Aligos Therapeutics, Inc. 10-Q

Item 1. Financial Statements. ALIGOS THERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) March 31, 2021 December 31, 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 200,362 $ 220,383 Restricted cash 556 560 Short-term investments 13,053 23,130 Other current assets 5,855 5,944 Total current assets 219,826 250,017 Operating lease right-of-use assets 6,953 6,901 Property and equipment, net 7,573 8,007 Other assets 188 377 Total assets $ 234,540 $ 265,302 LIABILITIES, PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,810 $ 3,313 Accrued liabilities 12,283 16,564 Operating lease liabilities, current 2,512 2,442 Finance lease liabilities, current 45 64 Deferred revenue from collaborations, current 7,581 7,891 Total current liabilities 25,231 30,274 Operating lease liabilities, net of current portion 10,183 10,371 Finance lease liabilities, net of current portion 130 130 Other liabilities 267 379 Deferred revenue from collaborations, net of current portion 3,509 4,109 Total liabilities 39,320 45,263 Commitments and contingencies (Note 12) Preferred Stock, $0.0001 par value; 10,000,000 shares authorized as of March 31, 2021 and December 31, 2020; no shares issued and outstanding as of March 31, 2021 and December 31, 2020 - - Stockholders’ equity (deficit): Common stock, $0.0001 par value; 320,000,000 shares authorized as of March 31, 2021 (unaudited) and December 31, 2020, respectively; 38,147,205 and 38,120,606 shares issued and outstanding as of March 31, 2021 (unaudited) and December 31, 2020, respectively 4 4 Additional paid-in capital 397,857 394,963 Accumulated deficit (202,414 ) (174,740 ) Accumulated other comprehensive loss (227 ) (188 ) Total stockholders’ equity 195,220 220,039 Total liabilities, preferred stock, and stockholders’ equity (deficit) $ 234,540 $ 265,302 The accompanying notes are an integral part of these consolidated financial statements. 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In thousands, except share and per share data) Three Months Ended March 31, 2021 2020 Revenue from collaborations $ 910 $ - Operating expenses: Research and development 22,869 17,302 General and administrative 5,781 3,419 Total operating expenses 28,650 20,721 Loss from operations (27,740 ) (20,721 ) Interest and other income, net 111 692 Loss before income tax expense (27,629 ) (20,029 ) Income tax expense (45 ) — Net loss (27,674 ) (20,029 ) Other comprehensive gain (loss): Unrealized gain (loss) on available-for-sale securities (41 ) 401 Unrealized gain on pension plans 2 166 Other comprehensive income (loss) (39 ) 567 Comprehensive loss $ (27,713 ) $ (19,462 ) Net loss per share, basic and diluted $ (0.74 ) $ (7.56 ) Weighted average shares of common stock, basic and diluted 37,434,261 2,648,885 The accompanying notes are an integral part of these consolidated financial statements. 2 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) (In thousands, except share and per share data) Three Months Ended March 31, 2021 Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance as of December 31, 2020 38,120,606 4 394,963 (174,740 ) (188 ) 220,039 Issuance of common stock upon exercise of stock options 26,599 - 96 - - 96 Stock-based compensation - - 2,756 - - 2,756 Vesting of early exercised common stock options - - 42 - - 42 Other comprehensive income - - - - (39 ) (39 ) Net loss - - - (27,674 ) - (27,674 ) Balance as of March 31, 2021 38,147,205 $ 4 $ 397,857 $ (202,414 ) $ (227 ) $ 195,220 The accompanying notes are an integral part of these consolidated financial statements. 3 Three Months Ended March 31, 2020 Series A Redeemable Convertible Preferred Stock Series B-1 Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Income (Loss) Deficit Balance as of December 31, 2019 10,819,843 100,695 8,344,034 81,384 3,927,803 - 1,421 (66,197 ) (115 ) (64,891 ) Issuance of Series A stock upon exercise of Series A warrants 37,555 487 - - - - - - - - Stock-based compensation - - - - - - 331 - - 331 Vesting of early exercised common stock - - - - - - - - - - Issuance of common stock upon exercise - - - - - - - - - - of stock options - - - - 13,672 - 18 - - 18 Vesting of early exercised options from - - - - - - existing exercises - - - - - - 63 - - 63 Other comprehensive income - - - - - - - - 567 567 Net loss - - - - - - - (20,029 ) - (20,029 ) Balance as of March 31, 2020 10,857,397 $ 101,182 8,344,034 $ 81,384 3,941,476 $ - $ 1,833 $ (86,226 ) $ 452 $ (83,941 ) The accompanying notes are an integral part of these consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ (27,674 ) $ (20,029 ) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of discount on investments 37 5 Amortization of right of use assets 132 129 Depreciation expense 741 331 Stock-based compensation 2,756 606 Change in fair value of derivative liability - (20 ) Change in fair value of redeemable convertible preferred stock liabilities - (166 ) Changes in operating assets and liabilities: Other assets 277 (528 ) Right of use assets - (249 ) Accounts payable (502 ) (304 ) Accrued liabilities (4,239 ) 183 Operating lease liabilities (303 ) (277 ) Other liabilities (111 ) - Deferred revenue from collaborations (910 ) - Net cash and cash equivalents used in operating activities (29,796 ) (20,319 ) Cash flows from investing activities: Activities in available-for-sale investments: Purchase of short-term investments - (32,096 ) Purchase of long term investments - (13,183 ) Activities in held-to-maturity investments: Maturities of investments 10,000 22,600 Purchases of property and equipment (307 ) (1,090 ) Net cash and cash equivalents provided by (used in) investing activities 9,693 (23,769 ) Cash flows from financing activities: Proceeds from exercise of warrants for series A convertible preferred stock $ - $ 350 Payment of Series B-1 redeemable convertible preferred stock issuance cost - (405 ) Payments on finance lease (18 ) (11 ) Proceeds from the exercise of common stock option 96 18 Net cash and cash equivalents provided by (used in) financing activities 78 (48 ) Net decrease in cash, cash equivalents, and restricted cash (20,025 ) (44,136 ) Cash, cash equivalents, and restricted cash, beginning of period 220,943 70,103 Cash, cash equivalents, and restricted cash, end of period $ 200,918 $ 25,967 The accompanying notes are an integral part of these consolidated financial statements. 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 2021 2020 Reconciliation to amounts on the consolidated balance sheet: Cash and cash equivalents $ 200,362 $ 25,415 Restricted cash 556 552 Total cash, cash equivalents, and restricted cash $ 200,918 $ 25,967 Supplemental disclosures of cash flow information: Interest paid - 2 Supplemental disclosures of noncash financing and investing activities: Leasehold improvement directly paid by landlord $ - $ 79 Mark to market adjustment for available-for-sale investments $ 41 $ 401 Acquisition of right of use asset through operating lease obligation $ 184 $ - Change in fair value of derivative liability upon exercise of warrants $ - $ 137 Vesting of early exercised options $ 42 $ 63 Property and equipment purchases in accounts payable $ - $ 399 Change in pension obligation $ (2 ) $ 166 The accompanying notes are an integral part of these consolidated financial statements. 6 ALIGOS THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In dollars, expect share and per share data) 1. Organization Description of business Aligos Therapeutics, Inc. (Aligos-US) was incorporated in the state of Delaware on February 5, 2018 (inception). On September 10, 2018, the Company formed Aligos Belgium BVBA (Aligos-Belgium), a limited liability company organized under the laws of Belgium. On March 30, 2020, the Company formed as a wholly owned subsidiary, Aligos Australia Pty LTD (Aligos-Australia), a proprietary limited company, and together with Aligos-US and Aligos-Belgium being the Company or Aligos. Aligos is a clinical-stage biopharmaceutical company developing novel therapeutics to address unmet medical needs in viral and liver diseases, including chronic hepatitis B and coronaviruses therapeutics for non-alcoholic steatohepatitis (NASH). The Company is devoting substantially all of its efforts to the research and development of its drug candidates. The Company has not generated any product revenue to date. The Company is also subject to a number of risks similar to other companies in the biotechnology industry, including the uncertainty of success of its nonclinical studies and clinical trials, regulatory approval of drug candidates, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third-parties, product liability, and dependence on key individuals. Reverse stock split On October 8, 2020, the Company’s board of directors approved a 1-for-9.3197 reverse stock split (the Reverse Stock Split) of the Company’s common stock and redeemable convertible preferred stock to be consummated prior to the effectiveness of the Company’s planned initial public offering (IPO). The par value and authorized shares of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented. The Company filed an amended and restated certificate of incorporation in Delaware on October 9, 2020 that automatically effectuated the Reverse Stock Split without any further action required. Initial public offering On October 20, 2020, the Company closed its IPO and issued 10,000,000 shares of its common stock at a public offering price of $15.00 per share for net proceeds of $135.4 million, after deducting underwriting discounts and commissions of $10.5 million and expenses of $4.1 million. In connection with the IPO, all shares of Series A redeemable convertible preferred stock (Series A), Series B-1 redeemable convertible preferred stock (Series B-1) and Series B-2 redeemable convertible preferred stock (Series B-2) converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million in net proceeds, after deducting underwriting discounts and commissions of $1.2 million. Liquidity The Company has incurred losses and negative cash flows from operations since its inception. As of March 31, 2021 and December 31, 2020, the Company had an accumulated deficit of $202.4 million and $174.7 million, respectively. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of expanded research and development activities. As of March 31, 2021, the Company has unrestricted cash, cash equivalents and investments of approximately $213.4 million which is available to fund future operations. The Company expects to continue to spend substantial amounts to continue the nonclinical and clinical development of its current and future programs. If the Company is able to gain marketing approval for drug candidates that are being developed, it will require significant additional amounts of cash in order to launch and commercialize such drug candidates. In addition, other unanticipated costs may arise. Because the design and outcome of the Company’s planned and anticipated clinical trials is highly uncertain, the Company cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any drug candidate the Company may develop. 7 The Company expects to finance its cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. In addition, the Company may seek additional capital to take advantage of favorable market conditions or strategic opportunities even if the Company believes it has sufficient funds for its current or future operating plans. Based on the Company’s research and development plans, it is expected that the Company’s existing cash, cash equivalents and investments, will enable the Company to fund its operations for at least 12 months following the date the condensed consolidated financial statements are issued. However, the Company’s operating plan may change as a result of many factors currently unknown, and the Company may need to seek additional funds sooner than planned. Moreover, it is particularly difficult to estimate with certainty the Company’s future expenses given the dynamic nature of its business, the COVID-19 pandemic and the macro-economic environment generally . The Company’s ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond its control. In particular, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists or deepens, the Company could be unable to access additional capital, which could negatively affect its ability to consummate certain corporate development transactions or other important, beneficial or opportunistic investments. If additional funds are not available to the Company when needed, on terms that are acceptable to the Company, or at all, the Company may be required to: delay, limit, reduce or terminate nonclinical studies, clinical trials or other research and development activities or eliminate one or more of its development programs altogether; or delay, limit, reduce or terminate its efforts to establish manufacturing and sales and marketing capabilities or other activities that may be necessary to commercialize any future approved products, or reduce the Company’s flexibility in developing or maintaining its sales and marketing strategy. 2. Summary of significant accounting policies The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Risks and uncertainties The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability. Drug candidates currently under development will require significant additional research and development efforts, including extensive nonclinical and clinical testing and regulatory approval. Moreover, it is particularly difficult to estimate with certainty the Company’s future expenses given the dynamic nature of its business, the COVID-19 pandemic and the macro-economic environment generally. Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (ASC), and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB). The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2021. 8 Principles of consolidation The accompanying condensed consolidated financial statements include Aligos-US and its wholly owned subsidiaries Aligos-Belgium and Aligos-Australia. All intercompany balances and transactions have been eliminated. Use of estimates The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets and liabilities, and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Areas where management uses subjective judgments include but are not limited to right-of-use assets, lease obligations, impairment of long-lived assets, stock-based compensation, accrued research and development costs, pension liabilities, revenue from collaborations and deferred revenue in the accompanying condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Unaudited interim financial information The accompanying consolidated balance sheet as of March 31, 2021, the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, the consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, and the consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 are unaudited. The unaudited consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position as of March 31, 2021 and the consolidated results of its operations and cash flows for the three months ended March 31, 2021 and 2020. The consolidated financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are unaudited. The consolidated results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. Foreign currency The Company’s foreign subsidiaries use the U.S. dollar as their functional currency, and they initially measure the foreign currency denominated assets and liabilities at the transaction date. Monetary assets and liabilities are then re-measured at exchange rates in effect at the end of each period, and non-monetary assets and liabilities are converted at historical rates. A re-measurement gain was recognized during the three months ended March 31, 2021 and 2020 of $50,000 and $45,000, respectively, and are reflected within interest and other income, net on the consolidated statements of operations and comprehensive loss. Segment information The Company has determined that the Chief Executive Officer is its Chief Operating Decision Maker. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis for the purposes of assessing the performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment. No product revenue has been generated since inception. The Company has $6.3 million and $1.3 million of fixed assets in Aligos-US and Aligos-Belgium, respectively, as of March 31, 2021 and $6.6 million and $1.4 million of fixed assets in Aligos-US and Aligos‑Belgium, respectively as of December 31, 2020. Cash equivalents The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Restricted cash 9 As of March 31, 2021 and December 31, 2020, the restricted cash balance was $ 556,000 and $ 560,000 , respectively, and was used to secure the letters of credit in relation to the Company’s operating leases and deposits on rental assets (Note 6). Leases The Company determines if an arrangement is a lease at the inception of the lease. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities in the consolidated balance sheet. Finance leases are included in property and equipment and finance lease liabilities in the consolidated balance sheet. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement dates in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and excludes lease incentives when paid by the Company or on the Company’s behalf. The Company’s lease terms may include the period covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components. The Company elected to not separate lease and non-lease components for all of its building leases. For vehicle leases, lease and non-lease components are accounted for separately. The Company also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and not recognize ROU assets or lease liabilities for such leases. Property and equipment Property and equipment is stated at cost less accumulated depreciation, and is depreciated using the straight-line method over the estimated useful life of the asset, which are as follows: Lab equipment 3 years Computer equipment 3 years Furniture and office equipment 3-8 years Vehicles 4 years Leasehold improvements Shorter of the useful life or remaining lease term Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations. Impairment of long-lived assets The Company regularly reviews the carrying amount of its property, equipment and intangible assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable. If the carrying value of the asset exceeds such projected undiscounted cash flows, the asset will be written down to its estimated fair value. No impairment charges were recorded during the three months ended March 31, 2021 or 2020. 10 Investments The Company determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity, otherwise debt securities are classified as available-for sale. Held-to-maturity securities are carried at amortized cost. Available-for-sale debt securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale debt securities are reported as a separate component of stockholders’ equity. Premiums or discounts from par value are amortized to investment income over the life of the underlying investment. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income, net within the condensed consolidated statements of operations and comprehensive loss. For both held-to-maturity and available-for-sale investments, the Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If the Company believes an impairment of a security position is other than temporary, based on available quantitative and qualitative information as of the report date, the loss will be recognized as other income in the Company’s condensed consolidated statements of operations and a new cost basis in the investment is established. No impairment charges were recorded during the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, short-term investments consisted of U.S. Treasury securities with original maturities of less than one year. Research and development expenses Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, and third-party license fees. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are expensed as incurred. In-process research and development (IPR&D) expense represents the costs to acquire technologies to be used in research and development that have not reached technological feasibility or have no alternative future uses and thus are expensed as incurred. IPR&D expense also includes upfront license fees and milestones paid to collaborators for technologies with no alternative use . Collaborative arrangements The Company enters into collaboration arrangements with pharmaceutical and other partners, under which the Company may grant licenses to its collaboration partners to research and develop potential drug candidates. Consideration under these contracts may include an upfront payment, development, regulatory, sales and other milestone payments. Contractual payments received for research and development activities performed are recognized on a gross basis in revenue from collaboration arrangements. The Company may also perform research and development activities under the collaboration agreements where the Company may be granted licenses from its collaboration partners. Contractual payments to the other party in collaboration agreements and costs incurred by the Company are recognized on a gross basis in research and development expenses. Royalties and license payments are recorded as due. When the Company enters into collaboration arrangements, the Company assesses whether the arrangement falls within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangement involves joint operating activities and whether both parties would be active participants and would be exposed to significant risks and rewards of the arrangement. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the parties fall within the scope of other accounting literature such as ASC 606, Revenue from Contracts with Customers (ASC 606). During the three months ended March 31, 2021 and 2020, no milestones were met and no royalties were due; therefore, the Company did not pay or expense any milestone or royalties. 11 Fair value measurements Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. Stock-based compensation The Company’s stock-based awards consist of restricted stock awards and stock options. For stock-based awards issued to employees and nonemployees with service-based vesting, the Company measures the estimated fair value of the stock-based awards on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has granted certain options with performance-based vesting for which expense is recognized over the explicit service period when achievement of the performance-based milestones is deemed probable. The Company uses judgement to determine whether and, if so, how many awards are deemed probable of vesting at each reporting period. The fair value of stock-based awards with non-market performance conditions is estimated on the grant date. The Company records expense for awards with service-based vesting using the straight-line method and for awards with performance conditions utilizing an accelerated attribution method. The Company accounts for forfeitures as they occur. The Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s cash compensation costs are classified. The fair value of each restricted stock award is determined based on the number of shares granted and the value of the Company’s common stock on the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of a number of complex assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and expected term of the option. The Company had been a private company prior to the IPO and lacks company-specific historical and implied fair value information. Therefore, the Board of Directors (the Board) of the Company considered numerous objective and subjective factors to determine the fair value of the Company’s common stock options at each meeting in which awards were approved. The factors considered include, but are not limited to (i) the results of contemporaneous independent third-party valuations of the Company’s common stock and the prices, rights, preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock; (ii) the lack of marketability of the Company’s common stock; (iii) actual operating and financial results; (iv) current business conditions and projections; (v) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions, and (vi) precedent transactions involving the Company’s shares. The Company determined the expected stock volatility using a weighted average of the historical volatility of a group of guideline companies that issued options with substantially similar terms, and expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company has not paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. See Note 9 for the assumptions used by the Company in determining the grant date fair value of stock-based awards granted, as well as a summary of the stock-based award activity under the Company’s stock-based compensation plan, for the three months ended March 31, 2021 and 2020. 12 Net loss per share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock, stock options, common stock subject to repurchase related to early exercise of stock options, unvested restricted stock subject to repurchase, warrants and convertible notes are considered to be potentially dilutive securities. The Company applies the two-class method to calculate its basic and diluted net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. The Company’s participating securities contractually entitle the holders of such shares to participate in dividends; but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. Accordingly, in periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Recently issued accounting standards From time to time, new accounting pronouncements are issued by FASB that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has the option to not “opt out” of the extended transition related to complying with new or revised accounting standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. 3. Property and equipment The components of property and equipment as of March 31, 2021 and December 31, 2020 were as follows: March 31, 2021 December 31, 2020 Leasehold improvements $ 5,660 $ 5,655 Lab equipment 5,145 4,833 Computer equipment 978 942 Furniture and office equipment 459 459 Vehicles 296 296 Asset under construction 19 65 Total, at cost 12,557 12,250 Accumulated depreciation (4,984 ) (4,243 ) Total, net $ 7,573 $ 8,007 Depreciation expense was $741,000 for the three months ended March 31, 2021, and $331,000 for the three months ended March 31, 2020, respectively. Finance leases are also included in property and equipment as vehicles on the condensed consolidated balance sheets (Note 6). 13 4. Investments As of March 31, 2021 and December 31, 2020, amortized cost, gross unrealized gains and losses, and estimated fair values of total fixed-maturity securities were as follows: March 31, 2021 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value Available-for-sale securities U.S. Treasury bonds 13,026 27 - 13,053 $ 13,026 $ 27 $ - $ 13,053 December 31, 2020 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value Held-to-maturity securities: U.S. Treasury bonds 10,002 14 - 10,016 Available-for-sale securities U.S. Treasury bonds 13,060 68 - 13,128 $ 23,062 $ 82 $ - $ 23,144 Changes in fair value are related to changes in market interest rates. The Company expects to collect all contractual principal and interest payments. The following is a summary of maturities of securities held-to-maturity and available-for-sale as of March 31, 2021: Available-for-sale Amortized Cost Estimated Fair Value Amounts maturing in: One year or less $ 13,026 $ 13,053 Total investments $ 13,026 $ 13,053 The Company recorded interest income of $105,000 for three months ended March 31, 2021, and $468,000 for the three months ended March 31, 2020, respectively, as a component of interest and other income, net on the Company’s condensed consolidated statement of operations and comprehensive loss. 5. Accrued liabilities Accrued liabilities consisted of the following as of: March 31, December 31, 2021 2020 Accrued payables $ 6,927 $ 7,274 Accrued compensation 3,941 8,554 Liability with early exercised stock options 528 569 Other 887 167 Total $ 12,283 $ 16,564 6. Leases The Company has operating and finance leases for corporate offices, research and development facilities, and certain vehicles. These leases have remaining lease terms of four to eight and a half years, some of which include options to extend the leases for five to eight years. The Company has determined that it is not reasonably certain to exercise the options under any leases. The lease of research and development facilities includes costs for utilities and common area maintenance, which have been included in the 14 calculation of lease payments. Differences between lease payments as measured at lease inception and variations in monthly payments will be recognized as operating expenses in the period in which the obligation is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease terms. Leases with terms greater than 12 months are included in operating lease ROU assets and operating lease liabilities in the Company’s condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Maturities of lease liabilities as of March 31, 2021 and are as follows: Operating Lease Finance Lease Year ending December 31: 2021, remainder $ 2,026 $ 59 2022 2,799 78 2023 2,754 41 2024 2,678 1 2025 2,772 - Thereafter 3,642 - Less: imputed interest (3,976 ) (4 ) Present value of lease liabilities 12,695 175 Less: current portion (2,512 ) (45 ) Lease liabilities net of current portion $ 10,183 $ 130 The components of lease expense were as follows for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Operating lease cost $ 469 $ 462 Finance lease cost: Amortization of right-of-use assets $ 18 $ 17 Interest on lease liabilities 1 2 Total finance lease cost $ 19 $ 19 The Company made payments of $638,000 during the three months ended March 31, 2021, respectively, and $607,000 during the three months ended March 31, 2020, respectively, which are included as cash flow from operations on the condensed consolidated statements of cash flows. As of March 31, 2021 and December 31, 2020, $296,000 of finance lease ROU assets were presented as part of property and equipment on the condensed consolidated balance sheet with accumulated amortization of $126,000 and $107,000, respectively. Additional information related to the Company’s leases was as follows as of March 31, 2021 and December 31, 2020: March 31, December 31, 2021 2020 Operating Lease: Weighted-average remaining lease term (years) 5.83 5.97 Weighted-average discount rate 9.38 % 9.35 % Finance Lease: Weighted-average remaining lease term (years) 2.44 2.68 Weighted-average discount rate 3.14 % 3.15 % 15 7. Derivative liabilities and redeemable convertible preferred stock liability Warrants In connection with the issuance of certain notes, lenders were issued Warrants to purchase 134,112 shares of Series A. The Warrants have a coverage percentage of 25% of the principal amount of the notes and have a ten-year expiration date from the applicable closing date of April 20, 2018 or June 6, 2018. The underlying shares issuable upon the exercise of the Warrants were eligible to be exercised into the next round of equity financing. The Warrants became exercisable into shares of Series A for an exercise price of $9.32 per share. The Company recorded the Warrants initially at fair value (Note 10) as derivative liabilities on the consolidated balance sheet with the value being allocated to the notes as a debt discount. The fair value of the Warrants upon issuance on April 20, 2018 and June 6, 2018, was $0.7 million and $238,000, respectively. The fair value of the Warrants was $0 and $0 as of March 31, 2021 and December 31, 2020, respectively as, due to the IPO in October 2020, all outstanding warrants were automatically exercised for the issuance of Common Stock, and upon that exercise, such warrants were no longer outstanding. No warrants were exercised during the three months ended March 31, 2021, or during the three months ended March 31, 2020. As Series A contained a conditional obligation for the Company to repurchase the shares for cash consideration, the Warrants were exercised as of the IPO date, with changes in fair value being recorded on the consolidated statements of operations and comprehensive loss. The Company recorded a change in fair value of derivative liabilities of $0 and $20,000 for the three months ended March 31, 2021 and March 31, 2020, respectively. Redeemable convertible preferred stock liability In connection with the issuance of shares of Series B-1 (Note 8), the Series B-1 preferred stockholders committed to purchase and the Company committed to sell 3,569,630 shares of Series B-2 at a price of $11.20563 per share in a subsequent closing, contingent upon the achievement of certain developmental milestones or a receipt of a waiver of achievement of the milestones. The Redeemable Convertible Preferred Stock Liability is considered a freestanding instrument that qualifies as a liability under ASC Topic 480, Distinguishing Liabilities from Equity as the Company is committed to issue an instrument that ultimately may require a transfer of assets. The liability is accounted for at fair value and re-measured at each reporting date (Note 10). On the date of the initial closing, the Company recorded the Redeemable Convertible Preferred Stock Liability at a fair value of $3.2 million. As of March 31, 2021 and December 31, 2020, all of the Series B-2 shares were issued and then, as a result of the IPO, converted to shares of common stock. The Company recorded a change in fair value of the liability of $0 and $166,000 during the three months ended March 31, 2021 and 2020. 8. Capital stock Common stock On October 20, 2020, the certificate of incorporation was amended to increase the total shares of Common Stock authorized for issuance to 320,000,000 and decrease the total shares of preferred stock authorized for issuance to 10,000,000 with a par value of $0.0001 per share. 300,000,000 shares of the Common Stock were designated as “Voting Common Stock” and 20,000,000 shares of the Common Stock were designated as “Non-Voting Common Stock”. The holders of shares of Common Stock are entitled to one vote for each share of Common Stock at all meetings of stockholders. Redeemable convertible preferred stock On August 16, 2018, the Company entered into the Series A Preferred Stock Purchase Agreement for the purchase and sale of Series A for $9.32 per share. The Company received $75.0 million in cash proceeds from the initial purchasers. On September 19, 2018, the Company received an additional $20.0 million in cash proceeds from subsequent purchasers. Additionally, on the initial closing date, $5.6 million in convertible notes plus accrued interest converted into shares of Series A and the notes were subsequently cancelled. The Warrants associated with the convertible notes became exercisable into shares of Series A. Each share of Series A is convertible into Common Stock on a one-for-one basis. In connection with the issuance of Series A, the Company incurred $194,000 in issuance costs which have offset amounts reported as temporary equity as of December 31, 2019. As of December 31, 2020, in connection with the Company’s IPO, all shares of Series A converted into Common Stock. 16 On December 23, 2019, the Company entered into the Series B-1 and Series B-2 Preferred Stock Purchase Agreement (the Series B Purchase Agreement), pursuant to which the investors committed to invest an aggregate amount of up to $ 125 . 0 million for the issuance and sale of shares of Series B-1 and Series B-2 (collectively, the Series B), at a price of $ 10.18690 and $ 11.20563 per share, respectively. The Company issued 8,344,034 shares of Series B-1 for cash proceeds of $ 85 . 0 million at the initial closing. The investors also committed to purchase and the Company committed to sell 3,569,630 shares of Series B-2 in a subsequent closing (the Second Closing), contingent upon achievement by the Company of certain development milestones or a receipt of a waiver of achievement of the milestones. No shares of Series B-2 were issued as of March 31, 2021 . In connection with the issuance of Series B-1, the Company incurred $ 442 ,000 in issuance costs which have offset amounts reported as temporary equity as of December 31, 20 19 . Prior to the IPO, the Company issued 3,569,630 shares of Series B-2, which upon the closing of the IPO converted into common stock. In connection with the Company’s IPO, all shares of Series B-1 converted into common stock. As of December 31, 2020, there was 10,000,000 shares of preferred stock authorized and no preferred stock issued. 9. Stock-based compensation Stock options During the periods ended March 31, 2021 and 2020, the Company’s stock option compensation expense was approximately $2.7 million and $240,000, respectively, and there was no recognized tax benefit in either of the periods. As of March 31, 2021, unamortized expense balance was $37.1 million, to be amortized over a weighted average period of 3.21 years. Stock option activity during the three months ended March 31, 2021 is as follows: Time-based options Shares subject to options Weighted- average exercise price Weighted- average remaining contractual term (years) Aggregate Intrinsic Value Outstanding as of January 1, 2021 5,488,148 $ 11.19 9.57 $ 90,335 Granted 59,500 $ 26.46 Exercised (26,207 ) $ 3.50 $ 92 Cancelled (5,718 ) $ 3.01 Outstanding as of March 31, 2021 5,515,723 $ 11.40 9.35 $ 62,548 Options vested and expected to vest as of March 31, 2021 5,460,481 $ 11.48 9.35 $ 61,485 Options vested and exercisable as of March 31, 2021 752,171 $ 6.36 8.98 $ 12,321 The weighted-average grant date fair value of options granted was $17.33 per share during the three months ended March 31, 2021. Restricted stock awards During the three months ended March 31, 2021 and 2020, the Company recorded a total stock-based compensation expense of $90,000 and $90,000 related to the restricted stock awards. As of March 31, 2021, unrecognized stock-based compensation expense related to outstanding unvested shares of restricted stock that are expected to vest were approximately $421,000, expected to be recognized over a weighted-average period of 1.00 years. The following table summarizes the Company’s restricted common stock activity for the three months ended March 31, 2021: Number of Awards Weighted- Average Grant Date Fair Value Aggregate Fair Value Issued and unvested as of January 1, 2021 408,411 1.15 470 Restricted stock awards granted — — — Restricted stock awards vested (104,700 ) 0.86 (90 ) Issued and unvested as of March 31, 2021 303,711 1.25 380 17 Stock-based compensation expense was allocated as follows for the three months ended March 31, 2021 and 2020: March 31, 2021 March 31, 2020 Research and development $ 1,709 $ 172 General and administrative 1,047 159 Total $ 2,756 $ 331 During the three months ended March 31, 2021, the Company issued 317,456 shares of common stock, upon exercise of unvested stock options or purchases for unvested restricted stock awards. As of March 31, 2021 and December 31, 2020, there were 338,358 and 396,522 shares of Common Stock held by employees subject to repurchase at an aggregate price of $0.5 million and $0.6 million, respectively. A corresponding liability was recorded and included in accrued expenses on the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020, respectively. 10. Fair value The following tables present the fair value of the Company’s financial instruments that are measured or disclosed at fair value on a recurring basis: Fair Value Measurements as of March 31, 2021 Level 1 Level 2 Level 3 Assets: Cash equivalents 200,362 - - U.S. Treasury bonds 13,053 - - $ 213,415 $ - $ - Fair Value Measurements as of December 31, 2020 Level 1 Level 2 Level 3 Assets: Cash equivalents $ 220,383 $ - $ - U.S. Treasury bonds 23,144 - - $ 243,527 $ - $ - 11. License and collaboration agreements Agreement with Emory University (Emory) In June 2018, the Company entered into a license agreement with Emory (the Emory License Agreement), pursuant to which Emory granted the Company a worldwide, sublicenseable license under certain of its intellectual property rights to make, have made, develop, use, offer to sell, sell, import and export products containing certain compounds relating to Emory’s hepatitis B virus capsid assembly modulator technology, for all therapeutic and prophylactic uses. Such license is initially exclusive with respect to specified licensed patents owned by Emory and non-exclusive with respect to certain of Emory’s specified know-how. Beginning in June 2022, the license to such patents will become non-exclusive with respect to all fields except for the treatment and prevention of HBV; however, the Company may select up to six compounds which will maintain exclusivity with respect to all therapeutic and prophylactic uses. With respect to all other compounds that are enabled by the licensed patents, those which are jointly invented by the Company and Emory or inventors in the Schinazi laboratory, or which are disclosed in a specified licensed patent, are licensed to the Company exclusively including as to Emory; whereas all other such compounds are licensed to the Company non-exclusively. Under the terms of the Emory License Agreement, the Company is obligated to use commercially reasonable efforts to bring licensed products to market in accordance with a mutually agreed upon development plan. Unless terminated earlier by either party in accordance with the provisions thereof, the Emory License Agreement shall continue until the expiration of the last–to-expire of the patents licensed to the Company thereunder. As consideration for the Emory License Agreement, the Company paid an upfront license fee of $290,000 and issued the Emory Convertible Note of $600,000. As discussed in Note 8, upon issuance of the Series A in August 2018, the Emory Convertible Note and unpaid accrued interest was cancelled and converted into shares of Series A at a conversion price of $9.32 per share. 18 In June 2020, the Company amended the license agreement with Emory. Pursuant to the amended license agreement, Emory granted the Company additional patent rights to certain compounds targeting the treatment or prevention of HBV. As consideration for the additional rights, the Company made a one-time, non-refundable payment to Emory in the amount of $ 150 ,000 , with an additional obligation to pay up to a maximum of $ 35 ,000 . On the same date, the Company entered into a collaboration agreement with Emory, with the initial research plan pertaining to the synthesis and evaluation of the compounds licensed through the additional patent rights granted in the amended license agreement. The research plan terminates one year from the effective date, with the Company having an option to extend for a second year. In connection with the research plan, the Company will provide Emory funding up to $ 270 ,000 per year. The Company has agreed to pay Emory up to an aggregate of $125.0 million upon the achievement of specified development, regulatory, and commercial milestones, and all ongoing patent costs. During the three months ended March 31, 2021, the Company had $80,000 expenses related to milestone payments. The Company also agreed to pay Emory tiered single-digit royalties on worldwide annual net sales of licensed products, on a quarterly basis and calculated on a product-by-product basis. With respect to licensed products containing any of a specified subset of the licensed compounds, such royalties range from a mid-single digit to a high-single digit percentage rate. With respect to licensed products which do not contain such compounds, the royalties span a range of percentage rates within the mid-single digits if a Phase 1 clinical trial is initiated for the product within three years of the effective date of the Emory License Agreement, and range from a low-single digit to a mid-single digit rate if a Phase 1 clinical trial is initiated more than three years after the effective date. During the three months ended March 31, 2021 and 2020, the Company made no payments associated with royalties and recognized no expense or accruals. Agreement with Luxna Biotech Co., Ltd. (Luxna) On December 19, 2018, the Company entered into a license agreement with Luxna, pursuant to which Luxna granted the Company an exclusive, worldwide, sublicensable license under certain of Luxna’s intellectual property rights to research, develop make, have made and commercialize for all therapeutic and prophylactic uses, (i) products containing oligonucleotides targeting the hepatitis B virus genome, (ii) products containing certain oligonucleotides targeting up to three genes which contribute to NASH, which the Company may select at any time during the first eight years of the term, to the extent not licensed to a third party, and (iii) products containing oligonucleotides targeting up to three genes which contribute to hepatocellular carcinoma, which the Company may select at any time during the first three years of the term. As consideration for this agreement, the Company paid an upfront license fee of $600,000, which was recorded as research and development expense during the period from inception through December 31, 2018 and the year ended December 31, 2019. In April 2020, the Company amended the license agreement with Luxna. Pursuant to the amended license agreement, Luxna granted the Company an exclusive, worldwide license under the licensed patents to research, develop, make, have made and commercialize products containing oligonucleotides targeting three families of viruses: orthomyxoviridae, paramyxoviridae, and coronaviridae (a family which includes SARS-CoV-2). As consideration for the amended license agreement, the Company paid Luxna a one-time non-refundable fee of $200,000 in April 2020. The Company is obligated to make payments to Luxna, in aggregate, totaling up to but no more than $55.5 million upon the achievement of specified development, regulatory, and commercial milestones. During the three months ended March 31, 2021 and 2020, the Company recognized no expenses related to milestone payments. The Company is also required to pay Luxna a low-single digit royalty percentage on net sale of applicable products, if any. During the three months ended March 31, 2021 and 2020, the Company made no payments associated with royalties. Agreement with Katholieke Universiteit Leuven (KU Leuven) On June 25, 2020, the Company entered into a Research, Licensing and Commercialization Agreement (KU Leuven Agreement) with KU Leuven, under which the Company is collaborating with KU Leuven’s Rega Institute for Medical Research, as well as its Centre for Drug Design and Discovery, to research and develop potential protease inhibitors for the treatment, diagnosis or prevention of coronaviruses, including of SARS-CoV-2. Unless terminated earlier by either party in accordance with provisions in the agreement, the collaboration period will terminate at the earlier of completion of all collaboration activities or 2.5 years. In connection with the KU Leuven Agreement, KU Leuven and the Company granted each other exclusive cross-licenses to use certain know-how and existing patents of the other party as well as certain joint know-how and joint patents to carry out research and development collaboration activities during the collaboration period. KU Leuven granted to the Company an exclusive (including as to KU Leuven), worldwide license under certain of KU Leuven’s know-how and existing patents, and certain joint patents and joint know-how, to manufacture and commercialize the licensed products for the treatment, diagnosis or detection of viral infections in humans. KU Leuven reserved the right to use all KU Leuven knowhow, existing KU Leuven patents, joint patents and joint know-how for academic and non-commercial research and teaching purposes. As consideration for this license, the Company is obligated to make payments to KU Leuven, in aggregate, totaling up to but no more than $30.0 million upon the achievement of certain commercial sales milestones. For each licensed product developed through KU Leuven and the Company’s collaborative effort, the Company is 19 obligated to make payments to KU Leuven, in aggregate, totaling up to $ 32 . 0 million upon the achievement of certain development and regulatory milestones. The Company is also required to pay KU Leuven a low-to-mid-single digit royalty percentage, subject to certain adjustments, on net sales of applicable products, if any. Unless terminated earlier by either party, the agreement shall continue until the expiration of the last to expire royalty term, which is the later of the expiration or termination of the last valid patent claim covering the manufacture, use, sale or importation of the licensed product in a particular country or 10 years after the first commercial sale of a licensed product. During the three months ended March 31, 2021 , the Company recognized no expenses related to milestone payments. Agreement with Merck In December 2020, the Company and Merck & Co. entered into an exclusive License and Research Collaboration Agreement under which Merck and the Company agreed to apply the Company’s oligonucleotide platform technology to discover, research, optimize and develop oligonucleotides directed against a NASH target and up to one additional liver-targeted cardiometabolic and/or fibrosis target. Under the terms of the agreement, the Company received an upfront payment from Merck and may receive an additional upfront payment after finalization of a research plan for such additional target. With respect to each collaboration target, the Company will be eligible for up to $458.0 million in development and commercialization milestones as well as tiered royalties on net sales. The Company will be primarily responsible for designing, preparing and evaluating the oligonucleotide molecules and delivering optimized lead molecules, and Merck will be responsible for subsequent research, clinical development and commercialization efforts. The Company determined that the Merck agreement falls within the scope of ASC 808 and we analogized to ASC 606 for the accounting of payments such as upfront payments and other milestones. During the three months ended March 31, 2021 the Company recognized $910,000 of revenue from collaborative arrangements related to milestone payments. During the three months ended March 31, 2020 the Company did not recognize any revenue from collaborative arrangements. 12. Commitments and contingencies From time to time, the Company may have certain contingent liabilities, including legal matters that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company had no contingent liabilities requiring accrual as of March 31, 2021 and December 31, 2020. 13. Income taxes The Company has a history of losses and expected to record a loss in 2021. The Company continues to maintain a full valuation allowance its net deferred tax assets. 1 4 . Net loss per share The following table summarizes the computation of basic and diluted net loss per share of the Company: Three Months Ended March 31, 2021 2020 Net loss $ (27,674 ) $ (20,029 ) Weighted average common stock outstanding, basic and diluted 37,434,261 2,648,885 Net loss per share - basic and diluted $ (0.74 ) $ (7.56 ) The Company’s potentially dilutive securities, which include redeemable convertible preferred stock, a forward contract to issue preferred stock, options to purchase common stock and unvested restricted stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of Common Stock outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the 20 following potential shares of Common Stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: Three Months Ended March 31, 2021 2020 Convertible preferred stock - 19,201,432 Forward contract to issue redeemable convertible preferred stock - 3,569,630 Options to purchase common stock 5,504,150 2,435,535 Unvested restricted stock 303,697 722,486 Warrants to purchase preferred stock - 83,146 5,807,847 26,012,229 1 5 . Subsequent events In preparing the interim financial statements as of March 31, 2021 and for the three months then ended, the Company evaluated subsequent events for recognition and measurement purposes. The Company concluded that no events or transactions have occurred that require disclosure in the accompanying financial statements. 21 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in “Risk factors” and “Special note regarding forward-looking statements.” Overview We are a clinical-stage biopharmaceutical company currently focused on developing novel therapeutics to address unmet medical needs in viral and liver diseases. We utilize our proprietary oligonucleotide and small molecule platforms to develop pharmacologically optimized drug candidates for use in combination regimens designed to achieve improved treatment outcomes. Our lead effort is to develop a functional cure for Chronic Hepatitis B (CHB), which often results in other life-threatening conditions such as cirrhosis, end-stage liver disease (ESLD) and the most common form of liver cancer, hepatocellular carcinoma (HCC). The most widely used treatment for CHB, nucleos(t)ide analogs, suppresses viral replication but only achieves low rates of functional cure and often requires long-term administration. To address this issue, we have developed a portfolio of differentiated drug candidates for CHB, including an S-antigen Transport-inhibiting Oligonucleotide Polymers (STOPS) molecule, a small molecule Capsid Assembly Modulator (CAM), and oligonucleotides (ASO and siRNA), each of which is designed against clinically validated targets in the Hepatitis B Virus (HBV) life cycle. We believe that combination regimens utilizing our portfolio of CHB drug candidates may lead to higher rates of functional cure. Phase 1 proof of concept trials evaluating the properties of our STOPS molecule and CAM are ongoing in New Zealand, Hong Kong, and Moldova. We may also in the future conduct clinical trials for our STOPS molecule and CAM and other drug candidates in other countries and territories, including South Korea, the United Kingdom, and China. Our second area of focus is in non-alcoholic steatohepatitis (NASH), a complex, chronic liver disease where combination regimens may likewise prove beneficial. Our most advanced drug candidate for NASH is ALG‑055009, a small molecule THR-ß agonist currently in nonclinical studies to enable a first-in-human clinical trial. We believe ALG‑055009 has the potential to become an integral component of future combination regimens for NASH. Our third area of focus is to develop drug candidates with pan-coronavirus activity, including SARS-CoV-2, the virus responsible for COVID-19. In October 2020, we completed our initial public offering (IPO) and issued 10,000,000 shares of our common stock at a price to the public of $15.00 per share for net proceeds of $135.4 million, after deducting underwriting discounts and commissions of $10.5 million and expenses of $4.1 million. In connection with the IPO, all shares of Series A, Series B-1 and Series B-2 redeemable convertible preferred stock converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million, after deducting underwriting discounts and commissions of $1.2 million. Prior to our IPO, we had received gross proceeds of approximately $186.9 million from sales of our preferred stock and our issuance of convertible debt. We have incurred net losses and negative cash flows from operations in each year since our formation in February 2018. Our net losses were $27.7 million and $20.0 million for the three months ended March 31, 2021 and 2020, respectively. We have had no revenue from product sales. As of March 31, 2021, we had an accumulated deficit of $202.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. Our net operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of our clinical trials and nonclinical studies and our other research and development expenses. We have no internal manufacturing capabilities or salesforce and outsource a substantial portion of our clinical trial work to third parties. Components of our results of operations Operating expenses Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs. 22 Research and development expenses We rely substantially on third parties to conduct our discovery activities, nonclinical studies, clinical trials and manufacturing. We estimate research and development expenses based on estimates of services performed, and rely on third party contractors and vendors to provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates. A portion of our research and development expenses are based on contractual milestones. Research and development costs consist primarily of costs incurred for the identification and development of our drug candidates through our technology platforms, which include: • salaries, benefits and other employee-related costs, including stock-based compensation expense, for personnel engaged in research and development functions; • costs of outside consultants, including their fees, and related travel expenses; • costs associated with in-process research and development, including license fees and milestones paid to third-party collaborators for technologies with no alternative use; • costs related to production of clinical materials, including fees paid to contract manufacturers; • expenses incurred under agreements with collaborators that perform nonclinical activities; • costs related to compliance with regulatory requirements; and • facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies. We expense research and development costs as the services are performed or the goods are received. Non-refundable payments for goods or services that will be used for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed until it is no longer expected that the goods will be delivered or the services will be rendered. We expect our research and development costs to increase in future periods as we continue to invest in research and development activities and advance our nonclinical and clinical programs through clinical development. The process of conducting nonclinical studies and, eventually, clinical trials necessary to obtain regulatory approval is costly and time consuming, and the successful development of our drug candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or clinical trials or if and to what extent we will generate revenue from the commercialization and sale of any of our drug candidates. General and administrative expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs not otherwise classified as research and development costs. We expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our drug candidates. We also expect to incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing rules and requirements of the Securities and Exchange Commission (the SEC), director and officer insurance costs, and investor and public relations costs. Interest and other income, net Interest and other income, net comprises interest income, net and other income, net. Interest income, net primarily consists of interest earned on our cash, cash equivalents, and short-term investments and interest expense related to our convertible note instruments. Other income, net consists primarily of the change in fair value of our derivative liabilities. We classify our warrants and the commitment to sell redeemable convertible preferred stock as liabilities on our consolidated balance sheets and record changes in fair value at each balance sheet date with the corresponding change recorded as other income, net. We will continue to record adjustments to the fair value of the warrants and the redeemable convertible preferred stock liability at each balance sheet date until they are exercised, automatically converted into common stock or expire. Prior to our IPO, all outstanding warrants were exercised for the issuance of shares of common stock and, upon that exercise, such warrants were no longer outstanding. 23 We anticipate other income, net to fluctuate in the future based on changes in our short - term investments . Results of Operations Comparison of the three months ended March 31, 2021 and 2020 Operating expenses The following table summarizes our operating expenses for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, Change 2021 2020 ($) % Operating expenses: Research and development $ 22,869 $ 17,302 $ 5,567 32 % General and administrative 5,781 3,419 2,362 69 % Total operating expenses $ 28,650 $ 20,721 $ 7,929 38 % Research and development expenses Research and development expenses were $22.9 million for the three months ended March 31, 2021, compared to $17.3 million for the three months ended March 31, 2020, an increase of $5.6 million. The increase was primarily due to an increase of $2.7 million of additional employee-related costs, including a $1.5 million increase in stock-based compensation. The increase also includes $1.8 million in third-party expenses for our preclinical programs and the continued increase in expenditures related to research and development activities associated with our STOPs molecule and CAM candidates, as well as activities related to our NASH program, and $0.9 million of allocated facilities and related expenses. General and administrative expenses General and administrative expenses were $5.8 million for the three months ended March 31, 2021, compared to $3.4 million for the three months ended March 31, 2020, an increase of $2.4 million. The increase was primarily due to $1.5 million in increased employee-related costs, including an increase of $0.9 million of additional stock-based compensation expense, a $2.1 million increase in third-party expenses primarily due to increased administrative costs and D&O insurance to support our status as a public company, offset by a decrease of $0.9 million in allocated facilities and related expenses. Interest and other income, net Three Months Ended March 31, Change 2021 2020 ($) % Interest income, net $ 105 $ 468 $ (363 ) -77 % Other income, net 6 224 (218 ) -97 % Total interest and other income, net $ 111 $ 692 $ (581 ) -84 % Interest income, net decreased to $0.1 million for the three months ended March 31, 2021 from $0.5 million for the three months ended March 31, 2020, a decrease in $0.4 million, primarily due to the change in our portfolio of cash equivalents, short-term investments and long-term investments which results in lower interest yield. Other income, net decreased to a loss of $0.0 million for the three months ended March 31, 2021 from a loss of $0.2 million for the three months ended March 31, 2020, a decrease of $0.2 million, primarily due to the fair value change recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities in the prior year. 24 Liquidity and capital resources Since our inception, we have not generated any revenue from product sales or any other sources, and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at least several years, if ever. To date, we have financed our operations through private placements of preferred stock, issuances of common stock and convertible debt. Through March 31, 2021, we had received gross proceeds of $186.9 million from sales of our preferred stock, issuances of common stock and our issuance of convertible debt. As of March 31, 2021, we had cash, cash equivalents and investments of $213.4 million. Funding requirements We have incurred net losses since inception. Our primary use of cash is to fund operating expenses, which consist primarily of research and development costs related to our drug candidates and our discovery programs, and to a lesser extent, general and administrative expenditures. We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to our most advanced drug candidates, ALG-010133 and ALG-000184, which are still in the early stages of development, as well as our research and development of our other drug candidates within our CHB, NASH and coronavirus programs. In addition, we are incurring additional costs associated with operating as a public company following our IPO in October 2020. We expect that our expenses will increase substantially to the extent we: • conduct our current and future clinical trials, and additional nonclinical studies; • initiate and continue research and nonclinical and clinical development of other drug candidates; • seek to identify additional drug candidates; • pursue marketing approvals for any of our drug candidates that successfully complete clinical trials, if any; • establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; • require the manufacture of larger quantities of our drug candidates for clinical development and potentially commercialization; • obtain, maintain, expand, protect and enforce our intellectual property portfolio; • acquire or in-license other drug candidates and technologies; • hire and retain additional clinical, quality control and scientific personnel; • achieve milestones triggering payments by us under our current and potential future licensing and/or collaboration agreements; • build out or expand existing facilities to support our ongoing development activity; and • add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to becoming a public company. As of March 31, 2021, we had cash, cash equivalents and investments of $213.4 million. In October 2020, we issued an aggregate of 3,569,630 shares of our Series B-2 redeemable convertible preferred stock in the second tranche of our Series B convertible preferred stock financing for aggregate proceeds to us of $40.0 million. In addition, we have received net proceeds of $151.4 million from the sale of an aggregate of 11,150,000 shares of our common stock on October 20, 2020 and on November 5, 2020 as part of our IPO. We believe that our existing cash, cash equivalents and investments will enable us to fund our planned operating expenses and capital expenditure requirements through at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Furthermore, we may elect to raise additional capital on an opportunistic basis to fund operations. 25 Because of the numerous risks and uncertainties associated with our research and development programs and because the extent to which we may enter into collaborations with third parties for development of our drug candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our drug candidates. Our future capital requirements will depend on many factors, including: • the scope, progress, results and costs of researching and developing our drug candidates and programs, and of conducting nonclinical studies and clinical trials; • the timing of, and the costs involved in, obtaining marketing approvals for drug candidates we develop if clinical trials are successful; • the cost of commercialization activities for our current drug candidates, and any future drug candidates we develop, whether alone or in collaboration, including marketing, sales and distribution costs if our current drug candidates or any future drug candidate we develop is approved for sale; • the cost of manufacturing our current and future drug candidates for clinical trials in preparation for marketing approval and commercialization; • our ability to establish and maintain strategic licenses or other arrangements and the financial terms of such agreements, including milestone payments to our licensors; • the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; • the timing, receipt and amount of sales of, or profit share or royalties on, our future products, if any; • the emergence of competing therapies hepatological indications and viral diseases and other adverse market developments; and • any acquisitions or in-licensing of other programs or technologies. Developing pharmaceutical products, including conducting nonclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any drug candidates or generate revenue from the sale of any drug candidate for which we may obtain marketing approval. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely constrain our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. 26 Cash flows The following table summarizes our sources and uses of cash for each of the periods presented: Three Months Ended March 31, 2021 2020 Net cash used in operating activities $ (29,796 ) $ (20,319 ) Net cash provided by (used in) investing activities 9,693 (23,769 ) Net cash (used in) provided by financing activities 78 (48 ) Net decrease in cash, cash equivalents, and restricted cash $ (20,025 ) $ (44,136 ) Operating activities During the three months ended March 31, 2021, operating activities used $29.8 million of cash, primarily resulting from our net loss of $27.7 million and cash used in changes in our operating assets and liabilities of $5.8 million, partially offset by non-cash charges of $3.7 million. Net cash provided by changes in our operating assets and liabilities of $5.8 million consisted of a decrease of $4.7 million in accounts payable and accrued liabilities, a decrease of $0.9 million in deferred revenue from collaborations, a $0.3 million in other assets, partially offset by an increase of $0.3 million in operating lease liability. The decrease in accounts payable and accrued liabilities was largely due to payment of the annual bonus in 2021 that was accrued for in 2020. The decrease in other assets was largely due to an increase in prepayments for services. The increase in the operating lease liability was a result of an extension of the facilities lease. During the three months ended March 31, 2020, operating activities used $20.3 million of cash, primarily resulting from our net loss of $20.0 million and cash used in changes in our operating assets and liabilities of $1.2 million, partially offset by non-cash charges of $0.9 million. Net cash provided by changes in our operating assets and liabilities of $1.2 million consisted of a decrease of $0.1 million in accounts payable and accrued liabilities, an increase of $0.3 million in operating lease liability, an increase of $0.2 million in right of use assets, and an increase of $0.5 million in other current assets. The decrease in accounts payable and accrued liabilities was largely due to an increase in external research and development costs. Investing activities During the three months ended March 31, 2021, investing activities provided $9.7 million of cash, consisting primarily of $10.0 million of investment maturities, offset by $0.3 million of purchases of property and equipment. During the three months ended March 31, 2020, investing activities used $23.8 million of cash, consisting primarily of $22.6 million of investment maturities, offset by $45.3 million of investment purchases, and $1.1 million of purchases of property and equipment. Financing activities During the three months ended March 31, 2021, net cash provided by financing activities was $0.1 million, consisting primarily of $0.1 million proceeds from the exercise of stock options. During the three months ended March 31, 2020, net cash used in financing activities was $0.1 million, consisting primarily of $0.3 million proceeds from the exercise of warrants offset by $0.4 million of preferred stock issuance costs. Contractual obligations and commitments We have no material changes to our contractual obligations and commitments as of March 31, 2021 as disclosed in the contractual obligations and commitment section in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2021. Off-balance sheet arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. 27 Indemnification agreements We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal. Critical accounting policies and use of estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and the disclosure of assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of our critical accounting estimates, see “Management’s discussion and analysis of financial condition and results of operations” in our annual report on Form 10-K, the notes to our audited financial statements appearing in the Form 10-K and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to these critical accounting policies and estimates through March 31, 2021 from those discussed in our Prospectus. Recently issued and adopted accounting pronouncements For a description of the expected impact of recently adopted accounting pronouncements, see Note 2. Summary of Significant Accounting Policies in the “Notes to Unaudited Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this report.