Aligos Therapeutics, Inc. 10-Q

Item 1. Financial Statements. ALIGOS THERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) September 30, 2021 December 31, 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 239,734 $ 220,383 Restricted cash 653 560 Short-term investments 2,451 23,130 Other current assets 5,832 5,944 Total current assets 248,670 250,017 Operating lease right-of-use assets 6,886 6,901 Property and equipment, net 6,272 8,007 Long-term investments 492 - Other assets 748 377 Total assets $ 263,068 $ 265,302 LIABILITIES, PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,601 $ 3,313 Accrued liabilities 22,760 16,564 Operating lease liabilities, current 2,701 2,442 Finance lease liabilities, current 81 64 Deferred revenue from collaborations, current 6,637 7,891 Total current liabilities 34,780 30,274 Operating lease liabilities, net of current portion 9,586 10,371 Finance lease liabilities, net of current portion 53 130 Other liabilities 267 379 Deferred revenue from collaborations, net of current portion 1,371 4,109 Total liabilities 46,057 45,263 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred Stock, $ 0.0001 par value; 10,000,000 shares authorized as of September 30, 2021 (unaudited) and December 31, 2020, respectively; no shares issued and outstanding as of September 30, 2021 (unaudited) and December 31, 2020 - - Common stock, $ 0.0001 par value; 320,000,000 shares authorized as of September 30, 2021 (unaudited) and December 31, 2020, respectively; 42,611,847 and 38,120,606 shares issued and outstanding as of September 30, 2021 (unaudited) and December 31, 2020 4 4 Additional paid-in capital 482,615 394,963 Accumulated deficit ( 265,358 ) ( 174,740 ) Accumulated other comprehensive loss ( 250 ) ( 188 ) Total stockholders’ equity 217,011 220,039 Total liabilities and stockholders’ equity $ 263,068 $ 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue from collaborations $ 1,537 $ - $ 3,992 $ - Operating expenses: Research and development 28,132 17,332 75,555 51,809 General and administrative 6,473 4,225 18,810 11,739 Total operating expenses 34,605 21,557 94,365 63,548 Loss from operations ( 33,068 ) ( 21,557 ) ( 90,373 ) ( 63,548 ) Interest and other income (expense), net 70 ( 11,740 ) ( 44 ) ( 10,633 ) Loss before income tax expense ( 32,998 ) ( 33,297 ) ( 90,417 ) ( 74,181 ) Income tax income (expense) ( 126 ) — ( 201 ) 58 Net loss ( 33,124 ) ( 33,297 ) ( 90,618 ) ( 74,123 ) Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities ( 1 ) ( 105 ) ( 67 ) 132 Unrealized gain (loss) on pension plans 2 ( 13 ) 5 15 Other comprehensive income (loss) 1 ( 118 ) ( 62 ) 147 Comprehensive loss $ ( 33,123 ) $ ( 33,415 ) $ ( 90,680 ) $ ( 73,976 ) Net loss per share, basic and diluted $ ( 0.78 ) $ ( 11.00 ) $ ( 2.31 ) $ ( 26.20 ) Weighted average shares of common stock, basic and diluted 42,399,984 3,027,825 39,151,095 2,829,160 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 September 30, 2021 Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance as of June 30, 2021 38,200,121 $ 4 $ 401,363 $ ( 232,234 ) $ ( 251 ) $ 168,882 Issuance of common stock upon exercise of stock options 11,726 - 18 - - 18 Issuance of common stock in connection with Follow-on Offering, net of offering costs 4,400,000 - 78,584 - - 78,584 Costs related to the Follow-on Offering - - ( 727 ) - - ( 727 ) Stock-based compensation - - 3,295 - - 3,295 Vesting of early exercised common stock options - - 82 - - 82 Other comprehensive income - - - - 1 1 Net loss - - - ( 33,124 ) - ( 33,124 ) Balance as of September 30, 2021 42,611,847 $ 4 $ 482,615 $ ( 265,358 ) $ ( 250 ) $ 217,011 Nine Months Ended September 30, 2021 Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit 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 91,241 - 327 - - 327 Issuance of common stock in connection with Follow-on Offering, net of offering costs 4,400,000 - 78,584 - - 78,584 Costs related to the Follow-on Offering - - ( 727 ) - - ( 727 ) Stock-based compensation - - 9,260 - - 9,260 Vesting of early exercised common stock options - - 208 - - 208 Other comprehensive loss - - - - ( 62 ) ( 62 ) Net loss - - - ( 90,618 ) - ( 90,618 ) Balance as of September 30, 2021 42,611,847 $ 4 $ 482,615 $ ( 265,358 ) $ ( 250 ) $ 217,011 The accompanying notes are an integral part of these consolidated financial statements. 3 Three Months Ended September 30, 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 June 30, 2020 10,857,395 $ 101,182 8,344,034 $ 81,384 4,035,978 $ - $ 2,300 $ ( 107,023 ) $ 150 $ ( 104,573 ) Stock-based compensation - - - - - - 1,016 - - 1,016 Vesting of early exercised common stock - - - - - - 156 - - 156 Issuance of common stock upon exercise of stock options - - - - 68,607 - 148 - - 148 Other comprehensive loss - - - - - - - - ( 118 ) ( 118 ) Net loss - - - - - - - ( 33,297 ) - ( 33,297 ) Balance as of September 30, 2020 10,857,395 $ 101,182 8,344,034 $ 81,384 4,104,585 $ - $ 3,620 $ ( 140,320 ) $ 32 $ ( 136,668 ) Nine Months Ended September 30, 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 37,552 487 - - - - - - - - Stock-based compensation - - - - - - 1,674 - - 1,674 Vesting of early exercised common stock - - - - - - 282 - - 282 Issuance of common stock upon exercise of stock options - - - - 176,782 - 243 - - 243 Other comprehensive income - - - - - - - - 147 147 Net loss - - - - - - - ( 74,123 ) - ( 74,123 ) Balance as of September 30, 2020 10,857,395 $ 101,182 8,344,034 $ 81,384 4,104,585 $ - $ 3,620 $ ( 140,320 ) $ 32 $ ( 136,668 ) The accompanying notes are an integral part of these consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 90,618 ) $ ( 74,123 ) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of discount on investments 63 181 Amortization of right of use assets 474 437 Depreciation expense 2,291 2,005 Stock-based compensation including ESPP 9,806 1,674 Change in fair value of derivative liability - 296 Change in fair value of redeemable convertible preferred stock liabilities - 11,387 Changes in operating assets and liabilities: Other assets ( 259 ) ( 1,049 ) Accounts payable ( 712 ) 3,677 Accrued liabilities 5,861 1,875 Operating lease liabilities ( 985 ) ( 939 ) Other liabilities ( 111 ) - Deferred revenue from collaborations ( 3,992 ) - Net cash and cash equivalents used in operating activities ( 78,182 ) ( 54,579 ) Cash flows from investing activities: Activities in available-for-sale investments: Maturities of investments 13,000 22,000 Purchase of short-term investments ( 1,961 ) ( 45,279 ) Purchase of long-term investments ( 982 ) - Activities in held-to-maturity investments: Maturities of investments 10,000 43,100 Purchases of property and equipment ( 556 ) ( 2,003 ) Net cash and cash equivalents provided by investing activities 19,501 17,818 Cash flows from financing activities: Proceeds from issuance of common stock in connection with Follow-on Offering, net of costs 78,584 - 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 of deferred offering costs ( 727 ) ( 1,066 ) Payments on finance lease ( 59 ) ( 46 ) Proceeds from the exercise of common stock option 327 197 Net cash and cash equivalents provided by (used in) financing activities 78,125 ( 970 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 19,444 ( 37,731 ) Cash, cash equivalents, and restricted cash, beginning of period 220,943 70,103 Cash, cash equivalents, and restricted cash, end of period $ 240,387 $ 32,372 The accompanying notes are an integral part of these consolidated financial statements. 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2021 2020 Reconciliation to amounts on the consolidated balance sheet: Cash and cash equivalents $ 239,734 $ 31,816 Restricted cash 653 556 Total cash, cash equivalents, and restricted cash $ 240,387 $ 32,372 Supplemental disclosures of cash flow information: Interest paid - 4 Supplemental disclosures of noncash financing and investing activities: Leasehold improvement directly paid by landlord $ - $ 79 Mark to market adjustment for available-for-sale investments $ ( 67 ) $ 132 Acquisition of right of use asset through operating lease obligation $ 459 $ - Change in fair value of derivative liability upon exercise of warrants $ - $ 137 Vesting of early exercised options $ 208 $ 282 Receivable from exercise of common stock options $ - $ 46 Change in pension obligation $ 5 $ 15 Deferred offering costs in AP and accrued liabilities $ - $ 1,544 The accompanying notes are an integral part of these consolidated financial statements. 6 ALIGOS THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. On May 18, 2021, the Company formed as a wholly owned subsidiary, Aligos Therapeutics (Shanghai) Co. Ltd. (Aligos-Shanghai) and together with Aligos-US, Aligos-Belgium, and Aligos-Australia 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 for chronic hepatitis B, coronaviruses and 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 9, 2020, the Company effected 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 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. 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 September 30, 2021 and December 31, 2020, the Company had an accumulated deficit of $ 265.4 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 September 30, 2021, the Company has unrestricted cash, cash equivalents and investments of approximately $ 242.7 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 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 consistent with that used to prepare the audited annual consolidated financial statements 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 requirements for interim financial statements. 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, Aligos-Australia and Aligos-Shanghai. 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 September 30, 2021, the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the consolidated statements of cash flows for the nine months ended September 30, 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 September 30, 2021 and the consolidated results of its operations and cash flows for the three and nine months ended September 30, 2021 and 2020. The consolidated financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are unaudited. The consolidated results for the three and nine months ended September 30, 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. Deferred offering costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated, including the Company’s July 2021 follow-on offering and issuance of 4,400,000 shares of the Company’s common stock at a price to the public of $ 19.00 per share for net proceeds of $ 77.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. After consummation of the financing, these costs are recorded as a reduction of the proceeds received from the equity financing. If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss. There were no deferred offering costs recorded within other assets on the Company’s condensed consolidated balance sheets as at each of September 30, 2021 and December 31, 2020. 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 and loss was recognized during the three and nine months ended September 30, 2021 of $ 69,000 and ($ 139,000 ), respectively, and a re-measurement gain was recognized during the three and nine months ended September 30, 2020 of $ 18,000 and $ 70,000 , respectively. This is reflected within interest and other income (expense), net on the consolidated statements of operations and comprehensive loss. 9 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 $ 5.3 million and $ 962,000 of property and equipment, net in Aligos-US and Aligos-Belgium, respectively, as of September 30, 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 As of September 30, 2021 and December 31, 2020, the restricted cash balance was $ 653,000 and $ 560,000 , respectively, and includes funds to secure the letters of credit in relation to the Company’s operating leases and deposits on rental assets (Note 6), as well as employee withholdings for the employee stock purchase plan. 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. 10 Impairment of long-lived assets The Company reviews quarterly 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 and nine months ended September 30, 2021 and 2020. Investments The Company generally invests its excess cash in money market funds and investment grade short-to-intermediate-term fixed income securities. Such investments are included in cash and cash equivalents or short-term investments on the condensed consolidated Balance Sheets. The Company determines the appropriate classification of short-term and long-term securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity, otherwise 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 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 (expense), 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 (expense), net, 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 and nine months ended September 30, 2021 and 2020. As of September 30, 2021, short-term and long-term investments consisted of certificates of deposit, and at 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 11 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 and nine months ended September 30, 2021 and 2020, no milestones were met and no royalties were due; therefore, the Company did not pay or expense any milestone or royalties. 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, stock options and the employee stock purchase plan. 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 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 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 no t paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero . 12 The fair value of the employee stock purchase plan (ESPP) is determined on the date the offering period begins using a Black-Scholes option-pricing model and similar assumptions for stock options as described above. 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 nine months ended September 30, 2021 and 2020. 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 September 30, 2021 and December 31, 2020 were as follows: September 30, 2021 December 31, 2020 Leasehold improvements $ 5,725 $ 5,655 Lab equipment 5,253 4,833 Computer equipment 989 942 Furniture and office equipment 471 459 Vehicles 305 296 Asset under construction 63 65 Total, at cost 12,806 12,250 Accumulated depreciation ( 6,534 ) ( 4,243 ) Total, net $ 6,272 $ 8,007 Depreciation expense was $ 765,000 and $ 2.3 million for the three and nine months ended September 30, 2021, respectively, and $ 708,000 and $ 2.0 million for the three and nine months ended September 30, 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 September 30, 2021 and December 31, 2020, amortized cost, gross unrealized gains and losses, and estimated fair values of total fixed-maturity securities were as follows: September 30, 2021 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gain Loss Fair Value Available-for-sale securities Certificates of deposit $ 2,942 $ 1 $ - $ 2,943 $ 2,942 $ 1 $ - $ 2,943 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 available-for-sale as of September 30, 2021: Available-for-sale Amortized Cost Estimated Fair Value Amounts maturing in: One year or less $ 2,450 $ 2,451 More than one year 492 492 Total investments $ 2,942 $ 2,943 The Company recorded interest income of $ 20,000 and $ 197,000 for the three and nine months ended September 30, 2021, respectively, and $ 234,000 and $ 985,000 for the three and nine months ended September 30, 2020, respectively, as a component of interest and other income (expense), net on the Company’s condensed consolidated statement of operations and comprehensive loss. 5. Accrued liabilities Accrued liabilities consisted of the following: September 30, December 31, 2021 2020 Accrued compensation $ 6,959 $ 7,274 Accrued payables 14,370 8,554 Liability for early exercised stock options 360 569 Other 1,071 167 Total $ 22,760 $ 16,564 14 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 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 September 30, 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 September 30, 2021 and are as follows: Operating Lease Finance Lease Year ending December 31: 2021, remainder $ 704 $ 19 2022 2,978 77 2023 2,824 41 2024 2,750 1 2025 2,843 - Thereafter 3,693 - Less: imputed interest ( 3,505 ) ( 4 ) Present value of lease liabilities 12,287 134 Less: current portion ( 2,701 ) ( 81 ) Lease liabilities net of current portion $ 9,586 $ 53 The components of lease expense were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Operating lease cost $ 505 $ 464 $ 1,497 $ 1,397 Finance lease cost: Amortization of right-of-use assets $ 18 $ 19 $ 55 $ 48 Interest on lease liabilities 1 2 4 7 Total finance lease cost $ 19 $ 21 $ 59 $ 55 The Company made payments of $ 686,000 and $ 2.0 million during the three and nine months ended September 30, 2021, respectively, and $ 637,000 and $ 1.9 million during the three and nine months ended September 30, 2020, respectively, which are included as cash flow from operations on the condensed consolidated statements of cash flows. As of September 30, 2021 and December 31, 2020, $ 305,000 and $ 296,000 , respectively, of finance lease ROU assets were presented as part of property and equipment on the condensed consolidated balance sheet with accumulated amortization of $ 176,000 and $ 107,000 , respectively. 15 Additional information related to the Company’s leases was as follows as of September 30, 2021 and December 31, 2020: September 30, December 31, 2021 2020 Operating Lease: Weighted-average remaining lease term (years) 5.29 5.97 Weighted-average discount rate 9.41 % 9.35 % Finance Lease: Weighted-average remaining lease term (years) 1.96 2.68 Weighted-average discount rate 3.11 % 3.15 % 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 had a coverage percentage of 25 % of the principal amount of the notes and had 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 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. As of September 30, 2021 and December 31, 2020, due to the IPO in October 2020, all outstanding warrants were automatically exercised for the issuance of Common Stock, and following that exercise, such warrants were no longer outstanding. 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 $ 240,000 and $ 296,000 for the three and nine months ended September 30, 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. 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 September 30, 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 derivative liabilities of $ 11.8 million and $ 11.4 million for the three and nine months ended September 30, 2020, respectively. 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”. 16 The holders of shares of Voting Common Stock are entitled to one vote for each share of Voting 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. 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. 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, 2019. 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 September 30, 2021 , there was 10,000,000 shares of preferred stock authorized and no preferred stock issued. 9. Stock-based compensation Stock options During the three and nine months ended September 30, 2021, the Company’s stock option compensation expense was approximately $ 3.2 million and $ 9.0 million, respectively. During the three and nine months ended September 30, 2020, the Company’s stock option compensation expense was approximately $ 926,000 and $ 1.4 million, respectively. There was no recognized tax benefit in either of the periods. As of September 30, 2021, unamortized expense balance was $ 35.5 million, to be amortized over a weighted average period of 2.76 years. Stock option activity during the nine months ended September 30, 2021 is as follows: 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 353,380 $ 22.47 Exercised ( 90,849 ) $ 3.57 Cancelled ( 109,397 ) $ 12.56 Outstanding as of September 30, 2021 5,641,282 $ 11.99 8.86 $ 24,527 Options vested and expected to vest as of September 30, 2021 5,596,143 $ 12.06 8.87 $ 23,983 Options vested and exercisable as of September 30, 2021 1,464,792 $ 8.86 8.63 $ 10,248 The weighted-average grant date fair value of options granted was $ 15.23 and $ 10.43 per share during the three and nine months ended September 30, 2021. 17 Restricted stock awards During the three and nine months ended September 30, 2021, the Company recorded a total stock-based compensation expense related to the restricted stock awards of $ 89,000 and $ 268,000 , respectively. During the three and nine months ended September 30, 2020, the Company recorded a total stock-based compensation expense related to the restricted stock awards of $ 90,000 and $ 271,000 , respectively. As of September 30, 2021, unrecognized stock-based compensation expense related to outstanding unvested shares of restricted stock that are expected to vest were approximately $ 184,000 , expected to be recognized over a weighted-average period of 0.5 years. The following table summarizes the Company’s restricted common stock activity for the nine months ended September 30, 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 ( 251,511 ) $ 1.06 $ ( 267 ) Issued and unvested as of September 30, 2021 156,900 $ 1.30 $ 203 During the nine months ended September 30, 2021, the Company issued 262,982 shares of common stock, upon exercise of unvested stock options or purchases for unvested restricted stock awards. As of September 30, 2021 and December 31, 2020, there were 280,195 and 396,522 shares of Common Stock held by employees subject to repurchase at an aggregate price of $ 0.4 million and $ 0.6 million, respectively. A corresponding liability was recorded and included in accrued expenses on the condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively. Employee stock purchase plan During the three and nine months ended September 30, 2021, the Company recorded a total stock-based compensation expense of $ 297,000 and $ 546,000 , respectively, related to the employee stock purchase plan. No purchase of common stock had been made by the Company as of September 30, 2021. Stock-based compensation expense was allocated as follows for the three and nine months ended September 30, 2021 and 2020: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Research and development $ 1,938 $ 331 $ 5,630 $ 652 General and administrative 1,654 685 4,176 1,022 Total $ 3,592 $ 1,016 $ 9,806 $ 1,674 18 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 September 30, 2021 Level 1 Level 2 Level 3 Assets: Cash equivalents $ 239,734 $ - $ - Certificates of deposit 2,943 - - $ 242,677 $ - $ - 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, sublicensable 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 a convertible note with a principal amount of $ 600,000 . Upon issuance of the Series A in August 2018, the principal and unpaid accrued interest under this convertible note was cancelled and converted into shares of Series A at a conversion price of $ 9.32 per share. 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 nine months ended September 30, 2021, the Company had $ 171,000 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 19 more than three years after the effective date. During the three and nine months ended September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 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 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 and nine months ended September 30, 2021 and 2020, 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 the Company analogized to ASC 606 for the accounting of payments such as upfront payments and other milestones. Revenue is recognized based on percentage of completion of the overall project. During the three and nine months ended September 30, 2021 the Company recognized $ 1.5 million and $ 4.0 million, respectively, of revenue from collaborative arrangements related to milestone payments. 20 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 September 30, 2021 and December 31, 2020. The Company enters into contracts in the normal course of business that includes arrangements with clinical research organizations, vendors for preclinical research and vendors for manufacturing. These agreements generally allow for cancellation with notice. As of September 30, 2021, the Company had non-cancellable purchase commitments of $ 4.1 million. 13. Income taxes The Company has a history of losses and projects losses for the full year 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 Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net loss $ ( 33,124 ) $ ( 33,297 ) $ ( 90,618 ) $ ( 74,123 ) Weighted average common stock outstanding, basic and diluted 42,399,984 3,027,825 39,151,095 2,829,160 Net loss per share - basic and diluted $ ( 0.78 ) $ ( 11.00 ) $ ( 2.31 ) $ ( 26.20 ) 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 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 Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Convertible preferred stock - 19,201,429 - 19,201,429 Forward contract to issue redeemable convertible preferred stock - 3,569,630 - 3,569,630 Options to purchase common stock 5,618,700 2,586,195 5,618,700 2,586,195 Unvested restricted stock 156,837 513,078 156,837 513,078 Warrants to purchase preferred stock - 83,149 - 83,149 5,775,537 25,953,481 5,775,537 25,953,481 21 1 5 . Subsequent events In preparing the interim financial statements for the three and nine months ended September 30, 2021, the Company evaluated subsequent events for recognition and measurement purposes during which time nothing has occurred outside of the normal course of business operations that requires disclosure. 22 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 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 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 TM ) molecule, a small molecule Capsid Assembly Modulator (CAM), and additional oligonucleotides (Antisense Oligonucleotides (ASO) and Small Interfering Ribonucleic Acids (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. Initial Phase 1a studies in healthy volunteers for our STOPS molecule and CAM have been completed. Phase 1b dose range studies, evaluating the properties of our STOPS molecule and CAM as monotherapy in CHB patients, are approved in many countries, including New Zealand, Hong Kong, the United Kingdom, South Korea, China and Moldova, and dosing in both of these studies is ongoing. The STOPS molecule drug candidate, ALG-010133, was generally well tolerated in healthy volunteers (HVs) when given as single and multiple (3 weekly) subcutaneous doses of up to 200 mg and 180 mg, respectively. No serious adverse events (SAEs) or treatment emergent adverse events (TEAEs) leading to premature discontinuation of study drug occurred. Injection site reactions (ISRs) occurred in 19% of ALG-010133-treated subjects and were generally characterized by localized erythema that was mild to moderate in severity and resolved over time. One ISR that occurred after receiving a single 200 mg dose of ALG-010133 was considered severe based on surface area criteria (>100 cm 2 ). Prophylactic use of topical steroids is being utilized in Phase 1b to potentially mitigate future ISRs. Based on the pharmacokinetic (PK) exposures achieved in HVs, weekly subcutaneous doses of 120 mg and higher will be evaluated in CHB cohorts. Currently, doses of 120 mg, 200 mg and 400 mg given weekly over 12 weeks are being evaluated in three separate cohorts of patients with CHB. Safety and viral kinetic data from these three cohorts are expected to be available in the first half of 2022. Based on prior experience with nucleic acid polymers (NAPs) such as REP-2139, we believe an active dose level should be able to reduce mean HBsAg concentrations by ≥1.0 log 10 IU/mL after 12 weeks of dosing. For the CAM drug candidate, ALG-000184, preliminary data in HVs indicate the drug has predictable PK and was well tolerated, with no SAEs or TEAEs leading to discontinuation reported. Additionally, safety, PK, and antiviral activity data in eight treatment naive/currently not treated CHB subjects receiving a daily dose of 100 mg ALG-000184 for 14 days were promising, showing a mean HBV DNA reduction of 2.9 log 10 IU/mL and no concerning safety or PK findings (Gane et al., HBV TAG 2021). Enrollment in three CHB cohorts is now complete, and a fourth cohort (10 mg dose level) is currently enrolling. Safety and antiviral activity data through day 28 from the first two cohorts (50 and 100 mg) will be reported at the American Association for the Study of Liver Diseases (AASLD) in November 2021, and data from the third and fourth cohorts are planned to be shared at a scientific conference in the first half of 2022. We have also recently initiated a two-part Phase 1a/1b study evaluating the safety, PK, and antiviral activity of our ASO, ALG‑020572, in HVs (a single ascending dose study) and CHB subjects (a multiple ascending dose), respectively. Dosing in HVs is ongoing, and dosing in CHB subjects is anticipated to start in the first quarter of 2022. We plan to report initial Phase 1 data in HVs in the first half of 2022. Finally, our nonclinical efforts to advance our siRNA drug candidate targeted against HBsAg messenger RNA (ALG-125755) are ongoing, with a clinical trial application (CTA) filing on track for the first half of 2022. Based on prior experience with other siRNA and ASOs in clinical development, we expect that an active dose level to be able to reduce mean HBsAg concentrations by ≥ 1.0 log 10 IU/mL in our Phase 1b studies. In the future, we may also conduct clinical trials evaluating our STOPS molecule and CAM and other drug candidates in other countries and territories. 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. We believe ALG-055009 has the potential to become an integral component of future combination regimens for NASH. In non-clinical studies, ALG‑055009 was more potent and selective for THR- ß compared to other drugs in the clinic, which may have clinical benefits. In September 2021, we filed a CTA for a Phase 1a/1b study of ALG‑055009 in HVs and subjects with hyperlipidemia. Topline data from this Phase 1a/1b study ALG-055009 are expected in the second half of 2022. 23 Our third area of focus is to develop drug candidates with pan-coronavirus activity, including Severe Acute Respiratory Syndrome coronavirus 2 (SARS-CoV-2), the virus responsible for COVID-19. Our efforts to identify a coronavirus therapeutic are multipronged and utilize both our small molecule and oligonucleotide expertise. In the oligonucleotide areas, we are investigating a siRNA modality and are exploring the potential for targeted lung delivery with this approach. For our small molecule approach, we are exploring coronavirus protease inhibitors in collaboration with Katholieke Universiteit Leuven (KU Leuven), CISTIM and the Centre for Drug Design and Discovery ( CD3). Early pre-clinical data of our compound ALG‑097111, a protease inhibitor tested to evaluate efficacy in a hamster model, showed that ALG‑097111 efficiently inhibited viral replication in the lungs of infected hamsters. We are in the final stages of selecting an orally available development candidate. 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 us, 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. In July 2021, we completed a follow-on offering and issued 4,400,000 shares of our common stock at a price to the public of $19.00 per share for net proceeds of $77.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We have incurred net losses and negative cash flows from operations in each year since our formation in February 2018. Our net losses were $90.6 million and $74.1 million for the nine months ended September 30, 2021 and 2020, respectively. We have had no revenue from product sales. As of September 30, 2021, we had an accumulated deficit of $265.4 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. 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 24 • 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 (expense), net Interest and other income (expense), net comprises interest income, net and other income (loss), net. Interest income, net primarily consists of interest earned on our cash, cash equivalents, and investments and interest expense related to our convertible note instruments. Other (loss) income, net consists primarily of the change fair value of derivative liabilities and our investments. Results of Operations Comparison of the three months ended September 30, 2021 and 2020 Operating expenses The following table summarizes our operating expenses for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, Change 2021 2020 ($) % Operating expenses: Research and development $ 28,132 $ 17,332 $ 10,800 62 % General and administrative 6,473 4,225 2,248 53 % Total operating expenses $ 34,605 $ 21,557 $ 13,048 61 % Research and development expenses Research and development expenses were $28.1 million for the three months ended September 30, 2021, compared to $17.3 million for the three months ended September 30, 2020, an increase of $10.8 million. The increase was due to an increase of $2.6 million of additional employee-related costs, of which $1.6 million related to stock-based compensation, an increase of $6.5 million in third-party expenses for our nonclinical programs and the continued increase in expenditures related to research, development and manufacturing activities associated with our STOPs, CAM and ASO clinical trial activities as well as costs related to our NASH program, and $1.5 million in facilities and related expenses. 25 General and administrative expenses General and administrative expenses were $6.5 million for the three months ended September 30, 2021, compared to $4.2 million for the three months ended September 30, 2020, an increase of $2.2 million. The increase was primarily due to an increase of $1.5 million in additional employee-related costs, of which $1.0 million related to stock-based compensation, a $1.6 million increase in third-party expenses primarily due to increased administrative costs, patent costs and D&O insurance to support our status as a public company, and $0.3 million in employee travel and development related expenses as employees return to the office and travel. The increase was partially offset by a $0.7 million decrease in facilities expenses and a $0.4 million decrease in consulting expenses. Interest and other income (expense), net The following table summarizes our interest and other income (expense), net for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, Change 2021 2020 ($) % Interest income, net $ 20 $ 234 $ (214 ) -91 % Other (loss) income, net 50 (11,974 ) 12,024 -100 % Total interest and other income (expense), net $ 70 $ (11,740 ) $ 11,810 -101 % Interest income, net decreased $0.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the change in our portfolio of cash equivalents and investments which results in lower interest yield. Other (loss) income, net increased $12.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The current quarter increase was due to the prior year loss recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities. Comparison of the nine months ended September 30, 2021 and 2020 Operating expenses The following table summarizes our operating expenses for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, Change 2021 2020 ($) % Operating expenses: Research and development $ 75,555 $ 51,809 $ 23,746 46 % General and administrative 18,810 11,739 7,071 60 % Total operating expenses $ 94,365 $ 63,548 $ 30,817 48 % Research and development expenses Research and development expenses were $75.6 million for the nine months ended September 30, 2021, compared to $51.8 million for the nine months ended September 30, 2020, an increase of $23.7 million. The increase was due to an increase of $7.5 million of additional employee-related costs, of which $4.9 million related to stock-based compensation, an increase of $12.2 million in third-party expenses for our nonclinical programs and the continued increase in expenditures related to research, development and manufacturing activities associated with our STOPs, CAM and ASO clinical trial activities, as well as activities related to our NASH program. In addition, we had a $0.4 million increase in depreciation, a $0.8 million increase in consulting, recruiting and T&E costs due to increased headcount, and a $2.7 million increase of facilities and related expenses. General and administrative expenses General and administrative expenses were $18.8 million for the nine months ended September 30, 2021, compared to $11.7 million for the nine months ended September 30, 2020, an increase of $7.1 million. The increase was primarily due to an 26 increase of $ 5.1 million of additional employee-related costs, of which $ 3.2 million related to stock-based compensation, $ 4.9 million increase in third-party expenses primarily due to increased administrative costs , legal costs and D&O insurance to support our status as a public company, offset by a decrease of $ 2.7 million in facilities and related expenses , and a decrease of $0. 4 million in consulting costs . Interest and other income (expense), net The following table summarizes our interest and other income (expense), net for the nine months ended September 30, 2021 and 2020: ` Nine Months Ended September 30, Change 2021 2020 ($) % Interest income, net $ 197 $ 985 $ (788 ) -80 % Other (loss) income, net (242 ) (11,618 ) 11,376 -98 % Total interest and other expense, net $ (44 ) $ (10,633 ) $ 10,589 -100 % Interest income, net decreased to $0.2 million for the nine months ended September 30, 2021 from $1.0 million for the nine months ended September 30, 2020, a decrease of $0.8 million, primarily due to the change in our portfolio of cash equivalents and short-term investments which results in lower interest yield. Other (loss) income, net, was a loss of $0.2 million for the nine months ended September 30, 2021 compared to a loss of $11.6 million for the nine months ended September 30, 2020, a difference of $11.4 million, primarily due to the prior year loss recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities. 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 September 30, 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 September 30, 2021, we had cash, cash equivalents and investments of $242.7 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, ALG-000184 and ALG‑020572, 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; 27 • 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 September 30, 2021, we had cash, cash equivalents and investments of $242.7 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, and net proceeds of $77.9 million from the sale of 4,400,000 shares of our common stock on July 6, 2021 as part of our follow-on offering. 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. 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 28 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. Cash flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2021 2020 Net cash used in operating activities $ (78,182 ) $ (54,579 ) Net cash provided by investing activities 19,501 17,818 Net cash (used in) provided by financing activities 78,125 (970 ) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 19,444 $ (37,731 ) Operating activities During the nine months ended September 30, 2021, operating activities used $78.2 million of cash, primarily resulting from our net loss of $90.6 million, and cash used for operating assets and liabilities of $0.2 million, partially offset by non-cash charges of $12.6 million. Net cash used in operating activities resulted in changes in our operating assets and liabilities of $0.2 million, consisting of an increase in other assets of $0.3 million, a decrease of $4.0 million in deferred revenue from collaborations, a decrease of $1.0 million in operating lease liabilities, a decrease of $0.7 million in accounts payable and a decrease of $0.1 million in other liabilities, partially offset by an increase in accrued liabilities of $5.9 million. The decrease in deferred revenue from collaborations was a result of recognition of revenue from collaborations due to progress towards the completion of the project. The decrease in the operating lease liability was a result of payments made on outstanding lease obligations. During the nine months ended September 30, 2020, operating activities used $54.6 million of cash, primarily resulting from our net loss of $74.1 million, partially offset by non-cash charges of $15.9 million and cash provided by changes in our operating assets and liabilities of $3.6 million. Net cash provided by changes in our operating assets and liabilities of $3.6 million consisted of an increase of $5.5 million in accounts payable and accrued liabilities, partially offset by a decrease of $1.0 million in other current assets and a decrease of $0.9 million in operating lease liability. The increase in accounts payable and accrued liabilities was largely due to an increase in external research and development costs. The decrease in other assets was largely due to an increase in prepayments for services. The decrease in the operating lease liability was a result of payments made on outstanding lease obligations. Investing activities During the nine months ended September 30, 2021, investing activities provided $19.5 million of cash, consisting primarily of $23.0 million of investment maturities, offset by $2.9 million of investment purchases and $0.6 million of purchases of property and equipment. During the nine months ended September 30, 2020, investing activities provided $17.8 million of cash, consisting primarily of $65.1 million of investment maturities, offset by $45.3 million of investment purchases and $2.0 million of purchases of property and equipment. 29 Financing activities During the nine months ended September 30, 2021, net cash provided by financing activities was $78.1 million, consisting primarily of $77.9 million in proceeds from our follow-on offering, net of issuance costs, and $0.3 million from the exercise of stock options. During the nine months ended September 30, 2020, net cash used in financing activities was $1.0 million, consisting primarily of $1.1 million in payments for deferred offering costs and $0.4 million in payments for Series B-1 redeemable convertible preferred stock issuance costs, partially offset by $0.3 million from the proceeds from the exercise of warrants to purchase shares of Series A convertible preferred stock and $0.2 million proceeds from the exercise of stock options. Contractual obligations and commitments We have no material changes to our contractual obligations and commitments as of September 30, 2021 as disclosed in the contractual obligations and commitment section in our Annual Report on Form 10-K filed with the SEC on March 23, 2021, except for the amount disclosed in Note 12, commitments and contingencies, in our unaudited condensed consolidated financial statements. 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. 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 for the year ended December 31, 2020, previously filed with the SEC, 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 September 30, 2021 from those discussed in our Form 10-K. 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. 30