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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-06 · 169 added, 176 removed, 213 unchanged (62% of the section changed)

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

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

The words “may,” “might,” “can,” “will,” “to be,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “likely,” “continue,” “ongoing” or similar expressions, or the negative of such words, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events.

Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause or contribute to these differences include those below in this Quarterly Report on Form 10-Q and those in our Annual Report on Form 10-K, in each case under the caption “Risk Factors,” and in our other filings with the Securities and Exchange Commission, or SEC.

Factors that could cause or contribute to these differences include those under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K filed with the SEC on February 27, 2025 (“Annual Report”), and in our other filings with the Securities and Exchange Commission (“SEC”).

Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date.

Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K filed with the SEC on February 27, 2024.

We are a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.

Our proprietary KINect drug discovery platform combined with our preclinical development capabilities allows us to identify and advance potential drug candidates that we may develop independently or in collaboration with third parties.

In addition to identifying and developing our novel drug candidates, we are pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our novel drug candidates.

We are a clinical-stage biopharmaceutical company focused on developing novel small and large molecule product candidates for immuno-inflammatory diseases.

Our proprietary KINect drug discovery platform combined with our preclinical development capabilities allows us to identify and advance potential product candidates that we may develop independently or in collaboration with third parties.

In addition to identifying and developing our novel product candidates, we are pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our novel product candidates.

We also provide contract research services to third parties enabled by our early-stage research and development expertise.

In January 2024, we announced that we are undertaking a strategic review of our business.

Our Key Product Candidates

Bosakitug, an Investigational, Novel Anti-TSLP Monoclonal Antibody

Bosakitug (ATI-045) is an investigational, novel, humanized anti-thymic stromal lymphopoietin (“TSLP”) monoclonal antibody that specifically binds to human TSLP with high affinity and long residence time, blocking its interaction with the receptor complex and disrupting signal transduction.

This mechanism prevents a broad range of immune cells targeted by TSLP from releasing proinflammatory cytokines.

Bosakitug has the potential to treat a variety of atopic, immunologic and respiratory diseases.

We exclusively license global rights (excluding Mainland China, Macau, Hong Kong and Taiwan (“Greater China”)) to bosakitug from Biosion, Inc.

In a Phase 2a, single-arm, proof-of-concept trial in 22 U.S.

patients with moderate to severe atopic dermatitis conducted by Biosion, bosakitug demonstrated a positive pharmacodynamic, safety and efficacy profile, with 94% of patients achieving a 75% improvement in the Eczema Area and Severity Index (“EASI”), 65% of patients achieving EASI-90, and 88% of patients achieving an Investigator’s Global Assessment (“IGA”) score of 0 or 1 (clear or almost clear skin), at week 26 (n=17).

Bosakitug was generally well-tolerated with no serious adverse events reported.

The most common treatment-emergent adverse event was headache (22.7% of patients).

Grade 1 injection site reactions, primarily tenderness, occurred in 47.6% of patients.

We plan to initiate a Phase 2 trial to investigate the efficacy, safety, tolerability, pharmacokinetics (“PK”) and pharmacodynamics (“PD”) of bosakitug compared to placebo in approximately 90 patients with moderate to severe atopic dermatitis.

We expect to initiate the trial in the second quarter of 2025.

Bosakitug is also currently being studied in severe asthma, chronic rhinosinusitis with nasal polyps and moderate to severe chronic obstructive pulmonary disease in China by Chia Tai Tianqing Pharmaceutical Group, Co., Ltd.

CTTQ licenses bosakitug from Biosion in Greater China.

Our clinical focus for bosakitug will remain on dermatological immuno-inflammatory indications and further global (excluding Greater China) development in respiratory indications will be dependent on entering into potential partnerships.

ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor

ATI-2138 is an investigational oral covalent inhibitor of interleukin-2-inducible T cell kinase, or ITK, and Janus kinase, or JAK, 3 for the potential treatment of T cell-mediated autoimmune diseases.

ATI-2138 is an investigational oral covalent inhibitor of interleukin-2-inducible tyrosine kinase (“ITK”) and Janus kinase (“JAK”) 3 for the potential treatment of T cell-mediated autoimmune diseases.

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

In September 2023, we announced positive results from our two-week Phase 1 placebo-controlled, randomized, multiple ascending dose, or MAD, trial of ATI-2138 (ATI-2138-PKPD-102).

ATI-2138-PKPD-102 was designed to investigate the safety, tolerability, pharmacokinetics, or PK, and pharmacodynamics of ATI-2138 in healthy volunteers.

In September 2023, we announced positive results from our two-week Phase 1 placebo-controlled, randomized, multiple ascending dose (“MAD”) trial of ATI-2138.

The trial was designed to investigate the safety, tolerability, PK and PD of ATI-2138 in healthy volunteers.

The trial enrolled 60 healthy volunteers across 6 dosing cohorts ranging from 10 to 80 mg of total daily doses, with eight volunteers receiving ATI-2138 and two volunteers receiving placebo in each arm.

Data from the trial demonstrated that ATI-2138 was generally well tolerated at all doses tested and had dose proportional PK.

Additionally, ATI-2138 demonstrated a dose-dependent inhibition of both ITK and JAK3 exploratory pharmacodynamic biomarkers, with near maximal inhibition achieved at the 30 mg total daily dose.

Additionally, ATI-2138 demonstrated a dose-dependent inhibition of both ITK and JAK3 exploratory PD biomarkers, with near maximal inhibition achieved at the 30 mg total daily dose.

No serious adverse events were reported.

In September 2024, we announced that we dosed the first patient in our Phase 2a open-label trial to investigate the safety, tolerability, PK, efficacy, and pharmacodynamics of ATI-2138 administered over 12 weeks in approximately 15 patients in the United States with moderate to severe atopic dermatitis.

We have completed dosing in our Phase 2a open-label trial to investigate the safety, tolerability, PK, efficacy, and PD of ATI-2138 administered over 12 weeks in 14 patients in the United States with moderate to severe atopic dermatitis.

The primary endpoints are safety related parameters.

Secondary endpoints include Eczema Area and Severity Index, or EASI, response (EASI-50, EASI-74, EASI-

90), Validated Investigator Global Assessment (vIGA) response, body surface area (BSA) response and other pertinent efficacy related measures .

We expect to announce top-line data in the first half of 2025.

Secondary endpoints include EASI response (EASI-50, EASI-75, EASI-90), validated IGA response, body surface area response and other pertinent efficacy related measures.

We expect to announce top-line data in June 2025.

We are also exploring the potential of ATI-2138 in additional indications that are relevant to the mechanism of action, including alopecia areata and vitiligo.

ATI-052, an Investigational, Novel Anti-TSLP and Anti-IL-4R Bispecific Antibody

ATI-052 is a humanized anti-TSLP and anti-IL-4R bispecific monoclonal antibody that blocks both the upstream TSLP receptor signal transduction and downstream IL-4R activation which inhibits both IL-45 and IL-13 signaling, thereby inhibiting this central proinflammatory pathway.

ATI-052 utilizes the same TSLP antigen-binding fragment (“Fab”) as bosakitug but is engineered to bind more tightly to the neonatal Fc receptor (“FcRn”), potentially extending its half-life.

ATI-052 has the potential to treat a variety of atopic, immunologic and respiratory diseases.

We exclusively license global rights (excluding Greater China) to ATI-052 from Biosion.

Our Investigational New Drug (“IND”) application for ATI-052 was cleared by the U.S.

Food and Drug Administration (“FDA”) in April 2025.

We plan to initiate a randomized, blinded, placebo-controlled, Phase 1a/1b clinical trial to evaluate single and multiple ascending doses of ATI-052, followed by a proof-of-concept portion in an undisclosed indication, in the second quarter of 2025.

Other Investigational Product Candidates

Lepzacitinib, an Investigational Topical “Soft” JAK 1/3 Inhibitor

Lepzacitinib, also referred to as ATI-1777, is an investigational topical “soft” JAK 1/3 inhibitor for the potential treatment of atopic dermatitis and other dermatologic conditions.

Lepzacitinib (ATI-1777) is an investigational topical “soft” JAK 1/3 inhibitor for the potential treatment of atopic dermatitis and potentially other dermatologic conditions.

“Soft” JAK inhibitors are designed to be topically applied and active in the skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low systemic exposure.

Lepzacitinib has been adopted as the nonproprietary name for ATI-1777.

In January 2024, we announced positive top-line results from our Phase 2b multicenter, randomized, double-blind, vehicle-controlled, parallel-group trial of lepzacitinib in patients with mild to severe atopic dermatitis (ATI-1777-AD-202).

ATI-1777-AD-202 was designed to evaluate the efficacy, safety, tolerability and PK of multiple concentrations (0.5%, 1% and 2%) of twice daily, or BID, treatment with lepzacitinib and a single concentration (2%) of once daily, or QD, treatment with lepzacitinib.

The trial was

designed to evaluate the efficacy, safety, tolerability and PK of multiple concentrations (0.5%, 1% and 2%) of twice daily (“BID”) treatment with lepzacitinib and a single concentration (2%) of once daily (“QD”) treatment with lepzacitinib.

The trial randomized 250 patients with mild, moderate or severe atopic dermatitis, including adults and children as young as 12 years old, across 30 clinical trial sites in the United States.

The trial met the primary efficacy endpoint, the percent change from baseline in the EASI score at week 4, with statistical significance for patients treated with lepzacitinib 2% BID compared to patients treated with vehicle (69.7% versus 58.7% in the pooled vehicle group, p=0.035).

The trial met the primary efficacy endpoint, the percent change from baseline in EASI score at week 4, with statistical significance for patients treated with lepzacitinib 2% BID compared to patients treated with vehicle (69.7% versus 58.7% in the pooled vehicle group, p=0.035).

In addition, a PK analysis showed minimal levels of exposure to lepzacitinib.

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In 2022, we granted Pediatrix Therapeutics, Inc.

exclusive rights to develop and commercialize lepzacitinib in Greater China.

(“Pediatrix”) exclusive rights to develop and commercialize lepzacitinib in Greater China.

Zunsemetinib, an Investigational Oral MK2 Inhibitor

Zunsemetinib, or ATI-450, is an investigational oral, novel, small molecule selective MK2 inhibitor for the potential treatment of metastatic breast cancer, or MBC, and pancreatic ductal adenocarcinoma, or PDAC.

We plan to support Washington University in St.

Zunsemetinib (ATI-450) is an investigational oral, novel, small molecule selective inhibitor of the mitogen-activated protein kinase-activated protein kinase 2 (“MK2”) signaling pathway for the potential treatment of metastatic breast cancer (“MBC”) and pancreatic ductal adenocarcinoma (“PDAC”).

We are supporting Washington University in St.

Louis in its investigator-initiated Phase 1b/2 trials of zunsemetinib in patients with MBC and PDAC.

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Discovery Programs and KINect Drug Discovery Platform

We conduct small molecule drug discovery and preclinical development research through KINect, our proprietary drug discovery platform.

Our KINect platform enables us to identify potential drug candidates through a unique combination of our proprietary chemical library of kinase inhibitors, our novel approaches to inhibitor modalities, our expertise in structure-based drug design, and our custom kinase assays.

We conduct small molecule drug discovery and preclinical development research through KINect, our proprietary drug discovery platform, which we acquired as part of our acquisition of Confluence Life Sciences, Inc.

(now known as Aclaris Life Sciences, Inc.) (“Confluence”), in 2017.

Our KINect platform enables us to identify potential small molecule product candidates through a unique combination of our proprietary chemical library of kinase inhibitors, our novel approaches to inhibitor modalities, our expertise in structure-based drug design, and our custom kinase assays.

Our focus has been on difficult to drug kinase targets that exhibit some level of clinical, genetic and/or pharmacological disease validation.

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These novel approaches are currently being utilized to prosecute additional validated, difficult to drug kinase targets with the goal of demonstrating potential platform utility.

We are actively progressing several discovery programs focused on delivering the next wave of drug candidates from our KINect platform.

Our discovery efforts center on targeting kinases that play pivotal roles in various inflammatory, autoimmune, and oncology pathways.

For example, we are progressing to development candidate selection a second generation ITK selective inhibitor for autoimmune indications.

We are actively progressing several discovery programs focused on delivering the next wave of small and large molecule product candidates.

Our small molecule discovery efforts center on targeting kinases that play pivotal roles in various inflammatory, autoimmune, and oncology pathways.

For example, we are progressing to development candidate selection a second generation ITK selective inhibitor designed to eliminate crossover on JAK3 for autoimmune indications.

In addition to our small molecule discovery efforts, we maintain capabilities in biologics discovery to complement our therapeutic portfolio.

Through our integrated discovery platform, we can progress biologics candidates from concept through lead optimization, employing robust screening cascades and protein characterization techniques to identify molecules with desired therapeutic properties.

This complementary approach to our small molecule programs enables us to pursue optimal therapeutic modalities for each target and indication of interest.

We intend to evaluate both internal and external development options, including strategic partnerships, for these assets.

Discontinued Programs

We were previously developing zunsemetinib as a potential treatment for various immuno-inflammatory diseases, including hidradenitis suppurativa, psoriatic arthritis, and rheumatoid arthritis.

Following the results of the Phase 2 trials for these programs, we discontinued further development of our MK2 inhibitor programs in immuno-inflammatory diseases in 2023.

Financial Overview

Since our inception, we have incurred significant net losses.

Our net loss was $35.5 million for the nine months ended September 30, 2024 and $88.5 million for the year ended December 31, 2023.

As of September 30, 2024, we had an accumulated deficit of $806.3 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.

Our net loss was $15.1 million for the three months ended March 31, 2025 and $132.1 million for the year ended December 31, 2024.

As of March 31, 2025, we had an accumulated deficit of $917.9 million.

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

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

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

If we fail to raise capital or enter into such agreements as, and when needed, we may have to significantly delay, scale back or discontinue the development of one or more of our drug candidates.

If we fail to raise capital or enter into such agreements as, and when needed, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates.

Impact of Macroeconomic Conditions on Our Business

Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations.

For example, macroeconomic events, including inflationary pressure and geopolitical conflicts, have led to economic uncertainty globally.

For example, macroeconomic events, including inflationary pressure, tariff policies and geopolitical conflicts, have led to economic uncertainty globally.

The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods.

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Acquisition and License Agreements

Exclusive License Agreement with Biosion

In November 2024, we entered into an exclusive license agreement (the “Biosion Agreement”) with Biosion pursuant to which we received the exclusive rights to develop, manufacture and commercialize bosakitug and ATI-052 worldwide, excluding Greater China.

In connection with the Biosion Agreement, we also entered into a collaboration agreement (the “CTTQ Agreement”) with Biosion and CTTQ, a licensee of bosakitug in Greater China.

As partial consideration for the rights and licenses under the Biosion Agreement and CTTQ Agreement, we agreed to, in the aggregate, (i) pay $30.0 million in upfront cash consideration, plus $4.5 million for the reimbursement of certain development costs, (ii) issue warrants (the “Warrants”) to purchase 14,281,985 shares of our common stock and (iii) pay $6.2 million for the reimbursement of certain development costs and drug product material as set forth in the Biosion Agreement.

In addition, we agreed to pay, in the aggregate, (i) up to $125 million upon the achievement of specified regulatory milestones commencing with product approval, (ii) up to $795 million upon the achievement of specified sales milestones, (iii) a tiered low-to-mid single digit royalty based upon a percentage of annual net sales, subject to specified reductions as set forth in the Biosion Agreement, and (iv) a portion of any sublicense consideration received from the grant of any sublicense or similar rights under any of the rights or licenses granted to us under the Biosion Agreement.

We will expense these payments in the period when either they are determined to be probable of occurring or when the payment is triggered.

Royalty Purchase Agreement with OCM IP Healthcare Portfolio LP

In July 2024, we entered into a royalty purchase agreement with OCM IP Healthcare Portfolio LP, an investment vehicle for Ontario Municipal Employees Retirement System, or OMERS.

Under the royalty purchase agreement, we sold to OMERS a portion of the future royalty payments and the remaining anniversary milestones associated with our existing license to Eli Lilly and Company, or Lilly, relating to OLUMIANT® (baricitinib) for the treatment of alopecia areata (see “—License Agreement with Eli Lilly and Company”).

Under the terms of the royalty purchase agreement, we received an upfront payment of $26.5 million and are eligible to receive up to an additional $5.0 million based on the achievement of certain sales milestones for OLUMIANT in 2024.

In July 2024, we entered into a royalty purchase agreement with OCM IP Healthcare Portfolio LP, an investment vehicle for Ontario Municipal Employees Retirement System (“OMERS”).

Under the royalty purchase agreement, we sold to OMERS a portion of the future royalty payments and the remaining anniversary payments associated with our

existing license to Eli Lilly and Company (“Lilly”), relating to OLUMIANT® (baricitinib) for the treatment of alopecia areata (see “—License Agreement with Eli Lilly and Company”).

Under the terms of the royalty purchase agreement, we received an upfront payment of $26.5 million.

In exchange, OMERS acquired a portion of the royalty payable by Lilly to us for worldwide net sales of OLUMIANT for the treatment of alopecia areata from April 1, 2024 through the remainder of the royalty term under our license agreement with Lilly, and 100% of the remaining anniversary milestone payments payable by Lilly to us under the license agreement.

The royalty payments and milestones we sold to OMERS represent our entire financial interest in the Lilly license agreement after taking into account our other contractual third-party obligations.

We recognized $0.9 million of non-cash royalty income during each of the three and nine months ended

September 30, 2024.

We recognized $0.8 million of non-cash royalty income during the three months ended March 31, 2025.

License Agreement with Sun Pharmaceutical Industries, Inc.

In December 2023, we entered into an exclusive patent license agreement with Sun Pharmaceutical Industries, Inc., or Sun Pharma.

In December 2023, we entered into an exclusive patent license agreement with Sun Pharmaceutical Industries, Inc.

(“Sun Pharma”).

Under the license agreement, we granted Sun Pharma exclusive rights under certain patents that we exclusively license from a third party.

The patents relate to the use of deuruxolitinib, Sun Pharma’s JAK inhibitor, or other isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic alopecia.

Under the license agreement, Sun Pharma has paid us an upfront payment, and has agreed to pay us regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales.

Under the license agreement, Sun Pharma has paid us upfront and regulatory payments, and has agreed to pay us other regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales.

We have separate contractual obligations under which we have agreed to pay to third parties a portion of the consideration we may receive under the license agreement.

Upon execution of the agreement, we received an upfront payment of $15.0 million from Sun Pharma, a portion of which was payable to third parties.

We recognized $3.0 million of licensing revenue during each of the three and nine months ended September 30, 2024.

We may seek to monetize this asset.

License Agreement with Pediatrix Therapeutics, Inc.

In November 2022, we entered into a license agreement with Pediatrix Therapeutics, Inc., or Pediatrix, under which we granted Pediatrix the exclusive rights to develop, manufacture and commercialize lepzacitinib in Greater China.

In November 2022, we entered into a license agreement with Pediatrix under which we granted Pediatrix the exclusive rights to develop, manufacture and commercialize lepzacitinib in Greater China.

Pediatrix has paid us an upfront payment, and has agreed to pay us development, regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of lepzacitinib by Pediatrix in Greater China.

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The patents and patent applications relate to the use of baricitinib, Lilly’s JAK inhibitor, to treat alopecia areata.

Under the license agreement, Lilly has paid us an upfront payment and regulatory and certain commercial milestone payments, and agreed to pay us anniversary payments and other commercial milestone payments upon the achievement of specified milestones as set forth in the agreement, and a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata.

Under the license agreement, Lilly has paid us upfront, anniversary, regulatory and commercial milestone payments.

In addition, Lilly has agreed to pay us other commercial milestone payments upon the achievement of specified milestones and additional anniversary payments as set forth in the agreement, as well as a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata.

We have separate contractual obligations under which we have agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments we receive under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties we may receive under the license agreement.

We recognized $0.7 million and $8.3 million of licensing revenue during the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $10.7 million during the nine months ended September 30, 2024 and 2023, respectively.

In July 2024, we entered into a royalty purchase agreement with OMERS pursuant to which we sold to OMERS a portion of our future royalty payments and the remaining anniversary payments associated with the license to Lilly (see “—Royalty Purchase Agreement with OCM IP Healthcare Portfolio LP” above).

We recognized $1.0 million of licensing revenue during the three months ended March 31, 2025, all of which was payable to third parties.

We recognized $1.7 million of licensing revenue during the three months ended March 31, 2024, a portion of which was payable to third parties.

Asset Purchase Agreement with EPI Health

In October 2019, we sold RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, to EPI Health, LLC, or EPI Health, pursuant to an asset purchase agreement.

In October 2019, we sold RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”), to EPI Health, LLC (“EPI Health”) pursuant to an asset purchase agreement.

In July 2023, EPI Health filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

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Agreement and Plan of Merger with Confluence

In 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence Life Sciences, Inc.

(now known as Aclaris Life Sciences, Inc.), or Confluence, Aclaris Life Sciences, Inc., our wholly owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of the equity holders of Confluence.

In 2017, we entered into an Agreement and Plan of Merger (the “Confluence Agreement”), with Confluence, Aclaris Life Sciences, Inc., our wholly owned subsidiary (“Merger Sub”), and Fortis Advisors LLC, as representative of the equity holders of Confluence.

Pursuant to the terms of the Confluence Agreement, Merger Sub merged with and into Confluence, with Confluence surviving as our wholly owned subsidiary.

Under the Confluence Agreement, we have agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement.

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.

Under the Confluence Agreement, we agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement.

In addition, we 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.

Discontinued Programs

We were previously developing zunsemetinib as a potential treatment for various immuno-inflammatory diseases, including hidradenitis suppurativa, psoriatic arthritis, and rheumatoid arthritis.

Following the results of the Phase 2 trials for these programs, we discontinued further development of our MK2 inhibitor programs in immuno-inflammatory diseases in 2023.

Restructuring

In December 2023, our Board of Directors approved a reduction of our workforce by approximately 46%, which was substantially completed as of June 30, 2024.

This action was taken in order to streamline operations, reduce costs and preserve capital.

As a result, we terminated certain employees, or terminated employees, and gave notice to additional employees, or noticed employees, who were asked to provide transition services through termination dates ranging between one to thirteen months from the date notice was given.

The terminated employees were entitled to receive cash severance payments and other benefits.

The noticed employees are entitled to receive cash severance payments and other benefits, which are contingent upon providing additional services to us.

During the three and nine months ended September 30, 2024, we recognized severance expense of $26 thousand and $2.6 million, respectively.

During the nine months ended September 30, 2024, we made cash severance payments of $5.2 million to impacted employees.

In December 2023, our board of directors approved a reduction of our workforce by approximately 46%, which was completed as of December 31, 2024.

During the three months ended March 31, 2025, we made cash severance payments of $0.2 million to impacted employees.

During the three months ended March 31, 2024, we recognized severance expense of $2.5 million and made cash severance payments of $3.0 million to impacted employees.

Components of Our Results of Operations

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Research and Development

Research and development expenses consist of expenses incurred in connection with the discovery and development of our drug candidates.

Research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates.

These expenses primarily include:

● expenses incurred under agreements with contract research organizations, or CROs, as well as clinical trial sites and consultants that conduct our clinical trials and preclinical studies, and investigator-initiated trials;

● expenses incurred under agreements with contract research organizations (“CROs”), as well as clinical trial sites and consultants that conduct our clinical trials and preclinical studies, and investigator-initiated trials;

● manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical ingredients and preclinical and clinical trial materials, including domestic technology transfer expenses;

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● outsourced professional scientific development services;

● medical affairs expenses related to our drug candidates;

● medical affairs expenses related to our product candidates;

● employee-related expenses, which include salaries, benefits, and stock-based compensation;

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Research and development activities are central to our business model.

Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect to continue to incur research and development expenses in the near term as we continue the development of our drug candidates and pursue our discovery programs.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect to continue to incur research and development expenses in the near term as we continue the development of our product candidates and pursue our discovery programs.

We expense research and development costs as incurred.

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We do not allocate personnel costs or other indirect expenses to specific research and development programs.

The successful development of our drug candidates is highly uncertain.

We cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from any of our drug candidates.

This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

The successful development of our product candidates is highly uncertain.

This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of discovery, as well as clinical trials, which vary significantly over the life of a project as a result of many factors, including:

● the number of clinical sites included in the trials;

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● the results of our clinical trials.

Our expenditures are subject to additional uncertainties, including the preparation of regulatory filings for our drug candidates.

Our expenditures are subject to additional uncertainties, including the preparation of regulatory filings for our product candidates.

We may obtain unexpected results from our clinical trials or other development activities.

to discontinue, delay, or modify the development, including clinical trials, of some drug candidates or focus on others.

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.

We may elect to discontinue, delay or modify the development, including clinical trials, of some product candidates or focus on others.

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

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Non-cash Royalty Income

In July 2024, we entered into the royalty purchase agreement with OMERS pursuant to which we sold a portion of our royalties due to us under the license agreement with Lilly and received upfront proceeds of $26.5 million.

We evaluated the royalty purchase agreement under Accounting Standards Codification (ASC) 470 – Debt and concluded that the upfront payment should be accounted for as deferred income as the criteria for debt classification were not met.

We apply the “units-of-revenue” method of recognizing income in the condensed consolidated statements of operations and comprehensive loss and such amounts are included in non-cash royalty income.

For each of the three and nine months ended September 30, 2024, we recorded $0.9 million of non-cash royalty income.

Non-cash royalty income includes income related to the proceeds from the sale of future royalties to OMERS, recognized under the “units-of-revenue” method.

Critical Accounting Estimates

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

There have been no material changes to our significant accounting policies and use of estimates as disclosed in the footnotes to our audited consolidated financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the SEC on February 27, 2024.

Contingent Consideration

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

These assumptions are highly dependent on the outcome and timing of the development of certain of our drug candidates.

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 consolidated statement of operations.

These assumptions are highly dependent on the outcome and timing of the development of certain of our product candidates.

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 comprehensive loss.

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

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Significant assumptions used in our estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data.

Probability of success assumptions ranged between 17% and 40% at September 30, 2024.

Probability of success assumptions ranged between 17% and 40% at March 31, 2025.

Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value.

The discount rate ranged between 7.3% and 8.8% depending on the year of each potential payment.

During the nine months ended September 30, 2024, we recorded a charge to the contingent consideration liability of $3.8 million, which was primarily due to changes in estimated sales levels, changes to the probability of success for certain drug candidates, and the passage of time.

During the nine months ended September 30, 2023, we removed estimated sales from zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing that indication.

As a result of this, as well as due to higher discount rates resulting from higher risk-free rates and changes in credit spreads being applied to potential payments relative to prior periods, we recorded an overall decrease in contingent consideration of $0.6 million.

This decrease was partially offset by an increase in the probability of success, as well as the passage of time.

During the three months ended March 31, 2025, we recorded a charge to the contingent consideration liability of $0.3 million, which was primarily due to the passage of time.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2024 and 2023

Three Months Ended September 30,

Nine Months Ended September 30,

Comparison of Three Months Ended March 31, 2025 and 2024

Three Months Ended March 31,

(In thousands)

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Contract research

Contract research revenue was $0.6 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and was comprised of fees earned from the provision of laboratory services.

Contract research revenue was $1.9 million and $2.5 million for the nine months ended September 30, 2024 and 2023, respectively, and was comprised of fees earned from the provision of laboratory services.

The decrease was driven by lower overall hours billed and a lower average billing rate.

Licensing revenue was $3.7 million and $8.6 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by the achievement of higher milestones under license agreements during the three months ended September 30, 2023 compared to the three months ended September 30, 2024.

The royalty sale to OMERS in July 2024 also contributed to the decrease in licensing revenue.

Licensing revenue was $7.6 million and $11.2 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was primarily driven by the achievement of higher milestones under license agreements during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2024.

The royalty sale to OMERS in July 2024 also contributed to the decrease in licensing revenue.

Contract research revenue was $0.4 million and $0.7 million for the three months ended March 31, 2025 and 2024, respectively, and was composed of fees earned from the provision of laboratory services.

The decrease was driven by lower overall hours billed, which was partially offset by a higher average billing rate.

Licensing revenue was $1.0 million and $1.7 million for the three months ended March 31, 2025 and 2024, respectively.

The decrease was primarily driven by lower royalties earned following the sale of a portion of our OLUMIANT® royalty payments to OMERS in July 2024.

Costs and Expenses

Cost of Revenue

Cost of revenue was $0.7 million and $0.8 million for the three months ended September 30, 2024 and 2023, and in each case, related to providing laboratory services.

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

Cost of revenue was $2.1 million and $2.7 million for the nine months ended September 30, 2024 and 2023, respectively, and in each case, related to providing laboratory services.

Cost of revenue was $0.5 million and $0.8 million for the three months ended March 31, 2025 and 2024, respectively, and in each case, related to providing laboratory services.

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

Cost of revenue decreased in the nine months ended September 30, 2024 compared to the corresponding prior year period due to lower variable costs resulting from a decrease in hours billed, which was offset by an increase in termination benefits, as a result of our restructuring that was announced in December 2023.

Research and Development

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

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total research and development expenses

The decrease in expenses for zunsemetinib during the three and nine months ended September 30 , 2024 compared to the three and nine months ended September 30, 2023 was primarily due to a decrease in costs associated with clinical development activities for a Phase 2a trial in subjects with hidradenitis suppurativa, which was initiated in December 2021 and was completed in early March 2023, a Phase 2b trial in subjects with rheumatoid arthritis, which was initiated in December 2021 and was completed in November 2023, and a Phase 2b trial in subjects with psoriatic arthritis, which was initiated in June 2022 and was discontinued in December 2023.

Drug candidate manufacturing costs also decreased accordingly.

The decrease in expenses for lepzacitinib during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30 , 2023 was primarily due to lower costs associated with preclinical development activities and costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis, which was initiated in May 2022 and was completed in January 2024.

The decrease in expenses for ATI-2138 during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily due to a decrease in clinical development expenses associated with a Phase 1 MAD trial which was completed in September 2023, as well as a decrease in preclinical development activities.

This decrease was partially offset by clinical development expenses associated with a Phase 2a trial which initiated in August 2024.

The expenses incurred for bosakitug during the three months ended March 31, 2025 were primarily preclinical and clinical development expenses associated with startup activities for a Phase 2 trial in atopic dermatitis.

The increase in expenses for ATI-2138 during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to preclinical and clinical development expenses associated with a Phase 2a trial in atopic dermatitis that was initiated in August 2024.

Research and development expenses related to ATI-052 for the three months ended March 31, 2025 primarily consisted of product candidate manufacturing costs and preclinical development activities.

The expenses for lepzacitinib during the three months ended March 31, 2024 were primarily preclinical and clinical development costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis, which was completed in January 2024.

The decrease in expenses for zunsemetinib during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to a decrease in costs associated with Phase 2 clinical development activities.

Personnel and stock-based compensation

The decrease in personnel and stock-based compensation expenses during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily due to lower headcount and higher forfeiture credits, partially offset by an increase in termination benefits, as a result of our restructuring that was announced in December 2023.

The decrease in personnel expenses during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to lower headcount and lower termination benefits.

The increase in stock-based compensation expense during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due to higher forfeiture credits during the three months ended March 31, 2024.

General and Administrative

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Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Personnel and stock-based compensation

Professional and legal fees

Professional and legal fees, including accounting, investor relations and corporate communication costs, increased during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The increase was primarily due to business development expenses incurred in connection with the royalty purchase agreement with OMERS.

Professional and legal fees decreased during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, which was primarily driven by a decrease in accounting related expenses, which were partially offset by an increase in business development expenses.

Facility and support services

Facility and support services, including general office expenses, information technology costs and other expenses, decreased during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 primarily as a result of a decrease in rent expense and information technology expenses.

Bad debt expenses were related to our determination that amounts due to us as of September 30, 2023 pursuant to the asset purchase agreement with EPI Health are uncertain as a result of the bankruptcy filing by EPI Health in July 2023.

There was no bad debt expense during the three and nine months ended September 30, 2024.

The decrease in licensing expenses during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily driven by the achievement of higher milestones under

license agreements during the three months ended September 30, 2023 compared to the three months ended September 30, 2024.

The decrease in personnel expenses during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to lower headcount and lower termination benefits.

Revaluation of Contingent Consideration

The revaluation of contingent consideration loss decreased during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 mainly due to adjustments to assumptions for certain clinical programs during the three months ended September 30, 2023.

The revaluation of contingent consideration loss during the nine months ended September 30, 2024 was primarily due to changes in estimated sales levels and changes to the probability of success for certain drug candidates, compared to the gain during the nine months ended September 30, 2023 which was primarily due to changes in discount rates, including risk-free rates and credit spreads, on potential future payments.

The gain during the nine months ended September 30, 2023 was partially offset by adjustments to other assumptions for certain clinical programs.

Interest Income

Interest income decreased during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 primarily due to lower interest income on investment portfolio balances.

The revaluation of contingent consideration loss decreased during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 mainly due to adjustments to assumptions for certain clinical programs during the three months ended March 31, 2024.

Non-cash Royalty Income

Non-cash royalty income was $0.9 million for each of the three and nine months ended September 30, 2024.

Non-cash royalty income includes income related to the proceeds from the sale of a portion of our OLUMIANT® royalty payments to OMERS.

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations.

Prior to our acquisition of Confluence, we did not generate any revenue.

We have financed our operations over the last several years primarily through sales of our equity securities and incurring indebtedness in the form of loans from commercial lenders.

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We may receive royalties and milestone payments under third-party licensing and acquisition agreements.

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 September 30, 2024, we had cash, cash equivalents and marketable securities of $173.4 million.

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 product candidates, we may receive upfront payments, milestone payments or royalties from such arrangements that would increase our liquidity.

As of March 31, 2025, we had cash, cash equivalents and marketable securities of $190.5 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 contingent obligations under the Confluence Agreement, which is summarized above under “Overview—Acquisition and License Agreements, ” and our lease obligations.

Cash and cash equivalents were $47.7 million as of September 30, 2024 compared to $39.9 million as of December 31, 2023.

We also had $125.7 million in short- and long-term marketable securities as of September 30, 2024 compared to $142.0 million as of December 31, 2023.

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, Biosion Agreement and CTTQ Agreement, which are summarized above under “Overview—Acquisition and License Agreements, ” and our lease obligations.

Cash and cash equivalents were $30.3 million as of March 31, 2025 compared to $24.6 million as of December 31, 2024.

We also had $160.2 million in short- and long-term marketable securities as of March 31, 2025 compared to $179.3 million as of December 31, 2024.

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Net cash provided by investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Cash and cash equivalents ending balance

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Cash flow related to operating activities was the result of:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Non-cash adjustments to reconcile net loss to net cash used in operating activities

Change in accounts payable and accrued expenses

Change in deferred income

Change in accounts receivable

Change in prepaid expenses and other assets

Change in accounts payable and accrued expenses

Change in deferred income

Net cash used in operating activities

Net cash used in operating activities decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily as a result of lower net losses after adjusting for non-cash items, lower prepayments on vendor contracts and proceeds from the royalty sale to OMERS.

This change was partially offset by an increase in cash used for accounts payable and accrued expenses, which was due to the timing of payments to vendors as well as third parties in connection with amounts earned under licensing agreements.

Net cash used in operating activities decreased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily as a result of a decrease in cash used for accounts payable and accrued expenses, after adjusting for the receipt and corresponding payment of a third-party milestone during the quarter ended March 31, 2025.

Investing Activities

Cash flow related to investing activities was the result of:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Proceeds from sales and maturities of marketable securities

Payment of deferred transaction consideration for in-licensed assets

Net cash provided by investing activities

The decrease in net cash provided by investing activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 resulted primarily from lower sales and maturities of marketable securities during the nine months ended September 30, 2024, partially offset by lower purchases of marketable securities during the nine months ended September 30, 2024.

The increase in net cash provided by investing activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 resulted primarily from higher proceeds from sales and maturities of marketable securities during the three months ended March 31, 2025, partially offset by higher purchases of marketable securities during the three months ended March 31, 2025.

Financing Activities

Cash flow related to financing activities was the result of:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

Proceeds from issuance of common stock under the at-the-market sales agreement, net of

issuance costs

Payments of employee withholding taxes related to restricted stock unit award vesting

Proceeds from exercise of employee stock options and the issuance of stock

Net cash (used in) provided by financing activities

Net cash used in financing activities for the nine months ended September 30, 2024 was $44 thousand compared to net cash provided by financing activities during the nine months ended September 30, 2023 of $26.7 million.

The change was primarily due to proceeds in the nine months ended September 30, 2023 from sales under our at-the-market sales agreement.

Net cash used in financing activities

Net cash used in financing activities increased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due to higher payments of employee withholding taxes related to restricted stock unit award vesting.

Funding Requirements

We anticipate we will incur net losses in the near term as we continue to discover and develop drug candidates.

We may not be able to generate revenue from these programs if, among other things, our clinical trials are not successful, the FDA does not approve our drug candidates currently in clinical trials when we expect, or at all, or we are not able to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates.

We anticipate we will incur net losses in the near term as we continue the development of our product candidates and continue to discover and develop additional product candidates.

We may not be able to generate revenue from these programs if, among other things, our clinical trials are not successful, the FDA does not approve our product candidates currently in clinical trials when we expect, or at all, or we are not able to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, research and development expenses, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs.

Our future funding requirements will be heavily determined by the resources needed to support the development of our drug candidates, without taking into account any potential business development activities resulting from our ongoing strategic review of our business.

Our future funding requirements will be heavily determined by the resources needed to support the development of our product candidates, without taking into account any potential business development activities.

As a publicly traded company, we incur and will continue to incur significant legal, accounting, and other similar expenses.

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We believe our existing cash, cash equivalents and marketable securities are sufficient to fund our operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of our condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q based on our current operating assumptions.

We will require additional capital to develop our drug candidates and to support our discovery efforts.

We will require additional capital to develop our product candidates and to support our discovery efforts.

Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy.

Our ability to raise additional capital may be adversely impacted by potentially worsening global economic conditions caused by a variety of factors including geopolitical tensions and inflationary pressures.

If we are unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of our drug candidates, we may need to substantially curtail our planned operations.

If we are unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of our product candidates, we may need to substantially curtail our planned operations.

We may raise additional capital through the sale of equity or debt securities.

In such an event, our stockholders’ ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.

Because of the numerous risks and uncertainties associated with research and development of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements.

Because of the numerous risks and uncertainties associated with research and development of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements.

Our funding requirements in the near term will depend on many factors, including:

● the number and development requirements of the drug candidates that we may pursue;

● the scope, progress, results and costs of preclinical development, laboratory testing and conducting preclinical and clinical trials for our drug candidates;

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

● the extent to which we in-license or acquire additional drug candidates and technologies;

● the number and development requirements of the product candidates that we may pursue;

● the scope, progress, results and costs of preclinical development, laboratory testing and conducting preclinical and clinical trials for our product candidates;

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

● the extent to which we in-license or acquire additional product candidates and technologies;

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

● our ability to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates;

● our ability to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates;

● our ability to earn revenue as a result of licenses to, or partnerships or other arrangements with, third parties.

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Louis, Missouri under a sublease agreement which has a term through May 2029.

Our aggregate remaining lease payment obligation for these two spaces was $3.4 million as of September 30, 2024.

Agreement and Plan of Merger – Confluence

As of September 30, 2024, the balance of our contingent consideration liability was $10.0 million.

Our aggregate remaining lease payment obligation for these two spaces was $3.1 million as of March 31, 2025.

Agreement and Plan of Merger with Confluence

We have agreed to certain payment obligations in accordance with and subject to the terms of the Confluence Agreement (see “Overview—Acquisition and License Agreements—Agreement and Plan of Merger with Confluence”).

As of March 31, 2025, the balance of our contingent consideration liability was $9.0 million.

Exclusive License Agreement with Biosion;

Collaboration Agreement with Biosion and CTTQ

We have agreed to certain payment obligations in accordance with and subject to the terms of the Biosion and CTTQ Agreements (see “Overview—Acquisition and License Agreements—Exclusive License Agreement with Biosion”).

R&D Obligations

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We have two reportable segments, therapeutics and contract research.

The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases and earns revenue through licensing our intellectual property.

The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases.

The contract research segment earns revenue from the provision of laboratory services.

Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis