aTYR PHARMA INC 10-Q

Item 1. Financial Statements aTyr Pharma, Inc. Condensed Consolida ted Balance Sheets (in thousands, except share and per share data) June 30, December 31, 2022 2021 (unaudited) Assets Current assets: Cash and cash equivalents $ 8,484 $ 2,336 Available-for-sale investments 80,070 105,575 Other receivables 426 435 Prepaid expenses 4,375 5,223 Total current assets 93,355 113,569 Restricted cash 733 — Property and equipment, net 558 543 Operating lease, right-of-use assets 827 1,267 Financing lease, right-of-use assets 368 — Other assets 175 158 Total assets $ 96,016 $ 115,537 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,674 $ 1,031 Accrued expenses 6,610 4,002 Current portion of operating lease liability 906 980 Current portion of financing lease liability 70 — Total current liabilities 9,260 6,013 Long-term operating lease liability, net of current portion — 398 Long-term financing lease liability, net of current portion 298 — Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.001 par value per share; 5,000,000 undesignated authorized shares as of June 30, 2022 (unaudited) and December 31, 2021; Class X Convertible Preferred Stock, issued and outstanding shares – 0 as of June 30, 2022 (unaudited) and December 31, 2021 — — Common stock, $ 0.001 par value per share; 85,000,000 and 42,500,000 authorized shares as of June 30, 2022 (unaudited) and December 31, 2021, respectively; issued and outstanding shares – 28,127,458 and 27,793,035 as of June 30, 2022 (unaudited) and December 31, 2021, respectively 28 28 Additional paid-in capital 484,286 481,832 Accumulated other comprehensive loss ( 810 ) ( 263 ) Accumulated deficit ( 396,869 ) ( 372,296 ) Total aTyr Pharma, Inc. stockholders’ equity 86,635 109,301 Noncontrolling interest in Pangu BioPharma Limited ( 177 ) ( 175 ) Total stockholders’ equity 86,458 109,126 Total liabilities and stockholders’ equity $ 96,016 $ 115,537 See accompanying notes. 3 aTyr Pharma, Inc. Condensed Consolidated S tatements of Operations (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (unaudited) Operating expenses: Research and development $ 9,135 $ 7,655 $ 18,031 $ 12,171 General and administrative 3,449 2,790 6,931 5,476 Total operating expenses 12,584 10,445 24,962 17,647 Loss from operations ( 12,584 ) ( 10,445 ) ( 24,962 ) ( 17,647 ) Total other income (expense), net 163 53 387 100 Consolidated net loss ( 12,421 ) ( 10,392 ) ( 24,575 ) ( 17,547 ) Net loss attributable to noncontrolling interest in Pangu BioPharma Limited 1 1 2 5 Net loss attributable to aTyr Pharma, Inc. $ ( 12,420 ) $ ( 10,391 ) $ ( 24,573 ) $ ( 17,542 ) Net loss per share, basic and diluted $ ( 0.44 ) $ ( 0.64 ) $ ( 0.88 ) $ ( 1.16 ) Shares used in computing net loss per share, basic and diluted 28,063,387 16,128,473 27,941,560 15,121,721 See accompanying notes. 4 aTyr Pharma, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (unaudited) Consolidated net loss $ ( 12,421 ) $ ( 10,392 ) $ ( 24,575 ) $ ( 17,547 ) Other comprehensive loss: Change in unrealized loss on available-for-sale investments, net of tax ( 51 ) ( 4 ) ( 547 ) ( 18 ) Comprehensive loss ( 12,472 ) ( 10,396 ) $ ( 25,122 ) $ ( 17,565 ) Comprehensive loss attributable to noncontrolling interest in Pangu BioPharma Limited 1 1 2 5 Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders $ ( 12,471 ) $ ( 10,395 ) $ ( 25,120 ) $ ( 17,560 ) See accompanying notes. 5 aTyr Pharma, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) Three and Six Months Ended June 30, 2022 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2021 27,793,035 $ 28 $ 481,832 $ ( 263 ) $ ( 372,296 ) $ ( 175 ) $ 109,126 Issuance of common stock upon release of restricted stock units 2,500 — — — — — — Issuance of common stock upon exercise of stock options 259 — 1 — — — 1 Issuance of common stock from at-the-market offerings, net of offering costs 260,455 — 1,480 — — — 1,480 Stock-based compensation — — 417 — — — 417 Net unrealized loss on investments, net of tax — — — ( 496 ) — — ( 496 ) Net loss — — — — ( 12,153 ) ( 1 ) ( 12,154 ) Balance as of March 31, 2022 28,056,249 $ 28 $ 483,730 $ ( 759 ) $ ( 384,449 ) $ ( 176 ) $ 98,374 Issuance of common stock pursuant to employee stock purchase plan 1,958 — 5 — — — 5 Issuance of common stock from at-the-market offerings, net of offering costs 69,251 — 34 — — — 34 Stock-based compensation — — 517 — — — 517 Net unrealized loss on investments, net of tax — — — ( 51 ) — — ( 51 ) Net loss — — — — ( 12,420 ) ( 1 ) ( 12,421 ) Balance as of June 30, 2022 28,127,458 $ 28 $ 484,286 $ ( 810 ) $ ( 396,869 ) $ ( 177 ) $ 86,458 Three and Six Months Ended June 30, 2021 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2020 11,018,954 $ 11 $ 370,210 $ ( 43 ) $ ( 338,528 ) $ ( 166 ) $ 31,484 Issuance of common stock upon release of restricted stock units 4,177 — — — — — — Issuance of common stock from at-the-market offerings, net of offering costs 1,988,254 2 9,619 — — — 9,621 Issuance of common stock from committed purchase agreement, net of offering costs 3,000,000 3 15,233 — — — 15,236 Stock-based compensation — — 360 — — — 360 Net unrealized loss on investments, net of tax — — — ( 14 ) — — ( 14 ) Net loss — — — — ( 7,151 ) ( 4 ) ( 7,155 ) Balance as of March 31, 2021 16,011,385 $ 16 $ 395,422 $ ( 57 ) $ ( 345,679 ) $ ( 170 ) $ 49,532 Issuance of common stock upon exercise of stock options 553 — 1 — — — 1 Issuance of common stock pursuant to employee stock purchase plan 1,602 — 5 — — — 5 Issuance of common stock from at-the-market offerings, net of offering costs 293,830 — 1,265 — — — 1,265 Stock-based compensation — — 398 — — — 398 Net unrealized loss on investments, net of tax — — — ( 4 ) — — ( 4 ) Net loss — — — — ( 10,391 ) ( 1 ) ( 10,392 ) Balance as of June 30, 2021 16,307,370 $ 16 $ 397,091 $ ( 61 ) $ ( 356,070 ) $ ( 171 ) $ 40,805 See accompanying notes. 6 aTyr Pharma, Inc. Condensed Consolidated S tatements of Cash Flows (in thousands) Six Months Ended June 30, 2022 2021 (unaudited) Cash flows from operating activities: Consolidated net loss $ ( 24,575 ) $ ( 17,547 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 144 244 Stock-based compensation 934 758 Amortization of premium of available-for-sale investment securities 434 106 Amortization of right-of-use assets 440 411 Gain on disposal of property and equipment ( 89 ) — Changes in operating assets and liabilities: Other receivables 9 1,949 Prepaid expenses and other assets 831 ( 405 ) Accounts payable and accrued expenses 3,108 1,379 Operating lease liability ( 472 ) ( 414 ) Net cash used in operating activities ( 19,236 ) ( 13,519 ) Cash flows from investing activities: Purchases of property and equipment ( 96 ) ( 113 ) Purchases of available-for-sale investment securities ( 11,176 ) ( 40,024 ) Maturities of available-for-sale investment securities 35,700 12,768 Proceeds from sale of property and equipment 169 — Net cash provided by (used in) investing activities 24,597 ( 27,369 ) Cash flows from financing activities: Proceeds from issuance of common stock through option exercises 1 1 Proceeds from issuance of common stock through employee stock purchase plan 5 5 Proceeds from issuance of common stock from at-the-market offerings, net of offering costs 1,514 10,886 Proceeds from issuance of common stock from committed purchase agreement, net of offering costs — 15,236 Net cash provided by financing activities 1,520 26,128 Net change in cash, cash equivalents and restricted cash 6,881 ( 14,760 ) Cash, cash equivalents and restricted cash at beginning of period 2,336 16,952 Cash, cash equivalents and restricted cash at the end of period $ 9,217 $ 2,192 Cash and cash equivalents at the end of period $ 8,484 $ 2,192 Restricted cash at the end of period 733 — Cash, cash equivalents and restricted cash at the end of period $ 9,217 $ 2,192 Supplemental schedule of noncash investing and financing activities: Purchases of property and equipment in accounts payable $ 143 $ — Right-of-use assets obtained in exchange for lease obligation $ 368 $ — See accompanying notes. 7 aTyr Pharma, Inc. Notes to Condensed Consolid ated Financial Statements (Unaudited) 1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies Organization and Business aTyr Pharma, Inc. (we, us, and our) was incorporated in the State of Delaware on September 8, 2005. We are a biotherapeutics company engaged in the discovery and development of first-in-class medicines from our proprietary tRNA synthetase platform. Principles of Consolidation Our condensed consolidated financial statements include our accounts and our 98 % majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation. Unaudited Interim Financial Information The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and follow the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In our opinion, the interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for the periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with our audited consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 15, 2022. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period. Risks and Uncertainties The impact of the ongoing COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our business have included delayed enrollment of our now completed Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our employee’s ability to travel and delays in certain research and development activities. Other potential impacts to our business include, but are not limited to, disruptions to or delays in planned clinical trials, third-party manufacturing supply and other operations, inflation, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration or other regulatory authorities, and our ability to raise capital and conduct business development activities. Further, in February 2022, the U.S. and global financial markets experienced volatility following the invasion of Ukraine by Russia, which has led to, and may continue to lead to, additional disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally. It is uncertain what the long-term impact of the ongoing Ukraine-Russia conflict may have on our business. Liquidity and Financial Condition We have incurred net losses in each year since our inception in 2005, including a consolidated net loss of $ 12.4 million and $ 24.6 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, we had an accumulated deficit of $ 396.9 million. We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 89.3 million as of June 30, 2022 will be sufficient to meet our material cash requirements from known contractual and other obligations for a period of at least one year from the filing date of this Quarterly Report on Form 10-Q. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for our product candidates. We anticipate that we will seek to fund our operations through equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. However, we may be unable to raise additional capital or enter into such arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such arrangements when needed would have a negative impact on our financial condition and ability to develop 8 our product candidates. Restricted Cash As of June 30, 2022, restricted cash consisted of approximately $ 0.7 million, which was held as a security deposit in conjunction with our new facility lease as discussed further below in Note 4 – Commitments and Contingencies. Use of Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure for these items in our unaudited condensed consolidated financial statements and accompanying notes. The most significant estimates in our unaudited condensed consolidated financial statements relate to clinical trial and research and development expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates and assumptions. Leases We determine if an arrangement is a lease at inception. Short-term leases with an initial term of 12 months or less are not recorded on our balance sheet. For long-term leases with an initial term of greater than 12 months, we recognize a right-of-use asset (ROU) and a lease liability based on the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses in our unaudited condensed consolidated statements of operations. For financing leases, interest expense and amortization of the ROU is included in operating expenses in our unaudited condensed consolidated statements of operations and variable lease payments are recorded as incurred. If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease. If a lease continues to exist, the lease modification is determined to be a separate contract when the modification grants the lessee an additional ROU that is not included in the original lease and the lease payments increase commensurate with the standalone price for the additional ROU. A lease modification that results in a separate contract will be accounted for in the same manner as a new lease. For a modification that is not a separate contract, we reassess the lease classification using the modified terms and conditions and the facts and circumstances as of the effective date of the modification and recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding lease ROU asset. Our ROU assets consist of an operating lease for our facility headquarters and financing leases for various research and development and information technology equipment. We do not separate lease and non-lease components of our long-term leases. Revenue Recognition We evaluate our agreements under Accounting Standard Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606) and ASC Topic 808, Collaborative Arrangements . We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide research and development services. We recognize revenue at a point in time when we transfer control of a distinct performance obligation to our partner. For example, if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. 9 Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants for common stock, options and restricted stock units outstanding under our stock option plan and estimated shares to be purchased under our employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding, as the assumed exercise or settlement of stock options, restricted stock units, and warrants, or the conversion of preferred stock are anti-dilutive. Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common stock equivalents): Six Months Ended June 30, 2022 2021 Common stock warrants 13,760 13,760 Common stock options and restricted stock units 3,048,636 1,295,447 Employee stock purchase plan 19,062 1,780 Total 3,081,458 1,310,987 Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We do not expect the adoption of the amendments in Topic 326 to have a material effect on our condensed consolidated financial position or results of operations when such amendment is effective. 2. Fair Value Measurements The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Investment securities are recorded at fair value. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in commercial paper, corporate debt securities and asset-backed securities. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. 10 Assets measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of June 30, 2022 Assets: Current: Cash equivalents $ 7,455 $ 7,455 $ — $ — Available-for-sale investments: Commercial paper 26,720 — 26,720 — Corporate debt securities 44,550 — 44,550 — Municipal bonds 8,800 — 8,800 — Total available-for-sale investments 80,070 — 80,070 — Total assets measured at fair value $ 87,525 $ 7,455 $ 80,070 $ — Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2021 Assets: Current: Cash equivalents $ 2,052 $ 2,052 $ — $ — Available-for-sale investments: Commercial paper 36,921 — 36,921 — Corporate debt securities 55,713 — 55,713 — Municipal bonds 12,941 — 12,941 — Total available-for-sale investments 105,575 — 105,575 — Total assets measured at fair value $ 107,627 $ 2,052 $ 105,575 $ — As of June 30, 2022 and December 31, 2021, available-for-sale investments are detailed as follows (in thousands): June 30, 2022 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 26,864 $ — $ ( 144 ) $ 26,720 Corporate debt securities 1 to 2 years 45,082 — ( 532 ) 44,550 Municipal bonds 1 to 2 years 8,883 — ( 83 ) 8,800 $ 80,829 $ — $ ( 759 ) $ 80,070 December 31, 2021 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 36,956 $ — $ ( 35 ) $ 36,921 Corporate debt securities 1 to 2 years 55,859 — ( 146 ) 55,713 Municipal bonds 1 to 2 years 12,973 — ( 32 ) 12,941 $ 105,788 $ — $ ( 213 ) $ 105,575 11 At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of its amortized cost basis. We intend, and have the ability, to hold our investments in unrealized loss positions, if any, until their amortized cost basis has been recovered. As of June 30, 2022, all available-for-sale investments had a variety of effective maturity dates of less than two years . As of June 30, 2022, all available-for-sale investments were in gross unrealized loss positions and have been in such loss positions less than 12 months . 3. License and Other Agreements Kyorin Pharmaceutical Co., Ltd. In January 2020, we entered into a collaboration and license agreement (Kyorin Agreement) with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and commercialization of efzofitimod for interstitial lung disease (ILD) in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD. Kyorin is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In 2020, Kyorin completed a Phase 1 clinical trial of efzofitimod (known as KRP-R120 in Japan). The Phase 1 clinical trial, which was conducted and funded by Kyorin, was a placebo-controlled study to evaluate the safety, pharmacokinetics and immunogenicity of efzofitimod in 32 healthy Japanese male volunteers. Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events and pharmacokinetics findings were consistent with previous studies of efzofitimod. We received an $ 8.0 million upfront payment in January 2020 and a $ 2.0 million milestone payment in January 2021 following completion of enrollment in the Phase 1 clinical trial. Kyorin plans to join our Phase 3 clinical trial of efzofitimod in pulmonary sarcoidosis patients (EFZO-FIT ™ study) , and all study activity in Japan will be funded by Kyorin. We are eligible to receive up to an additional $ 165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement. We assessed our license and collaboration with Kyorin in accordance with Topic 606 and concluded that Kyorin is a customer. We identified the following performance obligations under the Kyorin Agreement: 1) the license of efzofitimod for ILD in Japan; and 2) free clinical trial material for Kyorin’s Phase 1 clinical trial. The $ 8.0 million upfront payment received from Kyorin is non-refundable and non-creditable and is considered fixed consideration. We determined that the relative stand-alone selling price was $ 7.9 million when the license was delivered to Kyorin in January 2020. We determined that the relative standalone selling price was $ 0.1 million for the free clinical trial material delivered to Kyorin in June 2020, using the “expected cost plus a margin” approach. In December 2020, Kyorin completed the last subject visit in its Phase 1 clinical trial of efzofitimod. This achievement triggered a $ 2.0 million milestone payment which we recognized as license and collaboration revenue in December 2020. We received the $ 2.0 million from Kyorin in January 2021. During the three and six months ended June 30, 2022 and 2021, there were no activities that triggered additional license and collaboration agreement revenue under the Kyorin Agreement. The remaining milestones and royalty payments under the Kyorin Agreement are variable consideration. Since milestone payments are binary in nature, we will use the “most-likely” method to evaluate whether the milestones should be included as revenue. We will constrain these amounts until the milestone is probable of being achieved. The royalties are dependent on future sales by Kyorin which are at the full discretion of Kyorin. Accordingly, we constrain these amounts until the future sales have occurred. Hong Kong University of Science and Technology In March 2020, our subsidiary, Pangu BioPharma, together with the Hong Kong University of Science and Technology (HKUST) was awarded a grant of approximately $ 750,000 to build a high-throughput platform for the development of bi-specific antibodies. The project is being funded by the Hong Kong government’s Innovation and Technology Commission (ITC) under the Partnership Research Program (PRP). The PRP aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The ITC funded approximately 50% of the total estimated project cost and we contributed the remaining 50%. The research grant agreement between Pangu BioPharma, HKUST and the Government of the Hong Kong Special Administration Region became effective April 1, 2020 . The term of the project was initially for two years and in December 2021, due to the ongoing COVID-19 pandemic, was extended for an additional six months to September 30, 2022 with no additional costs. 12 All the contributions provided by the ITC are paid to HKUST and we record expenses under this grant award when incurred. Expenses for the three months ended June 30, 2022 and 2021 were $ 45,000 and $ 0.1 million, respectively. Expenses for the six months ended June 30, 2022 and 2021 were $ 0.1 million and $ 0.3 million, respectively. 4. Commitments and Contingencies Operating Leases Future minimum payments under the non-cancelable operating lease for our existing office and laboratory space and reconciliation to the operating lease liability as of June 30, 2022 were as follows (in thousands): Operating Lease 2022 $ 536 2023 404 Less: Amount representing interest ( 34 ) Present value of lease payments 906 Less: Current portion of operating lease liability ( 906 ) Long-term operating lease liability, net of current portion $ — For each of the three months ended June 30, 2022 and 2021, we recorded an operating lease cost of $ 0.2 million. For each of the six months ended June 30, 2022 and 2021, we recorded an operating lease cost of $ 0.5 million. As of June 30, 2022, the weighted-average remaining lease term was 0.9 years and the weighted-average discount rate was 9.6 %. In May 2022, we entered into a lease (the Lease) with San Diego Creekside, LLC (Landlord), as lessor, pursuant to which we agreed to lease from Landlord approximately 23,696 rentable square feet (subject to increase pursuant to the terms of the Lease) of office and laboratory space. The term of the lease (the Lease Term) will commence upon the earlier of April 1, 2023 or the completion of certain leasehold improvements to the Premises (as defined in the Lease), but not sooner than March 1, 2023 (the Lease Commencement Date) and continue for 124 months from the Lease Commencement Date. We also have one option to extend the Lease Term for five years . Base rent during such extension period would be at the fair market rent for the Premises. Under the terms of the Lease, the base rent during the first 12 months of the Lease Term will be $ 5.75 per square foot of rentable area per month, subject to certain upward adjustments of approximately 3.0 % annually. We are entitled to an allowance of $ 5.5 million for tenant improvements, including an option to utilize an additional allowance of up to $ 0.6 million, which, if used by us, would be repaid by us as additional monthly base rent, amortized at eight percent ( 8.0 %) per annum during the Lease Term. We provided a $ 0.7 million security deposit in the form of a letter of credit which is included in restricted cash as of June 30, 2022. Financing Leases In April 2022, we entered into a master financing lease agreement to lease various research and development and information technology equipment over a 48-month term. Financing lease payments for equipment received in June 2022 will start in July 2022. Future minimum payments under the non-cancelable financing lease and reconciliation to the financing lease liability as of June 30, 2022 were as follows (in thousands): Financing Lease 2022 $ 49 2023 99 2024 99 2025 99 2026 97 Less: Amount representing interest ( 75 ) Present value of lease payments 368 Less: Current portion of operating lease liability ( 70 ) Long-term operating lease liability, net of current portion $ 298 As of June 30, 2022, the weighted-average remaining lease term was 4.1 years and the weighted-average discount rate was 8.76 %. 13 5. Stockholders’ Equity Underwritten Follow-On Public Offerings In September 2021, we completed an underwritten follow-on public offering of 10,781,250 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 8.00 per share. The total net proceeds from the offering were approximately $ 80.6 million after deducting underwriting discounts, commissions and offering expenses payable by us. At the Market Offering Programs In March 2021, we entered into a Capital on Demand TM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) for an at-the-market offering program (the Prior ATM Offering Program), pursuant to which we were entitled to sell from time to time, at our option, up to an aggregate of $ 25.0 million of shares of our common stock through JonesTrading, as sales agent or principal. JonesTrading was entitled to a commission at a fixed rate of up to 3.0 % of the gross proceeds. During 2021, we sold an aggregate of 986,267 shares of common stock at a weighted-average price of $ 4.75 per share for net proceeds of $ 4.4 million under the Prior ATM Offering Program. During the six months ended June 30, 2022, we sold an aggregate of 260,455 shares of common stock at a weighted-average price of $ 6.07 per share for net proceeds of approximately $ 1.5 million under the Prior ATM Offering Program. In April 2022, we terminated the Prior ATM Offering Program. In April 2022, we entered into an Open Market Sale Agreement SM with Jefferies LLC (Jefferies) implementing an “at-the-market” offering program (the ATM Offering Program), pursuant to which we may offer and sell, from time to time and at our option, up to an aggregate of $ 65.0 million of shares of our common stock through Jefferies, acting as sales agent. Jefferies is entitled to a fixed commission rate of up to 3.0 % of the gross sales proceeds of shares sold under the ATM Offering Program. During the six months ended June 30, 2022, we sold an aggregate of 69,251 shares of common stock at a weighted-average price of $ 2.80 per share for gross proceeds of approximately $ 0.2 million under the ATM Offering Program. Purchase Agreement In September 2020 , we entered into a common stock purchase agreement (the Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended, for the resale of the shares of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. During the six months ended June 30, 2021, we sold an aggregate of 3,000,000 shares of common stock at a weighted-average price of $ 5.09 per share for net proceeds of $ 15.2 million under the Purchase Agreement. During the six months ended June 30, 2022, there were no issuances or sales under the Purchase Agreement. Inducement Grants In March 2022, we adopted and our board of directors approved our 2022 Inducement Plan (our Inducement Plan). Awards granted under our Inducement Plan are in accordance with Nasdaq Listing Rule 5635(c)(4). A total of 300,000 shares of our common stock were initially reserved for the issuance under our Inducement Plan. The maximum term of options granted under our Inducement Plan is ten years . Each option vests over a period of four years , with 25 % of the shares vesting on the one-year anniversary of the applicable vesting commencement date and the remaining 75 % vesting in equal monthly installments over three years , subject to continuous employment. In March 2022, we granted nonstatutory stock options under our Inducement Plan to purchase an aggregate of 58,400 shares of our common stock, each with an exercise price of $ 5.24 per share as inducement awards to 10 new employees. In May 2022, we granted nonstatutory stock options under our Inducement Plan to purchase an aggregate of 113,400 shares of our common stock, each with an exercise price of $ 3.48 per share as inducement awards to four new employees. 14 Common Stock Reserved for Future Issuance Common stock reserved for future issuance was as follows: June 30, 2022 Common stock warrants 13,760 Common stock options and restricted stock units 3,048,636 Shares available under the 2015 equity incentive plan 961,351 Shares available under the 2022 inducement plan 128,200 Shares available under the employee stock purchase plan 819,975 4,971,922 The following table summarizes our stock option activity under all equity incentive plans for the six months ended June 30, 2022: Number of Outstanding Stock Options Weighted- Average Exercise Price Outstanding as of December 31, 2021 1,412,550 $ 12.01 Granted 1,528,444 $ 3.44 Exercises ( 259 ) $ 3.77 Canceled/forfeited/expired ( 13,537 ) $ 18.17 Outstanding as of June 30, 2022 2,927,198 $ 7.51 The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Expected term (in years) 6.02 – 6.06 5.50 – 6.08 6.02 – 6.08 5.50 – 6.08 Risk-free interest rate 2.8 %- 3.0 % 1.07 % – 1.09 % 1.7 % – 3.0 % 0.6 % – 1.09 % Expected volatility 84.7 % – 84.9 % 87.4 % – 88.29 % 84.7 % – 86.5 % 88.3 % – 104.8 % Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % The following table summarizes our restricted stock unit activity under all equity incentive plans for the six months ended June 30, 2022: Number of Outstanding Restricted Stock Units Weighted-Average Grant Date Fair Value Balance as of December 31, 2021 7,500 $ 4.08 Granted 116,438 $ 5.13 Released ( 2,500 ) $ 4.13 Balance as of June 30, 2022 121,438 $ 5.09 Stock-based Compensation The allocation of stock-based compensation for all options and restricted stock units and stock issued pursuant to our employee stock purchase plan is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Research and development $ 131 $ 64 $ 238 $ 128 General and administrative 386 334 696 630 Total stock-based compensation expense $ 517 $ 398 $ 934 $ 758 15 6. Subsequent Events From July 1, 2022 through August 12, 2022, we sold an aggregate of 497,588 shares of common stock at a weighted-average price of $ 3.38 per share through the ATM Offering Program for net proceeds of $ 1.6 million. On August 8, 2022, we granted nonstatutory stock options under our Inducement Plan to purchase an aggregate of 20,600 shares of our common stock, each with an exercise price of $ 3.70 per share as inducement awards to four new employees. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q (Quarterly Report), our audited consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (SEC), on March 15, 2022 (our 2021 Annual Report). This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such forward looking statements, which represent our intent, belief or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” or the negative or plural of these words and similar expressions. Factors that could cause or contribute to differences in results include, but are not limited to those set forth under “Risk Factors” under Part II, Item 1A, and elsewhere in this Quarterly Report. Except as required by law we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes. Overview We are a biotherapeutics company engaged in the discovery and development of first-in-class medicines from our proprietary tRNA synthetase platform. We have concentrated our research and development efforts on a newly discovered area of biology, the extracellular functionality and signaling pathways of tRNA synthetases. Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their extracellular targets, such as neuropilin-2 (NRP2). Our primary focus is efzofitimod, a clinical-stage product candidate which binds to the NRP2 extracellular target and is designed to downregulate immune engagement in fibrotic lung disease. We are developing efzofitimod as a potential disease-modifying therapy for patients with fibrotic lung diseases with high unmet medical need. This includes interstitial lung disease (ILD), a group of rare immune-mediated disorders that cause progressive fibrosis of the lung. In January 2022, the U.S. Food and Drug Administration (FDA) granted efzofitimod an orphan drug designation for the treatment of sarcoidosis and in April 2022, for the treatment of systemic sclerosis (also known as scleroderma). In August 2022, the FDA granted efzofitimod fast track designation for the treatment of pulmonary sarcoidosis. In December 2018, we designed a Phase 1b/2a multiple-ascending dose, double-blind, placebo-controlled clinical trial in patients with pulmonary sarcoidosis, a major form of ILD, to evaluate the safety, tolerability, immunogenicity and steroid-sparing effect of efzofitimod, and conduct other exploratory assessments of efficacy, such as lung function. In September 2021, we announced positive results and clinical proof-of-concept from the Phase 1b/2a clinical trial in 37 patients with pulmonary sarcoidosis. Efzofitimod was well-tolerated at all doses administered with no serious drug-related adverse events or signal of immunogenicity. Additionally, the study demonstrated consistent dose response for efzofitimod on key efficacy endpoints and improvements compared to placebo, including measures of steroid reduction, lung function, pulmonary sarcoidosis symptom measures and inflammatory biomarkers. Based on the results of this study, we met with the FDA in February 2022 and presented these data and our plans for subsequent clinical development and path to registration for efzofitimod for the treatment of pulmonary sarcoidosis. Based on the results of the Phase 1b/2a clinical trial, we believe efzofitimod has potential applications in the treatment of other ILD, such as chronic hypersensitivity pneumonitis and connective tissue disease related ILD. In May 2022, we announced our intent to initiate, in the third quarter of 2022, a global pivotal Phase 3 randomized, double-blind, placebo-controlled clinical trial to evaluate the efficacy and safety of efzofitimod in patients with pulmonary sarcoidosis (the EFZO-FIT ™ study). The EFZO-FIT ™ study is a 52-week study consisting of three parallel cohorts randomized equally to either 3.0 mg/kg or 5.0 mg/kg of efzofitimod or placebo dosed intravenously once a month for a total of 12 doses. The study intends to enroll 264 subjects 16 with pulmonary sarcoidosis at multiple centers in North America, Europe and Japan. The trial design incorporates a forced steroid taper. The primary endpoint of the study is steroid reduction. Secondary endpoints include measures of lung function and sarcoidosis symptoms. To date, since our announcement in May 2022, we have had multiple interactions with regulatory authorities in the United States, European Union and Japan along with the submission of study protocol and clinical trial applications to regulatory authorities, ethics committees and institutional review boards. In addition, site selection, qualification and initiations for several trial sites have occurred, as well as an investigator meeting for U.S. sites. We are on track to enroll the first patient in this study in the third quarter of 2022. In January 2020, we entered into a collaboration and license agreement (Kyorin Agreement) with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and commercialization of efzofitimod for the treatment of ILD in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD, and is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing patients in a Phase 1 clinical trial of efzofitimod (known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was conducted and funded by Kyorin, was a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of efzofitimod in 32 healthy Japanese male volunteers. Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events, and PK findings were consistent with previous studies of efzofitimod. We received an $8.0 million upfront payment in January 2020 and a $2.0 million milestone payment in January 2021 following completion of enrollment in the Phase 1 clinical trial. Kyorin plans to join the EFZO-FIT ™ study, and all study activity in Japan will be funded by Kyorin. We are eligible to receive up to an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan. In parallel with our clinical development of efzofitimod, we have been advancing our discovery pipeline of NRP2 antibodies. ATYR2810 is our lead candidate in oncology from our NRP2 antibody program. ATYR2810 is a fully humanized monoclonal antibody that is designed to selectively and functionally block the interaction between NRP2 and vascular endothelial growth factor (VEGF). NRP2 is a pleiotropic cell surface receptor that is highly expressed on certain tumors and increased NRP2 expression is associated with worse outcomes in many cancers, such as overall survival, metastasis and resistance to targeted therapies. VEGF is a validated mediator of tumor growth and plays a role in immune evasion in the tumor microenvironment. The role of NRP2 and VEGF signaling in the tumor microenvironment and its importance in the progression of certain aggressive cancers is becoming increasingly validated. ATYR2810 is in preclinical development for the potential treatment of certain aggressive cancers where NRP2 is implicated, and we plan to initiate a Phase 1 clinical trial in the fourth quarter of 2022. In February 2021, we announced two new programs from our discovery pipeline of tRNA synthetases. These programs will investigate the functionality of selected fragments of Alanyl-tRNA synthetase (AARS) and Aspartyl-tRNA synthetase (DARS) in immunology, fibrosis and cancer. We are also advancing our preclinical pipeline of tRNA synthetases and NRP2 targeting candidates through internal research efforts, industry and academic collaborations. In June 2022, we announced that the target receptor of the fragment AARS-1 was identified as fibroblast growth factor receptor 4, indicating that AARS-1 may have therapeutic potential in fibrosis, inflammation and cancer. In March 2020, our subsidiary, Pangu BioPharma Limited (Pangu BioPharma), together with the Hong Kong University of Science and Technology (HKUST) was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies. The project is being funded by the Hong Kong government’s Innovation and Technology Commission (ITC) under the Partnership Research Program (PRP). The PRP aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The ITC funded approximately 50% of the total estimated project cost, and we contributed the remaining 50%. The term of the project was initially for two years and in December 2021, due to complications arising from the ongoing COVID-19 pandemic, was extended for an additional six months to September 30, 2022 with no additional cost. In May 2021, we announced that Pangu BioPharma and HKUST achieved certain milestones for the first year of the project. The impacts of the ongoing COVID-19 pandemic on our business have included the delay in enrollment of our now completed Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our employees’ ability to travel and delays in certain research and development activities. Other potential impacts to our business include, but are not limited to, disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities. In February 2022, the U.S. and global financial markets experienced volatility following the invasion of Ukraine by Russia, which has led to disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally. In response to the invasion, the United States, United Kingdom and European Union (EU), along with others, imposed significant new sanctions and export 17 controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing military conflict between Ukraine and Russia, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. Liquidity and Capital Resources We have incurred losses and negative cash flows from operations since our inception. As of June 30, 2022 and December 31, 2021, we had an accumulated deficit of $396.9 million and $372.3 million, respectively, and we expect to continue to incur net losses for the foreseeable future. As of June 30, 2022 and December 31, 2021, we had cash, cash equivalents, restricted cash and available-for-sale investments of $89.3 million and $107.9 million, respectively. We believe that our current cash, cash equivalents and available-for-sale investments will be sufficient to meet our material cash requirements from known contractual and other obligations for a period of at least one year from the date of this Quarterly Report. We believe we will meet longer-term material cash requirements from known contractual and other obligations through a combination of cash, cash equivalents, restricted cash and available-for-sale investments. In addition to the factors discussed under “Material Cash Requirements,” our ability to fund our longer-term operating needs beyond the next 12 months will depend on our ability to raise additional funding through equity or debt offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and other factors, including those discussed in Part II, Item 1A. “Risk Factors—Risks related to our financial condition and need for additional capital—We will need to raise additional capital or enter into strategic partnering relationships to fund our operations.” Sources of Cash From our inception through June 30, 2022, we have financed our operations primarily through the sale of equity securities and convertible debt, venture debt, term loans and through license and collaboration agreement revenues. Public Offerings In September 2021, we completed an underwritten follow-on public offering of 10,781,250 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $8.00 per share. The total net proceeds from the offering were approximately $80.6 million, after deducting underwriting discounts, commissions and offering expenses payable by us. In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share. In March 2020, the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 635,294 shares of common stock. The total net proceeds from the offering were approximately $18.8 million, after deducting underwriting discounts, commissions and offering expenses payable by us. At-the-Market Offering Programs In April 2022, we entered into an Open Market Sale Agreement SM with Jefferies LLC (Jefferies) implementing an “at-the-market” offering program (the ATM Offering Program), pursuant to which we may offer and sell, from time to time and at our option, up to an aggregate of $65.0 million of shares of our common stock through Jefferies, acting as sales agent. Jefferies is entitled to a fixed commission rate of up to 3.0% of the gross sales proceeds of shares sold under the ATM Offering Program. During the three and six months ended June 30, 2022, we sold an aggregate of 69,251 shares of common stock at a weighted-average price of $2.80 per share for gross proceeds of approximately $0.2 million under the ATM Offering Program. In March 2021, we entered into a Capital on Demand TM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) for an at-the-market offering program (the Prior ATM Offering Program), pursuant to which we were entitled to sell from time to time, at our option, up to an aggregate of $25.0 million of shares of our common stock through JonesTrading, as sales agent or principal. JonesTrading was entitled to a commission at a fixed rate of up to 3.0% of the gross proceeds. During 2021, we sold an aggregate of 986,267 shares of common stock at a weighted-average price of $4.75 per share for net proceeds of $4.4 million under the Prior ATM Offering Program. During the six months ended June 30, 2022, we sold an aggregate of 260,455 shares of common stock at a weighted-average price of $6.07 per share for net proceeds of approximately $1.5 million under the Prior ATM Offering Program. In April 2022, we terminated the Prior ATM Offering Program. 18 Purchase Agreement In September 2020 , we entered into a common stock purchase agreement (the Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act for the resale of the shares of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. During 2021, we sold an aggregate of 3,000,000 shares of common stock at a weighted- average price of $5.09 per share for net proceeds of $15.2 million under the Purchase Agreement. During the six months ended June 30, 2022, there were no issuances or sales under the Purchase Agreement. As of June 30, 2022, $4.8 million remains available for issuance and sale under the Purchase Agreement. Kyorin Agreement Milestone Payments We received an $8.0 million upfront payment in January 2020 and a $2.0 million milestone payment in January 2021 following completion of the last subject visit in Kyorin’s Phase 1 clinical trial, and we are eligible to receive up to an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan. During the three and six months ended June 30, 2022, there were no activities that triggered additional license and collaboration agreement revenue under the Kyorin Agreement. HKUST Grant Agreement In March 2020, Pangu BioPharma, together with the HKUST was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies. The project is being funded by the ITC under the PRP. The PRP aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The ITC funded approximately 50% of the total estimated project cost, and we contributed the remaining 50%. During the three and six months ended June 30, 2022, we did not receive any further grants from the ITC or otherwise. Cash Flows The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands): Six Months Ended June 30, 2022 2021 Net cash provided by (used in): Operating activities $ (19,236 ) $ (13,519 ) Investing activities 24,597 (27,369 ) Financing activities 1,520 26,128 Net change in cash, cash equivalents and restricted cash $ 6,881 $ (14,760 ) Operating activities. Net cash used in operating activities for the six months ended June 30, 2022 and 2021 was $(19.2) million and $(13.5) million, respectively. The increase in net cash used in operating activities resulted primarily from increased research and development expenditure as efzofitimod has advanced and we continued to advance our discovery efforts in our pipeline of NRP2 antibodies and tRNA systhetases. Investing activities. Net cash provided by (used in) investing activities for the six months ended June 30, 2022 and 2021 was $24.6 million and $(27.4) million, respectively. The fluctuation in net cash provided by (used in) investing activities resulted primarily from the timing differences in investment purchases, sales and maturities, and the fluctuation of our portfolio mix between cash equivalents and investment holdings. The average term to maturity in our investment portfolio is less than two years. Financing activities. Net cash provided by financing activities for the six months ended June 30, 2022 consisted primarily of $1.5 million in proceeds from the issuance and sale of common stock through the Prior ATM Offering Program, net of offering costs. Net cash provided by financing activities for the six months ended June 30, 2021 consisted primarily of $10.9 million of proceeds from the issuance and sale of common stock, net of offering costs, through the Prior ATM Program and an agreement implementing an at-the-market offering program with H.C. Wainwright & Co., LLC, which was automatically terminated in March 2021, and $15.2 million of proceeds from the issuance and sale of common stock through the Purchase Agreement, net of offering costs. Material Cash Requirements To date, we have not generated any revenues from product sales. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to advance efzofitimod in clinical development, including manufacturing and technology 19 transfer activities for efzofitimod, continue IND-enabling studies and manufacturing activities for ATYR2810, continue our research and development activities with respect to other potential therapies based on tRNA synthetase biology and NPR2 biology, and seek marketing approval for product candidates that we may develop. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We currently have no sales or marketing capabilities and would need to expand our organization to support these activities. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors, including: • the type, number, scope progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future; • the costs, timing and outcome of regulatory review of our product candidates; • delays of our planned clinical trials of efzofitimod and ATYR2810; • any resulting cost increases as a result of the ongoing COVID-19 pandemic, economic slowdowns, recessions or market corrections, inflation, rising interest rates and tightening of credit markets ; • the number and characteristics of product candidates that we pursue; • the scope, progress, results and costs of preclinical development, and clinical trials for other product candidates; • the manufacturing of preclinical study and clinical trial materials, including technology transfers to additional contract development and manufacturing organizations (CDMO); • our ability to maintain existing and enter into new collaboration and licensing arrangements and the timing of any payments we may receive under such arrangements; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; and • the extent to which we acquire or in-license other products and technologies. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. To the extent we raise additional capital through the sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We may be unable to raise additional funds on acceptable terms or at all. As a result of the ongoing COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, inflation, rising interest rates and uncertainty about economic stability. Additionally, the invasion of Ukraine by Russia in February 2022 has resulted in further volatility in the U.S. and global financial markets, which has led to disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally. The full economic and social impact of the sanctions and export controls imposed on Russia, Russian banks and certain Russian individuals by the United States, the United Kingdom and the EU, along with others, or any additional sanctions or punitive actions imposed or taken in the future in response to the invasion, remains uncertain, and could continue to result in significant uncertainty in the global markets, disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity in both Europe and globally. As a result, our business and results of operations may be adversely affected by the ongoing military conflict between Ukraine and Russia, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. 20 As of June 30, 2022, our material cash requirements from known contractual and other obligations consisted primarily of (i) our non-cancelable operating lease for our existing office and laboratory space (our Existing Lease), (ii) our new facility lease that we entered into in May 2022 (our New Facility Lease), and (iii) our master lease agreement that we entered into in April 2022 (our New Financing Lease) for various research and development and informational technology equipment. Our Existing Lease is non-cancelable and subject to base lease payments, which escalate over the term of the lease, additional charges for common area maintenance and other costs. In July 2018, we entered into a lease amendment that reduced the space we lease from 24,494 square feet to 20,508 square feet and extended the lease term to May 2023. With the lease amendment, we do not have an option to extend the Existing Lease. In May 2022, we entered into the New Facility Lease with San Diego Creekside, LLC (Landlord), as lessor, pursuant to which we agreed to lease from Landlord approximately 23,696 rentable square feet (subject to increase pursuant to the terms of the New Facility Lease) of office and laboratory space. The term of the lease (the New Facility Lease Term) will commence upon the earlier of April 1, 2023 or the completion of certain leasehold improvements to the Premises (as defined in the New Facility Lease), but not sooner than March 1, 2023 (the New Facility Lease Commencement Date) and continue for 124 months from the New Facility Lease Commencement Date. We also have one option to extend the New Facility Lease Term for five years. Base rent during such extension period would be at the fair market rent for the Premises. Under the terms of the New Facility Lease, the base rent during the first 12 months of the New Facility Lease Term will be $5.75 per square foot of rentable area per month, subject to certain upward adjustments of approximately 3.0% annually. We are entitled to an allowance of $5.5 million for tenant improvements, including an option to utilize an additional allowance of up to $0.6 million, which, if used by us, would be repaid by us as additional monthly base rent, amortized at eight percent (8.0%) per annum during the New Facility Lease Term. We provided a $0.7 million security deposit in the form of a letter of credit which is included in restricted cash as of June 30, 2022. In April 2022, we entered into the New Financing Lease to lease various research and development and information technology equipment over a 48-month term. Financing lease payments for equipment received in June 2022 will start in July 2022. Our material cash requirements from known contractual obligations have not otherwise changed materially since our Annual Report on Form 10-K for the year ended December 31, 2021. We did not have any off-balance sheet arrangements as of June 30, 2022. Financial Operations Overview Organization and Business; Principles of Consolidation We conduct substantially all of our activities through aTyr Pharma, Inc., a Delaware corporation, at our facility in San Diego, California. aTyr Pharma, Inc. was incorporated in the State of Delaware in September 2005. The condensed consolidated financial statements in this Quarterly Report include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma as of June 30, 2022. All intercompany transactions and balances are eliminated in consolidation. Revenue Recognition In January 2020, we entered into the Kyorin Agreement with Kyorin for the development and commercialization of efzofitimod for ILD in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD, and Kyorin is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing of its Phase 1 trial of efzofitimod and completed the last subject visit in December 2020. This achievement triggered a $2.0 million milestone payment, which we received in January 2021. The Phase 1 trial, which was conducted and funded by Kyorin, was a placebo-controlled study to evaluate the safety, PK and immunogenicity of efzofitimod in 32 healthy Japanese male volunteers. Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events and PK findings were consistent with previous studies of efzofitimod. We received an $8.0 million upfront payment and a $2.0 milestone payment and we are eligible to receive an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan. Kyorin plans to join the EFZO-FIT ™ study, and all study activity in Japan will be funded by Kyorin. During the three and six months ended and June 30, 2022 and 2021, there were no activities that triggered additional license and collaboration agreement revenue under the Kyorin Agreement. 21 Research and Development Expenses To date, our research and development expenses have related primarily to the development of, and clinical trials for, our product candidates, and to research efforts targeting the potential therapeutic application of other tRNA synthetase-based immuno-modulators and, more recently research efforts related to NRP2 biology. These expenses consist primarily of: • salaries and employee-related expenses, including stock-based compensation and benefits for personnel in research and product development functions; • costs associated with conducting our preclinical, development and regulatory activities, including fees paid to third-party professional consultants, service providers and our scientific, therapeutic and clinical advisory board; • costs to acquire, develop and manufacture preclinical study and clinical trial materials; • costs incurred under clinical trial agreements with clinical research organizations (CROs) and investigative sites; • costs for laboratory supplies; and • allocated facilities, depreciation and other allocable expenses. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that the levels of our research and development expenses will continue to increase in future years and will consist primarily of costs related to our clinical development and manufacturing of efzofitimod for patients with pulmonary sarcoidosis, including the costs associated with technology transfer to an additional CDMO of efzofitimod, our preclinical development, planned clinical development and manufacturing of ATYR2810 and other potential therapeutics based on tRNA synthetase biology and NRP2 biology. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates. For instance, as a result of the ongoing COVID-19 pandemic, many clinical trial sites in our completed Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis temporarily suspended dosing of previously-enrolled patients and/or enrollment of new patients and some patients discontinued from the trial. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs, we are unable to estimate with any certainty the costs we will incur or the timelines we will require in the continued development of our product candidates. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which programs or product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include accounting, legal services, expenses associated with applying for and maintaining patents, cost of insurance, cost of various consultants, occupancy costs, information systems costs and depreciation. Critical Accounting Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported expenses during the reporting periods. We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience and on various other factors we believe to be 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. Though the impact of the ongoing COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates. 22 We discuss our accounting policies and assumptions that involve a higher degree of judgment and complexity within Note 2 to our audited consolidated financial statements in our 2021 Annual Report. There have been no material changes to our critical accounting policies and estimates as disclosed in our 2021 Annual Report. Results of Operations Comparison of the Three Months Ended June 30, 2022 and 2021 The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Increase/ 2022 2021 Decrease Research and development expenses $ 9,135 $ 7,655 $ 1,480 General and administrative expenses 3,449 2,790 659 Other income (expense), net 163 53 110 Research and development expenses. Research and development expenses were $9.1 million and $7.6 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $1.5 million was due primarily to an increase of $1.0 million in start-up costs for the EFZO-FIT ™ study , an increase of $0.9 million in preclinical development for ATYR2810 and our discovery programs and an increase of $0.7 million in compensation related expenses. The increase was offset by a decrease of $1.1 million in manufacturing costs for efzofitimod due to timing of completion of certain manufacturing activities. General and administrative expenses. General and administrative expenses were $3.4 million and $2.8 million for the three months ended June 30, 2022 and 2021 respectively. The increase of $0.7 million was due primarily to an increase of $0.3 million in compensation related expense, an increase of $0.2 million in professional fees, an increase of $0.1 million in travel related expenses and an increase of $0.1 million in utilities expenses. Other income (expense), net. Other income (expense), net was $0.2 million and $53,000 for the three months ended June 30, 2022 and 2021, respectively. The increase was primarily a result of interest earned on higher cash, cash equivalents, restricted cash and available-for-sale investments balances as of June 30, 2022 compared to the same period in the prior year, which resulted from an underwritten follow-on offering in September 2021. Comparison of the Six Months Ended June 30, 2022 and 2021 The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands): Six Months Ended June 30, Increase / 2022 2021 (Decrease) Research and development expenses 18,031 12,171 5,860 General and administrative expenses 6,931 5,476 1,455 Other income (expense), net 387 100 287 Research and development expenses. Research and development expenses were $18.0 million and $12.2 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $5.9 million was due primarily to an increase of $0.8 million in start-up costs for the EFZO-FIT ™ study , $2.0 million in product development and manufacturing costs for efzofitimod and ATYR2810, an increase of $1.6 million in preclinical development for ATYR2810 and our discovery programs, and an increase of $1.5 million in compensation related expenses. General and administrative expenses. General and administrative expenses were $6.9 million and $5.5 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $1.4 million was due primarily to an increase of $0.9 million in compensation related expenses, an increase of $0.3 million in professional fees, an increase of $0.1 million in travel related expenses and an increase of $0.1 million in utilities expenses. Other income (expense), net. Other income (expense), net was $0.4 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $0.3 million was primarily a result of interest earned on higher cash, cash equivalents, restricted cash and available-for-sale investments balances as of June 30, 2022 compared to the same period in the prior year, which resulted from an underwritten follow-on offering in September 2021. Recent Accounting Pronouncements For discussion of recently issued accounting pronouncements, refer to Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited) – Note 1 – Recent Accounting Pronouncements of this Quarterly Report. 23 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Not applicable.