were $113.4 million as of June 30, 2021 compared to $22.1 million as of December 31, 2020.

We also had $152.7 million in short- and long-term marketable securities as of June 30, 2021 compared to $32.1 million as of December 31, 2020.

The sources and uses of cash that contributed to the change in cash and cash equivalents were:

Three Months Ended March 31,

Six Months Ended

(In thousands)

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Operating activities use of cash was the result of:

Three Months Ended March 31,

Six Months Ended

(In thousands)

4 unchanged sentences

Net cash used in operating activities

Net cash used in operating activities increased for the three months ended March 31, 2021 compared to March 31, 2020 primarily as a result of larger charges related to revaluation of contingent consideration during the three months ended March 31, 2021.

The revaluation of contingent consideration was due to updates to assumptions including the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450.

The increase was partially offset by lower stock-based compensation and depreciation and amortization expenses during the three months ended March 31, 2021 compared to March 31, 2020.

The change in changes in accounts payable and accrued expenses was primarily driven by expenses incurred, but not yet paid, as of March 31, 2021 compared to March 31, 2020.

The change in changes in accounts receivable was primarily the result of cash received during the quarter ended March 31, 2020 from Allergan Sales, LLC related to sales of RHOFADE that occurred after the date we sold RHOFADE to EPI Health.

The change in changes in prepaid expenses and other assets was primarily due to prepaid balances for drug product manufacturing agreements and other preclinical development contracts.

Net cash used in operating activities increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily as a result of an increase in cash paid for prepaid expenses and other assets and a reduction of cash collected from outstanding accounts receivable during the six months ended June 30, 2021 compared to the prior year period.

The increase was partially offset by a decrease in cash paid to settle outstanding accounts payable balances during the six months ended June 30, 2021 compared to the prior year period.

The change in prepaid expenses and other assets was the result of higher prepaid research and development balances relative to the prior year period primarily associated with drug product manufacturing agreements and other preclinical development contracts, as well as an insurance recovery receivable associated with litigation settlements.

The change in accounts payable and accrued expenses was primarily driven by expenses incurred, but not yet paid, as of June 30, 2021 compared to June 30, 2020.

The change in accounts receivable was primarily the result of cash received during the six months ended June 30, 2020 from Allergan Sales, LLC related to sales of RHOFADE that occurred after the date we sold RHOFADE to EPI Health.

Investing Activities

Cash flow from investing activities was the result of:

Three Months Ended March 31,

Six Months Ended

(In thousands)

3 unchanged sentences

Net cash provided by (used in) investing activities

Net cash used in investing activities for the three months ended March 31, 2021 resulted from purchases of marketable securities following our January 2021 public offering compared to net cash provided by investing activities for the three months ended March 31, 2020 which resulted from maturities of marketable securities used primarily to fund operations.

The change in net cash used in investing activities for the six months ended June 30, 2021 compared to net cash provided by investing activities for the six months ended June 30, 2020 primarily resulted from purchases of marketable securities following our January and June 2021 public offerings.

Financing Activities

Financing activities use of cash was the result of:

Three Months Ended March 31,

Six Months Ended

(In thousands)

Proceeds from issuance of common stock in connection with public offering, net of issuance costs

Proceeds from issuance of common stock in connection with public offerings, net of issuance costs

Proceeds from debt financing (including warrants), net of issuance costs

3 unchanged sentences

Net cash provided by financing activities

Cash provided by financing activities increased for the three months ended March 31, 2021 compared to March 31, 2020 primarily due to our January 2021 public offering.

The increase was partially offset by an increase in cash used for tax withholdings in connection with the vesting of restricted stock units.

Cash provided by financing activities increased for the six months ended June 30, 2021 compared to June 30, 2020 primarily due to our January 2021 and June 2021 public offerings.

The increase was partially offset by a decrease in proceeds from debt financing and an increase in cash used for tax withholdings in connection with the vesting of restricted stock units.

Funding Requirements

29 unchanged sentences

In March 2020, we borrowed $11.0 million under the Loan and Security Agreement with SVB.

Amounts borrowed under the Loan and Security Agreement are subject to interest only through March 2022, after which we will be required to make principal and interest payments through the maturity date of March 2024.

We enter into contracts in the normal course of business with CROs and contract manufacturing organizations for clinical trials, preclinical studies and testing, manufacturing and other services and products for operating purposes.

7 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis