What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-14 · 233 added, 322 removed, 423 unchanged (57% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

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Preferred stock, $ 0.001 par value per share;

5,000,000 undesignated authorized shares as of September 30, 2022 (unaudited) and December 31, 2021;

no shares issued or outstanding as of September 30, 2022 (unaudited) and December 31, 2021

5,000,000 undesignated authorized shares as of March 31, 2023 (unaudited) and December 31, 2022;

no shares issued or outstanding as of March 31, 2023 (unaudited) and December 31, 2022

Common stock, $ 0.001 par value per share;

85,000,000 and 42,500,000 authorized shares as of September 30, 2022 (unaudited) and December 31, 2021, respectively;

85,000,000 authorized shares as of March 31, 2023 (unaudited) and December 31, 2022;

issued and outstanding shares –

29,009,382 and 27,793,035 as of September 30, 2022 (unaudited) and December 31, 2021, respectively

53,339,611 as of March 31, 2023 (unaudited) and 29,498,488 as of December 31, 2022

Additional paid-in capital

10 unchanged sentences

(in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating expenses:

13 unchanged sentences

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Consolidated net loss

9 unchanged sentences

(in thousands, except share data)

Three and Nine Months Ended September 30, 2022 (unaudited)

Three months ended March 31, 2023 (unaudited)

Comprehensive

3 unchanged sentences

Issuance of common stock upon release of restricted stock units

Issuance of common stock upon exercise of stock options

Issuance of common stock from at-the-market offerings, net of offering costs

Stock-based compensation

Net unrealized loss on investments, net of tax

Balance as of March 31, 2022

Issuance of common stock pursuant to employee stock purchase plan

Issuance of common stock from at-the-market offerings, net of offering costs

Stock-based compensation

Net unrealized loss on investments, net of tax

Balance as of June 30, 2022

Issuance of common stock from at-the-market offerings, net of offering costs

Issuance of common stock from underwritten follow-on public offering, net of offering costs

Stock-based compensation

Net unrealized gain on investments, net of tax

Balance as of September 30, 2022

Three and Nine Months Ended September 30, 2021 (unaudited)

Balance as of March 31, 2023

Three Months Ended March 31, 2022 (unaudited)

Comprehensive

3 unchanged sentences

Issuance of common stock upon release of restricted stock units

Issuance of common stock from at-the-market offerings, net of offering costs

Issuance of common stock from committed purchase agreement, net of offering costs

Stock-based compensation

Net unrealized loss on investments, net of tax

Balance as of March 31, 2021

Issuance of common stock upon exercise of stock options

Issuance of common stock pursuant to employee stock purchase plan

Issuance of common stock from at-the-market offerings, net of offering costs

1 unchanged sentence

Net unrealized loss on investments, net of tax

Balance as of June 30, 2021

Issuance of common stock upon exercise of stock options

Issuance of common stock from at-the-market offerings, net of offering costs

Issuance of common stock from underwritten follow-on offering, net of offering costs

Stock-based compensation

Net unrealized loss on investments, net of tax

Balance as of September 30, 2021

Balance as of March 31, 2022

See accompanying notes.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation

Amortization of premium of available-for-sale investment securities

(Accretion) amortization of (discount) premium of available-for-sale investment securities

Amortization of right-of-use assets

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Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock through option exercises

Proceeds from issuance of common stock through employee stock purchase plan

Proceeds from issuance of common stock from at-the-market offerings, net of offering costs

Proceeds from issuance of common stock from committed purchase agreement, net of offering costs

Proceeds from issuance of common stock from underwritten follow-on offering, net of offering costs

Proceeds from issuance of common stock from underwritten follow-on public offering, net of offering costs

Principal paid on finance lease liabilities

6 unchanged sentences

Cash, cash equivalents and restricted cash at the end of period

Supplemental schedule of noncash investing and financing activities:

Supplemental disclosure of cash flow information:

Interest paid

Purchases of property and equipment in accounts payable

5 unchanged sentences

Organization and Business

aTyr Pharma, Inc.

(we, us, and our) was incorporated in the State of Delaware on September 8, 2005.

We were 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.

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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.

In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited 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 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.

GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2022, contained in our Annual Report on Form 10-K filed with the SEC on March 14, 2023.

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.

In addition to the ongoing COVID-19 pandemic, global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, recession risks and potential disruptions from the Russia-Ukraine conflict, which has resulted in volatility in the U.S.

In addition to the COVID-19 pandemic and the ongoing Ukraine-Russia conflict, global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, and recession risks, which has resulted in further volatility in the U.S.

and global financial markets and 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 and we continue to actively monitor the impact of these macroeconomic factors on our results of operations, financial condition and cash flows.

The ultimate long-term impact of the COVID-19 pandemic, the ongoing Ukraine-Russia conflict and other evolving geopolitical and macroeconomic conditions on our business is uncertain, although we continue to actively monitor the impact of these factors on our results of operations, financial condition and cash flows.

The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments, which are uncertain and cannot be predicted;

1 unchanged sentence

Liquidity and Financial Condition

We have incurred net losses in each year since our inception in 2005, including a consolidated net loss o f $ 13.2 million and $ 37.8 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022, we had an accumulated deficit of $ 410.1 million.

We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 79.6 million as of September 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 have incurred net losses in each year since our inception in 2005, including a consolidated net loss of $ 12.0 million for the three months ended March 31, 2023.

As of March 31, 2023, we had an accumulated deficit of $ 429.6 million.

We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 117.6 million as of March 31, 2023 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.

6 unchanged sentences

Restricted Cash

As of September 30, 2022, restricted cash consisted of approximately $ 2.2 million, which was held as a security deposit in conjunction with our new facility lease and financing leases as discussed further below in Note 4 –

Commitments and Contingencies.

As of March 31, 2023, restricted cash was approximately $ 3.2 million, which was held as a security deposit in conjunction with our new facility lease and financing leases as discussed further in Note 4 - Commitments and Contingencies.

Allowance of Credit Losses

For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings.

For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, we consider the severity of the impairment, any changes in interest rates, market conditions, changes to the underlying credit ratings and forecasted recovery, among other factors.

The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account.

Any impairment that has not been recorded through an allowance for credit losses is included in other comprehensive income (loss) on the unaudited condensed statements of operations and comprehensive loss.

We elected the practical expedient to exclude the applicable accrued interest from both the fair value and amortized costs basis of our available-for-sale securities for purposes of identifying and measuring an impairment.

Accrued interest receivable on available-for-sale securities is recorded within prepaid expenses and other current assets on our unaudited condensed consolidated balance sheets.

Our accounting policy is to not measure an allowance for credit loss for accrued interest receivable and to write-off any uncollectible accrued interest receivable as a reversal of interest income in a timely manner, which we consider to be in the period in which we determine the accrued interest will not be collected by us.

Use of Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with U.S.

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.

Our condensed consolidated financial statements are prepared in accordance with U.S.

The preparation of our 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 condensed consolidated financial statements and accompanying notes.

The most significant estimates in our 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.

1 unchanged sentence

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.

For long-term operating leases with an initial term of greater than 12 months, we recognize an operating 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.

Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses in our condensed consolidated statements of operations.

For financing leases, interest expense and amortization of the ROU is included in operating expenses in our condensed consolidated statements of operations and variable lease payments are expensed as incurred.

If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease.

1 unchanged sentence

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 the Lease (as defined below) and the non-cancelable operating lease for our existing office and laboratory space and financing leases for various research and development and information technology equipment.

Our ROU assets consist of operating leases and financing leases.

Operating leases include our new corporate headquarters and laboratory space and our prior corporate headquarters.

Our prior corporate headquarters lease will expire in May 2023.

Financing leases include 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 evaluate our agreements under ASC Topic 606, Revenue from Contracts with Customers 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:

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;

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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.

Dilutive common stock equivalents are comprised of warrants for common stock, options and restricted stock units outstanding under our stock option plans 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 due to our net loss position.

Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common stock equivalents):

Nine Months Ended September 30,

Common stock warrants

2 unchanged sentences

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments –

2 unchanged sentences

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.

We adopted Topic 326 on January 1, 2023.

The adoption did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurements

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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.

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, municipal bonds and U.S.

government agencies securities.

We have no financial liabilities measured at fair value on a recurring basis.

6 unchanged sentences

for Identical

As of September 30, 2022

As of March 31, 2023

Cash equivalents

3 unchanged sentences

Municipal bonds

government agencies

Total available-for-sale investments

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Total assets measured at fair value

As of September 30, 2022 and December 31, 2021, available-for-sale investments are detailed as follows (in thousands):

September 30, 2022

As of March 31, 2023 and December 31, 2022, available-for-sale investments are detailed as follows (in thousands):

March 31, 2023

Contractual Maturity

5 unchanged sentences

Within 1 year

government agencies

Within 1 year

December 31, 2022

5 unchanged sentences

Municipal bonds

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 September 30, 2022, all available-for-sale investments had a variety of effective maturity dates of less than two years .

As of September 30, 2022, all available-for-sale investments were in gross unrealized loss positions of which 7 of 26 available-for-sale investments with a market value of $ 13.4 million were at a loss position greater than 12 months .

License and Other Agreements

Within 1 year

We evaluate our available-for-sale debt securities for credit losses when the amortized cost basis exceeds fair value.

The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account.

Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss).

When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, our intent to sell or the likelihood that we would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made.

We recorded no allowance for credit losses in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2023.

As of March 31, 2023, all available-for-sale investments had a variety of effective maturity dates of less than two years .

As of March 31, 2023, $ 89.8 million of our short-term investments had maturities less than one year and $ 3.9 million had maturities greater than one year.

As of March 31, 2023 and December 31, 2022, accrued interest receivable on available-for-sale securities for each of the period-ended was $ 0.2 million.

License, Collaboration 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 has joined 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.

(Kyorin) for the development and commercialization of efzofitimod for the treatment of 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, 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.

Kyorin is also participating in the EFZO-FIT study as the local sponsor in Japan.

In February 2023, Kyorin dosed the first patient in Japan in the EFZO-FIT study which triggered a $ 10.0 million milestone payment to us.

To date, the Kyorin Agreement has generated $ 20.0 million in upfront and milestone payments to us and we are eligible to receive up to an additional $ 155.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties on any 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.

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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”

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 nine months ended September 30, 2022 and 2021, there were no activities that triggered additional license and collaboration agreement revenue under the Kyorin Agreement.

2) free clinical trial material for Kyorin’s Phase 1 clinical trial.

Kyorin is participating in the EFZO-FIT study and received approval from the Pharmaceuticals and Medical Devices Agency (PMDA) to commence the EFZO-FIT study in Japan in December 2022.

Additionally, i n February 2023, Kyorin dosed the first patient in Japan in the EFZO-FIT study which triggered a $ 10.0 million milestone payment to us.

We recognized this $ 10.0 million milestone payment as revenue during the year ended December 31, 2022, as we determined the milestone became probable of achievement as of December 31, 2022, with Kyorin having scheduled site visits for patient screenings by that time.

We received this $ 10.0 million milestone payment during the three months ended March 31, 2023.

For each of the three months ended March 31, 2023 and 2022, 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.

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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 .

In May 2021, we announced that Pangu BioPharma and HKUST achieved certain milestones for the first year of the project.

The project was completed as of September 30, 2022.

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 September 30, 2022 and 2021 were $ 27,000 and $ 0.1 million, respectively.

Expenses for the nine months ended September 30, 2022 and 2021 were $ 0.1 million and $ 0.3 million, respectively.

Commitments and Contingencies

Operating Leases

We have a non-cancelable facility lease that is 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 lease.

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 .

New Corporate Headquarters Facility Lease

In May 2022, we entered into a lease (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) commenced on March 20, 2023 (the Lease Commencement Date) and will continue for 124 months.

We have an 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 September 30, 2022.

Future minimum payments under the Lease and the non-cancelable operating lease for our existing office and laboratory space and reconciliation to the operating lease liability as of September 30, 2022 were as follows (in thousands):

Operating Lease

As of March 31, 2023, we have incurred $ 4.8 million in tenant improvement costs, and these costs are included in property and equipment, net on our condensed consolidated balance sheets.

We are entitled to an allowance of up to $ 5.5 million for tenant improvements of which as of March 31, 2023, we received $ 4.5 million from the Landlord.

The Lease also includes 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 on our condensed consolidated balance sheet as of March 31, 2023.

Previous Corporate Headquarters Facility Lease

Our operating lease for our previous corporate headquarters is subject to base lease payments, additional charges for common area maintenance and other costs and terminates in May 2023.

Future minimum payments under the facility leases and reconciliation to the operating lease liability as of March 31, 2023 were as follows (in thousands):

Operating Leases

2028 and thereafter

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Long-term operating lease liability, net of current portion

For each of the three months ended September 30, 2022 and 2021, we recorded an operating lease cost of $ 0.3 million and $ 0.2 million, respectively.

For each of the nine months ended September 30, 2022 and 2021, we recorded an operating lease cost of $ 0.8 million and $ 0.7 million, respectively.

As of September 30, 2022, the weighted-average remaining lease term was 10.4 years and the weighted-average discount rate was 8.8 %.

For each of the three months ended March 31, 2023 and 2022, we recorded an operating lease expense of $ 0.7 million and $ 0.2 million, respectively.

As of March 31, 2023, the weighted-average remaining lease term was 9.8 years and the weighted average discount rate was 8.8 %.

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.

Future minimum payments under the non-cancelable financing lease and reconciliation to the financing lease liability as of September 30, 2022 were as follows (in thousands):

Financing Lease

Future minimum payments under the financing lease and reconciliation to the financing lease liability as of March 31, 2023 were as follows (in thousands):

Financing Leases

Amount representing interest

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Long-term financing lease liability, net of current portion

As of September 30, 2022, the weighted-average remaining lease term was 3.8 years and the weighted-average discount rate was 7.2 %.

We provided a $ 1.5 million deposit to be held as collateral for the leased equipment, and this deposit is included in restricted cash as of September 30, 2022.

As of March 31, 2023, the weighted-average remaining lease term was 3.7 years and the weighted-average discount rate was 8.2 %.

We provided a $ 2.4 million deposit to be held as collateral for the leased equipment, and this deposit is included in restricted cash as of March 31, 2023.

Stockholders’

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’

In February 2023, we completed an underwritten follow-on public offering of 23,125,000 shares of our common stock, including the partial exercise of the underwriters’

option to purchase additional shares, at a price to the public of $ 2.25 per share.

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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 nine months ended September 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 nine months ended September 30, 2022, we sold an aggregate of 951,175 shares of common stock at a weighted-average price of $ 3.55 per share for net proceeds of approximately $ 3.1 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 nine months ended September 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 nine months ended September 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.

During the nine months ended September 30, 2022, we granted nonstatutory stock options under our Inducement Plan to purchase an aggregate of 192,400 shares of our common stock, with a weighted-average exercise price of $ 4.04 per share as inducement awards to new employees.

offering program (the Jefferies 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 Jefferies ATM Offering Program.

During 2022, we sold an aggregate of 1,421,627 shares of common stock at a weighted-average price of $ 3.09 per share for net proceeds of approximately $ 4.0 million under the Jefferies ATM Offering Program.

During the three months ended March 31, 2023, we sold an aggregate of 694,012 shares of common stock at a weighted-average price of $ 2.30 per share for net proceeds of approximately $ 1.5 million under the Jefferies ATM Offering Program.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance was as follows:

September 30, 2022

March 31, 2023

Common stock warrants

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Shares available under the employee stock purchase plan

The following table summarizes our stock option activity under all equity incentive plans for the nine months ended September 30, 2022:

The following table summarizes our stock option activity under all equity incentive plans for the three months ended March 31, 2023:

Stock Options

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Canceled/forfeited/expired

Outstanding as of September 30, 2022

Outstanding as of March 31, 2023

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 September 30,

Nine Months Ended September 30,

Expected term (in years)

6.02 –

5.98 –

5.50 –

Risk-free interest rate

1.7 % –

0.6 % –

Expected volatility

85.8 % –

86.3 % –

84.5 % –

86.3 % –

Expected dividend yield

The following table summarizes our restricted stock unit activity under all equity incentive plans for the nine months ended September 30, 2022:

The following table summarizes our restricted stock unit activity under all equity incentive plans for the three months ended March 31, 2023:

Number of Outstanding

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Balance as of December 31, 2022

Balance as of September 30, 2022

Balance as of March 31, 2023

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development

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Total stock-based compensation expense

Subsequent Events

From April 1, 2023 through May 5, 2023, we sold an aggregate of 916,143 shares of common stock at a weighted-average price of $ 2.07 through the Jefferies ATM Offering Program for net proceeds of $ 1.8 million.

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).

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, 2022 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, filed with the Securities and Exchange Commission (SEC), on March 14, 2023 (2022 Annual Report).

This Quarterly Report contains “forward-looking statements”

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“should”

or the negative or plural of these words and similar expressions.

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”

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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, and in September 2022, the FDA granted efzofitimod a second fast track designation for the treatment of scleroderma associated ILD.

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.

Our primary focus is efzofitimod, a clinical-stage product candidate which targets NRP2 to resolve chronic inflammation that can lead to fibrosis.

Efzofitimod has a novel mechanism of action for potentially treating lung inflammation and fibrosis.

We believe by targeting NRP2 on myeloid cells during active inflammation, efzofitimod works upstream of currently available immunomodulators to restore immune homeostasis, thereby resolving chronic inflammation and preventing the progression of fibrosis.

We are developing efzofitimod as a potential disease-modifying therapy for patients with interstitial lung disease (ILD).

ILDs are predominantly immune-mediated disorders that are characterized by chronic inflammation, which can lead to progressive fibrosis of the lung.

There are limited treatment options for ILD and there remains a high unmet medical need.

Sarcoidosis and systemic sclerosis (SSc, also known as scleroderma)-associated ILD (SSc-ILD) are two major forms of ILD.

During 2022, the U.S.

Food and Drug Administration (FDA) granted efzofitimod orphan drug designations for the treatment of sarcoidosis and for the treatment of SSc, and Fast Track designations for the treatment of pulmonary sarcoidosis and for the treatment of SSc-ILD.

In January 2023, the European Commission granted efzofitimod an orphan drug designation for the treatment of sarcoidosis based on the opinion of the European Medicines Agency (EMA) Committee for Orphan Medicinal Products (COMP).

In September 2021, we announced positive results and clinical proof-of-concept from a double-blind, placebo-controlled Phase 1b/2a clinical trial in 37 patients with pulmonary sarcoidosis.

The study was designed to evaluate the safety, tolerability, immunogenicity and preliminary efficacy of three doses of efzofitimod, 1.0, 3.0 and 5.0 mg/kg, in the context of a forced steroid taper.

Efzofitimod was safe and 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 and have had continued correspondence to discuss these data and our plans for subsequent clinical development and path to registration for efzofitimod for the treatment of pulmonary sarcoidosis.

In addition, based

on the results of the Phase 1b/2a clinical trial, we believe efzofitimod has further potential applications in the treatment of other ILD, such as chronic hypersensitivity pneumonitis and connective tissue disease related ILD, including scleroderma-associated ILD.

During the third quarter of 2022, we initiated 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).

These data were subsequently presented at the American Thoracic Society (ATS) International Conference and published in the peer-reviewed journal CHEST during 2022.

In February 2022, we met with the FDA in an end-of-Phase 2 meeting to discuss our plans for subsequent clinical development and path to registration for efzofitimod for pulmonary sarcoidosis.

Subsequently, we initiated 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.

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In September 2022, we dosed the first patient in this study.

Based on the results of the Phase 1b/2a clinical trial, we believe efzofitimod has potential applications in the treatment of other ILDs, such as chronic hypersensitivity pneumonitis (CHP) and connective tissue disease related ILD (CTD-ILD), including SSc-ILD and rheumatoid arthritis-associated ILD.

As such, we designed a focused Phase 2 proof-of-concept study of efzofitimod in patients with SSc-ILD and we have received FDA clearance for this study.

In February 2023, we announced that we plan to initiate this Phase 2 study of efzofitimod in patients with SSc-ILD in 2023.

This planned Phase 2 study is expected to be a randomized, double-blind placebo-controlled proof-of-concept study to evaluate the efficacy, safety and tolerability of efzofitimod in patients with SSc-ILD.

This is expected to be a 28-week study with three parallel cohorts randomized 2:2:1 to either 270 mg or 450 mg of efzofitimod or placebo dosed intravenously monthly for a total of six doses.

It is expected the study to enroll 25 patients at multiple centers in the United States.

The primary objective of the study will be to evaluate the efficacy of multiple doses of intravenous efzofitimod on pulmonary, cutaneous and systemic manifestations in patients with SSc-ILD.

Secondary objectives will include safety and tolerability.

The study is expected to initiate in the third quarter of 2023.

In January 2020, we entered into a collaboration and license agreement (Kyorin Agreement) with Kyorin Pharmaceutical Co., Ltd.

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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 has joined 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.

Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events, and PK findings were consistent with previous studies of

Kyorin is also participating in the EFZO-FIT study as the local sponsor in Japan.

In February 2023, Kyorin dosed the first patient in Japan in the EFZO-FIT study which triggered a $10.0 million milestone payment to us.

To date, the Kyorin Agreement has generated $20.0 million in upfront and milestone payments to us and we are eligible to receive up to an additional $155.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties on any net sales in Japan.

Discovery Pipeline

In parallel with our clinical development of efzofitimod, we have been advancing our discovery pipeline of tRNA synthetases and NRP2 antibodies.

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 October 2022, we entered into a research collaboration with Dualsystems Biotech AG (Dualsystems), a company specializing in custom proteomics, aimed at accelerating drug discovery and generating new therapeutics based on our extensive intellectual property portfolio.

Under the collaboration, which is exclusive with respect to tRNA related molecules, Dualsystems will utilize their proprietary receptor screening technology and research expertise to attempt to identify and validate 10 new target receptors for tRNA synthetases by 2025.

We have also advanced our preclinical pipeline of NRP2 targeting antibody candidates through internal research efforts, industry and academic collaborations.

ATYR2810 is our product 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.

Due to current market conditions, we intend to focus our resources on prioritizing our efzofitimod program .

Therefore, we have made the strategic decision not to use internal resources to initiate a Phase 1 study of ATYR2810 this year.

We intend to pursue alternative non-dilutive avenues, including academic collaborations, to advance this program.

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%.

In May 2021, we announced that Pangu BioPharma and HKUST achieved certain milestones for the first year of the project.

The project was completed as of September 30, 2022.

Impact of the COVID-19 Pandemic and Other Geopolitical and Macroeconomic Conditions

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’

Extracellular tRNA synthetase biology represents a novel set of potential physiological modulators and therapeutic targets.

Using efzofitimod as a model, we have developed a process to advance novel tRNA synthetase domains from a concept to therapeutic candidate.

This process leverages our early discovery work as well as current scientific understanding of tRNA synthetase evolution, protein structure, gene splicing and tissue-specific regulation to identify potentially active protein domains.

Screening approaches are employed to identify target cells and extracellular receptors for these tRNA synthetase-derived proteins.

These cellular systems can then be used in mechanism-of-action studies to elucidate the role these proteins play in cellular responses and their potential therapeutic utility.

We are working to identify new tRNA synthetase based drug candidates through our internal discovery efforts and industry and academic collaborations, including our collaboration with Dualsystems Biotech AG (Dualsystems).

Dualsystems has agreed to utilize their proprietary receptor screening technology and research expertise to attempt to identify and validate new target receptors for tRNA synthetases.

Through our internal research efforts, the Dualsystems collaboration and other industry and academic collaborators, we intend to continue to advance our product development efforts within our tRNA synthetase biology platform.

Impact of Geopolitical and Macroeconomic Conditions

The impacts of the 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 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 Ukraine-Russia conflict, 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 Ukraine-Russia conflict, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.

In addition to the ongoing COVID-19 pandemic and the ongoing Ukraine-Russia conflict, global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, and recession risks, which has resulted in further volatility in the U.S.

In addition to the COVID-19 pandemic and the ongoing Ukraine-Russia conflict, global economic and business activities continue to face widespread macroeconomic uncertainties, including recent and potential future bank failures, labor shortages, inflation and monetary supply shifts, and recession risks, which has resulted in further volatility in the U.S.

and global financial markets and which has led to, and may continue to lead to, additional disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally.

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We have incurred losses and negative cash flows from operations since our inception.

As of September 30, 2022 and December 31, 2021, we had an accumulated deficit of $410.1 million and $372.3 million, respectively, and we expect to continue to incur net losses for the foreseeable future.

As of September 30, 2022 and December 31, 2021, we had cash, cash equivalents, restricted cash and available-for-sale investments of $79.6 million and $107.9 million, respectively.

We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments as of September 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 date of this Quarterly Report.

As of March 31, 2023, we had an accumulated deficit of $429.6 million and we expect to continue to incur net losses for the foreseeable future.

As of March 31, 2023, we had cash, cash equivalents, restricted cash and available-for-sale investments of $117.6 million.

During the quarter ended March 31, 2023, we completed an underwritten follow-on public offering of 23,125,000 shares of our common stock, including the partial exercise of the underwriters’

option to purchase additional shares, at a price to the public of $2.25 per share.

The total net proceeds from the offering were approximately $48.1 million, after deducting underwriting discounts, commissions and offering expenses payable by us.

We also received a $10.0 million milestone payment from the Kyorin Agreement during the quarter ended March 31, 2023.

We believe that our current cash, cash equivalents, restricted cash 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.”

our ability to fund our longer-term operating needs 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 –

We will need to raise additional capital or enter into strategic partnering relationships to fund our operations.”

Sources of Cash

From our inception through September 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.

From our inception through March 31, 2023, 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’

In February 2023, we completed an underwritten follow-on public offering of 23,125,000 shares of our common stock, including the partial exercise of the underwriters’

option to purchase additional shares, at a price to the public of $2.25 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.

The total net proceeds from the offering were approximately $48.1 million, before 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 nine months ended September 30, 2022, we sold an aggregate of 951,175 shares of common stock at a weighted-average price of $3.55 per share for net proceeds of approximately $3.1 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 nine months ended September 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.

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 nine months ended September 30, 2022, there were no issuances or sales under the Purchase Agreement.

As of September 30, 2022, $4.8 million remains available for issuance and sale under the Purchase Agreement.

offering program (the Jefferies 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 Jefferies ATM Offering Program.

During 2022, we sold an aggregate of 1,421,627 shares of common stock at a weighted-average price of $3.09 per share for net proceeds of approximately $4.0 million under the Jefferies ATM Offering Program.

During the three months ended March 31, 2023, we sold an aggregate of 694,012 shares of common stock at a weighted-average price of $2.30 per share for net proceeds of approximately $1.5 million under the Jefferies ATM Offering Program.

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 nine months ended September 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 nine months ended September 30, 2022, we did not receive any further grants from the ITC or otherwise.

The project was completed as of September 30, 2022.

On February 6, 2023, we announced that our partner Kyorin dosed the first patient in Japan in the EFZO-FIT study, which triggered a $10.0 million milestone payment by Kyorin to us pursuant to the Kyorin Agreement.

We recorded this $10.0 million milestone as revenue in the year ended December 31, 2022 and received the cash in February 2023.

Kyorin is our partner for the development and commercialization of efzofitimod for ILD in Japan.

Under the Kyorin Agreement, we have generated $20.0 million in upfront and milestone payments to date and are eligible to receive up to an additional $155.0 million in the aggregate upon the achievement of certain development, regulatory and sales milestones, as well as tiered royalties on any net sales in Japan.

Kyorin has the exclusive rights to develop and commercialize efzofitimod in Japan for all forms of ILD.

The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):

Nine Months Ended September 30,

Net cash provided by (used in):

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Operating activities.

Net cash used in operating activities for the nine months ended September 30, 2022 and 2021 was $(31.5) million and $(25.0) 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 tRNA synthetases and NRP2 antibodies.

Net cash used in operating activities for the three months ended March 31, 2023 and 2022 was $0.6 million and $10.1 million, respectively.

The net cash used in operating activities in each of these periods was primarily due to cash used for our research and development expenses.

The decrease in net cash used during the three months ended March 31, 2023 is primarily due to the receipt of a $10.0 million milestone from the Kyorin Agreement.

Investing activities.

Net cash provided by (used in) investing activities for the nine months ended September 30, 2022 and 2021 was $45.2 million and $(42.2) 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.

Net cash (used in) provided by investing activities for the three months ended March 31, 2023 and 2022 was $(38.2) million and $14.6 million, respectively.

The fluctuation in net cash (used in) provided by 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 nine months ended September 30, 2022 consisted primarily of an aggregate of $4.6 million in proceeds from the issuance and sale of common stock through the ATM Offering Program and Prior ATM Offering Program, net of offering costs.

Net cash provided by financing activities for the nine months ended September 30, 2021 consisted primarily of $80.6 million in net proceeds from the issuance of common stock in an underwritten follow-on public offering, net of offering costs, $14.1 million of proceeds from the issuance and sale of common stock, net of offering costs, through the Prior ATM Program and 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.

Net cash provided by financing activities for the three months ended March 31, 2023 and 2022 was $49.5 million and $1.5 million, respectively.

Net cash provided by financing activities for the three months ended March 31, 2023 consisted primarily of $48.1 million in net proceeds from our underwritten follow-on public offering and $1.5 million in net proceeds from the issuance of common stock through the Jefferies ATM Offering Program, net of offering costs.

Net cash provided by financing activities for the three months ended March 31, 2022 consisted primarily of $1.5 million in proceeds from the issuance of common stock through our prior ATM Offering Program, 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 a change in our CRO, manufacturing and technology transfer activities for efzofitimod, 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 expect our expenses to increase in connection with our ongoing activities, particularly as we continue to advance efzofitimod in clinical development, manufacturing and technology transfer activities, continue our research and development activities with respect to other potential therapies based on tRNA synthetase 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.

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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, including changes in our CROs;

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

delays of our planned clinical trials of efzofitimod;

any resulting cost increases as a result of the ongoing COVID-19 pandemic, the ongoing Ukraine-Russia conflict, other geopolitical and macroeconomic conditions, including labor shortages, economic slowdowns, recessions or market corrections, inflation and monetary supply shifts, rising interest rates and tightening of credit markets ;

potential delays of our planned clinical trials of efzofitimod;

any resulting cost increases as a result of geopolitical and macroeconomic conditions, including the COVID-19 pandemic, the ongoing Ukraine-Russia conflict, recent and potential future bank failures, labor shortages, economic slowdowns, recessions or market corrections, inflation and monetary supply shifts, 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);

the manufacturing of preclinical study and clinical trial materials, including technology transfers to additional contract development and manufacturing organizations (CDMO), and any delays in the manufacturing of study drug as a result of geopolitical and macroeconomic conditions, including the COVID-19 pandemic, the ongoing Ukraine-Russia conflict, recent and potential future bank failures, labor shortages, economic slowdowns, recessions or market corrections, inflation, rising interest rates and tightening of credit markets;

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;

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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.

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.

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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.

As of September 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, (ii) the Lease that we entered into in May 2022, and (iii) our master financing lease agreement that we entered into in April 2022 for various research and development and informational technology equipment.

Our non-cancelable operating lease is 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 our non-cancelable operating lease.

We also have one option to extend the Lease Term for five years.

As of March 31, 2023, our material cash requirements from known contractual and other obligations consisted primarily of (i) the lease that we entered into in May 2022 for our new corporate headquarters, and (ii) our master financing lease agreement that we entered into in April 2022 for various research and development and informational technology equipment.

New Corporate Headquarters Facility Lease

The term of the lease (the Lease Term) commenced on March 20, 2023 (the Lease Commencement Date) and will continue for 124 months.

We have an 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 September 30, 2022.

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.

As of March 31, 2023, we have incurred $4.8 million in tenant improvement costs, and these costs are included in property and equipment, net on our condensed consolidated balance sheet.

We are entitled to an allowance of up to $5.5 million for tenant improvements of which as of March 31, 2023, we received $4.5 million from the Landlord.

The Lease also includes 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 March 31, 2023.

Financing Lease

In April 2022, we entered into a financing lease to lease various research and development and information technology equipment over a 48-month term.

Financing lease liabilities total $0.8 million as of September 30, 2022.

Additionally, we provided $1.5 million in cash collateral for the financing lease, and this amount is included in restricted cash as of September 30, 2022.

Except as described above, 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 September 30, 2022.

Financing lease liabilities total $2.0 million as of March 31, 2023.

Additionally, we provided $2.4 million in cash collateral for the financing lease, and this amount is included in restricted cash as of March 31, 2023.

We did not have any off-balance sheet arrangements as of March 31, 2023.

Financial Operations Overview

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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 September 30, 2022.

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 March 31, 2023.

All intercompany transactions and balances are eliminated in consolidation.

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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.

The Phase 1 trial, which was conducted and funded by Kyorin, is 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 has joined the EFZO-FIT study, and all study activity in Japan will be funded by Kyorin.

During the three and nine months ended September 30, 2022 and 2021, there were no activities that triggered additional license and collaboration agreement revenue under the Kyorin Agreement.

Kyorin is also participating in the EFZO-FIT study as the local sponsor in Japan.

In February 2023, Kyorin dosed the first patient in Japan in EFZO-FIT study.

This achievement triggered a $10.0 million milestone payment by Kyorin to us pursuant to the Kyorin Agreement.

Kyorin has the exclusive rights to develop and commercialize efzofitimod in Japan for all forms of ILD.

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.

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 for potential therapeutics based on tRNA synthetase biology and NRP2 biology.

These expenses consist primarily of:

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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 the change in our CRO and the technology transfer to an additional CDMO of efzofitimod, 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.

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 and SSc-ILD, and other potential therapeutics based on tRNA synthetase biology.

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.

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.

Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

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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.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these 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 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.

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Actual results may differ materially from these estimates under different assumptions or conditions.

Though the impact of the ongoing COVID-19 pandemic, the ongoing Ukraine-Russian conflict and other geopolitical and macroeconomic conditions on our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates.

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 2022 Annual Report.

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30,

Research and development expenses

General and administrative expenses

Other income (expense), net

Research and development expenses.

Research and development expenses were $9.9 million and $5.1 million for the three months ended September 30, 2022 and 2021, respectively.

The increase of $4.7 million was due primarily to $3.0 million in start-up costs for the EFZO-FIT study , $0.7 million in increased manufacturing costs for efzofitimod and ATYR2810, an increase of $0.5 million in preclinical development expenses for ATYR2810 and our discovery programs, and an increase of $0.4 million in personnel related expenses.

General and administrative expenses.

General and administrative expenses were $3.6 million and $2.6 million for the three months ended September 30, 2022 and 2021 respectively.

The increase of $1.0 million was due primarily to an increase of $0.7 million in personnel related expense, and an increase of $0.2 million in professional fees.

Other income (expense), net.

Other income (expense), net was $0.2 million and $59,000 for the three months ended September 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, which resulted from an underwritten follow-on offering in September 2021, as well as higher interest rates as of September 30, 2022 compared to the same period in the prior year.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):

Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Research and development expenses

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Research and development expenses.

Research and development expenses were $27.9 million and $17.3 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase of $10.6 million was due primarily to $3.6 million in start-up costs for the EFZO-FIT study , $2.8 million in increased manufacturing costs for efzofitimod and ATYR2810, an increase of $2.0 million in personnel related expenses, and an increase of $2.4 million in preclinical development expenses for ATYR2810 and our discovery programs.

Research and development expenses were $9.4 million and $8.9 million for the three months ended March 31, 2023 and 2022, respectively.

The increase of $0.5 million was due primarily to an increase of $1.9 million in clinical trial costs for the EFZO-FIT study offset by reductions of $0.8 million in manufacturing costs due to the timing of manufacturing campaign work completed and ongoing and $0.7 million research and development costs as efzofitimod has advanced into a late stage clinical trial.

General and administrative expenses.

General and administrative expenses were $10.6 million and $8.1 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase of $2.5 million was due primarily to an increase of $1.5 million in personnel related expenses, and an increase of $0.5 million in professional fees.

Other income (expense), net.

Other income (expense), net was $0.6 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase of $0.5 million was primarily a result of interest earned on higher cash, cash equivalents, restricted cash and available-for-sale investments balances, which resulted from an underwritten follow-on offering in September 2021 as well as higher interest rates as of September 30, 2022 compared to the same period in the prior year.

General and administrative expenses were consistent at $3.4 million for each the three months ended March 31, 2023 and 2022.

Other income, net.

Other income, net was $0.8 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

The change was primarily a result of higher cash, cash equivalents, restricted cash and available-for-sale investments balances at March 31, 2023 as compared to the same period in the prior year, which resulted from the underwritten follow-on public offering in February 2023 and increased interest rates.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 1. Financial Statements