aTYR PHARMA INC 10-Q

Item 1. Financial Statements aTyr Pharma, Inc. Condensed Consolida ted Balance Sheets (in thousands, except share and per share data) March 31, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 20,690 $ 9,981 Available-for-sale investments 93,695 56,165 Other receivables 1,625 11,775 Prepaid expenses 3,437 2,950 Total current assets 119,447 80,871 Restricted cash 3,190 3,165 Property and equipment, net 5,167 3,059 Operating lease, right-of-use assets 6,942 7,250 Financing lease, right-of-use assets 1,948 1,248 Other assets 144 193 Total assets $ 136,838 $ 95,786 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,965 $ 3,106 Accrued expenses 8,888 9,862 Current portion of operating lease liability 381 630 Current portion of financing lease liability 420 264 Total current liabilities 13,654 13,862 Long-term operating lease liability, net of current portion 11,916 9,633 Long-term financing lease liability, net of current portion 1,570 1,007 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.001 par value per share; 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 authorized shares as of March 31, 2023 (unaudited) and December 31, 2022; issued and outstanding shares – 53,339,611 as of March 31, 2023 (unaudited) and 29,498,488 as of December 31, 2022 53 29 Additional paid-in capital 539,659 489,502 Accumulated other comprehensive loss ( 248 ) ( 433 ) Accumulated deficit ( 429,585 ) ( 417,634 ) Total aTyr Pharma, Inc. stockholders’ equity 109,879 71,464 Noncontrolling interest in Pangu BioPharma Limited ( 181 ) ( 180 ) Total stockholders’ equity 109,698 71,284 Total liabilities and stockholders’ equity $ 136,838 $ 95,786 See accompanying notes. 3 aTyr Pharma, Inc. Condensed Consolidated S tatements of Operations (in thousands, except share and per share data) Three Months Ended March 31, 2023 2022 (unaudited) Operating expenses: Research and development $ 9,379 $ 8,896 General and administrative 3,408 3,482 Total operating expenses 12,787 12,378 Loss from operations ( 12,787 ) ( 12,378 ) Total other income (expense), net 835 224 Consolidated net loss ( 11,952 ) ( 12,154 ) Net loss attributable to noncontrolling interest in Pangu BioPharma Limited 1 1 Net loss attributable to aTyr Pharma, Inc. $ ( 11,951 ) $ ( 12,153 ) Net loss per share, basic and diluted $ ( 0.29 ) $ ( 0.44 ) Shares used in computing net loss per share, basic and diluted 41,897,706 27,818,379 See accompanying notes. 4 aTyr Pharma, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) Three Months Ended March 31, 2023 2022 (unaudited) Consolidated net loss $ ( 11,952 ) $ ( 12,154 ) Other comprehensive loss: Change in unrealized gain (loss) on available-for-sale investments, net of tax 185 ( 496 ) Comprehensive loss ( 11,767 ) ( 12,650 ) Comprehensive loss attributable to noncontrolling interest in Pangu BioPharma Limited 1 1 Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders $ ( 11,766 ) $ ( 12,649 ) See accompanying notes. 5 aTyr Pharma, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) Three months ended March 31, 2023 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2022 29,498,488 $ 29 $ 489,502 $ ( 433 ) $ ( 417,634 ) $ ( 180 ) $ 71,284 Issuance of common stock upon release of restricted stock units 22,111 — — — — — — Issuance of common stock from at-the-market offerings, net of offering costs 694,012 1 1,488 — — — 1,489 Issuance of common stock from underwritten follow-on public offering, net of offering costs 23,125,000 23 48,050 — — — 48,073 Stock-based compensation — — 619 — — — 619 Net unrealized gain on investments, net of tax — — — 185 — — 185 Net loss — — — — ( 11,951 ) ( 1 ) ( 11,952 ) Balance as of March 31, 2023 53,339,611 $ 53 $ 539,659 $ ( 248 ) $ ( 429,585 ) $ ( 181 ) $ 109,698 Three Months Ended March 31, 2022 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2021 27,793,035 $ 28 $ 481,832 $ ( 263 ) $ ( 372,296 ) $ ( 175 ) $ 109,126 Issuance of common stock upon release of restricted stock units 2,500 — — — — — — Issuance of common stock upon exercise of stock options 259 — 1 — — — 1 Issuance of common stock from at-the-market offerings, net of offering costs 260,455 — 1,480 — — — 1,480 Stock-based compensation — — 417 — — — 417 Net unrealized loss on investments, net of tax — — — ( 496 ) — — ( 496 ) Net loss — — — — ( 12,153 ) ( 1 ) ( 12,154 ) Balance as of March 31, 2022 28,056,249 $ 28 $ 483,730 $ ( 759 ) $ ( 384,449 ) $ ( 176 ) $ 98,374 See accompanying notes. 6 aTyr Pharma, Inc. Condensed Consolidated S tatements of Cash Flows (in thousands) March 31, 2023 2022 Cash flows from operating activities: Consolidated net loss $ ( 11,952 ) $ ( 12,154 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 80 81 Stock-based compensation 619 417 (Accretion) amortization of (discount) premium of available-for-sale investment securities ( 419 ) 237 Amortization of right-of-use assets 675 217 Gain on disposal of property and equipment — ( 89 ) Changes in operating assets and liabilities: Other receivables 9,883 9 Prepaid expenses and other assets ( 438 ) 1,180 Accounts payable and accrued expenses ( 1,057 ) 216 Operating lease liability 2,019 ( 233 ) Net cash used in operating activities ( 590 ) ( 10,119 ) Cash flows from investing activities: Purchases of property and equipment ( 1,246 ) ( 43 ) Purchases of available-for-sale investment securities ( 46,226 ) — Maturities of available-for-sale investment securities 9,300 14,500 Proceeds from sale of property and equipment — 169 Net cash (used in) provided by investing activities ( 38,172 ) 14,626 Cash flows from financing activities: Proceeds from issuance of common stock through option exercises — 1 Proceeds from issuance of common stock from at-the-market offerings, net of offering costs 1,489 1,480 Proceeds from issuance of common stock from underwritten follow-on public offering, net of offering costs 48,073 — Principal paid on finance lease liabilities ( 66 ) — Net cash provided by financing activities 49,496 1,481 Net change in cash, cash equivalents and restricted cash 10,734 5,988 Cash, cash equivalents and restricted cash at beginning of period 13,146 2,336 Cash, cash equivalents and restricted cash at the end of period $ 23,880 $ 8,324 Cash and cash equivalents at the end of period $ 20,690 $ 8,324 Restricted cash at the end of period 3,190 — Cash, cash equivalents and restricted cash at the end of period $ 23,880 $ 8,324 Supplemental disclosure of cash flow information: Interest paid $ 46 $ — Purchases of property and equipment in accounts payable $ 2,136 $ — Right-of-use assets obtained in exchange for lease obligation $ 1,043 $ — See accompanying notes. 7 aTyr Pharma, Inc. Notes to Condensed Consolid ated Financial Statements (Unaudited) 1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies Organization and Business 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. Principles of Consolidation Our condensed consolidated financial statements include our accounts and our 98 % majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation. Unaudited Interim Financial Information The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and follow the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In our opinion, the 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 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 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. 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; however, any continued or renewed disruption resulting from these factors could negatively impact our business. Liquidity and Financial Condition We have incurred net losses in each year since our inception in 2005, including a consolidated net loss of $ 12.0 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. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for our product candidates. We anticipate that we will seek to fund our operations through equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. However, we may be unable to raise additional capital or enter into such arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates. 8 Restricted Cash 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 condensed consolidated financial statements are prepared in accordance with U.S. GAAP. 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. Leases We determine if an arrangement is a lease at inception. Short-term leases with an initial term of 12 months or less are not recorded on our balance sheet. For long-term 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 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. If a lease continues to exist, the lease modification is determined to be a separate contract when the modification grants the lessee an additional ROU that is not included in the original lease and the lease payments increase commensurate with the standalone price for the additional ROU. A lease modification that results in a separate contract will be accounted for in the same manner as a new lease. For a modification that is not a separate contract, we reassess the lease classification using the modified terms and conditions and the facts and circumstances as of the effective date of the modification and recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding operating lease ROU asset. 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 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 9 revenue to be recognized as we fulfill our obligations under our agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide research and development services. We recognize revenue at a point in time when we transfer control of a distinct performance obligation to our partner. For example, if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants for common stock, options and restricted stock units outstanding under our stock option 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): March 31, 2023 2022 Common stock warrants 13,760 13,760 Common stock options and restricted stock units 3,922,930 1,824,164 Employee stock purchase plan 34,588 2,045 Total 3,971,278 1,839,969 Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted Topic 326 on January 1, 2023. The adoption did not have a material impact on our condensed consolidated financial statements. 2. Fair Value Measurements The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Investment securities are recorded at fair value. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: 10 Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in commercial paper, corporate debt securities, municipal bonds and U.S. government agencies securities. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. Assets measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of March 31, 2023 Assets: Current: Cash equivalents $ 20,514 $ 20,514 $ — $ — Available-for-sale investments: Commercial paper 52,492 — 52,492 — Corporate debt securities 20,880 — 20,880 — Municipal bonds 1,001 — 1,001 — U.S. government agencies 19,322 — 19,322 Total available-for-sale investments 93,695 — 93,695 — Total assets measured at fair value $ 114,209 $ 20,514 $ 93,695 $ — Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2022 Assets: Current: Cash equivalents $ 8,585 $ 8,585 $ — $ — Available-for-sale investments: Commercial paper 28,074 — 28,074 — Corporate debt securities 26,094 — 26,094 — Municipal bonds 1,997 — 1,997 — Total available-for-sale investments 56,165 — 56,165 — Total assets measured at fair value $ 64,750 $ 8,585 $ 56,165 $ — 11 As of March 31, 2023 and December 31, 2022, available-for-sale investments are detailed as follows (in thousands): March 31, 2023 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 52,552 $ 3 $ ( 63 ) $ 52,492 Corporate debt securities 1 to 2 years 21,031 13 ( 164 ) 20,880 Municipal bonds Within 1 year 1,013 — ( 12 ) 1,001 U.S. government agencies Within 1 year 19,297 26 ( 1 ) 19,322 $ 93,893 $ 42 $ ( 240 ) $ 93,695 December 31, 2022 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 28,121 $ — $ ( 47 ) $ 28,074 Corporate debt securities 1 to 2 years 26,401 — ( 307 ) 26,094 Municipal bonds Within 1 year 2,026 — ( 29 ) 1,997 $ 56,548 $ — $ ( 383 ) $ 56,165 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. 3. 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 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. We assessed our license and collaboration with Kyorin in accordance with Topic 606 and concluded that Kyorin is a customer. We identified the following performance obligations under the Kyorin Agreement: 1) the license of efzofitimod for ILD in Japan; and 12 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. Since milestone payments are binary in nature, we will use the “most-likely” method to evaluate whether the milestones should be included as revenue. We will constrain these amounts until the milestone is probable of being achieved. The royalties are dependent on future sales by Kyorin which are at the full discretion of Kyorin. Accordingly, we constrain these amounts until the future sales have occurred. 4. Commitments and Contingencies Operating Leases 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. 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 2023 $ 1,031 2024 1,976 2025 1,909 2026 1,777 2027 1,831 2028 and thereafter 11,103 Less: Amount representing interest ( 6,680 ) Present value of lease payments 12,947 Less: Current portion of operating lease liability ( 381 ) Less: Tenant improvement allowance not yet received ( 650 ) Long-term operating lease liability, net of current portion $ 11,916 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 %. 13 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 financing lease and reconciliation to the financing lease liability as of March 31, 2023 were as follows (in thousands): Financing Leases 2023 $ 422 2024 563 2025 563 2026 606 2027 185 Less: Amount representing interest ( 349 ) Present value of lease payments 1,990 Less: Current portion of financing lease liability ( 420 ) Long-term financing lease liability, net of current portion $ 1,570 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. 5. Stockholders’ Equity Underwritten Follow-On Public Offerings 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 $ 48.1 million, after deducting underwriting discounts, commissions and offering expenses payable by us. At the Market Offering Programs In April 2022, we entered into an Open Market Sale Agreement SM with Jefferies LLC (Jefferies) implementing an “at-the-market” offering program (the 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: March 31, 2023 Common stock warrants 13,760 Common stock options and restricted stock units 3,922,930 Shares available under the 2015 equity incentive plan 83,313 Shares available under the 2022 inducement plan 109,833 Shares available under the employee stock purchase plan 801,321 4,931,157 The following table summarizes our stock option activity under all equity incentive plans for the three months ended March 31, 2023: 14 Number of Outstanding Stock Options Weighted- Average Exercise Price Outstanding as of December 31, 2022 2,956,170 $ 7.45 Granted 938,485 $ 2.20 Canceled/forfeited/expired ( 71,052 ) $ 4.37 Outstanding as of March 31, 2023 3,823,603 $ 6.22 The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows: March 31, 2023 2022 Expected term (in years) $ 6.02 6.02 – 6.08 Risk-free interest rate 4.0 % 1.7 % – 2.4 % Expected volatility 82.0 % 85.8 % – 86.5 % Expected dividend yield 0.0 % 0.0 % 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 Restricted Stock Units Weighted-Average Grant Date Fair Value Balance as of December 31, 2022 121,438 $ 5.09 Released ( 22,111 ) $ 5.39 Balance as of March 31, 2023 99,327 $ 5.02 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 March 31, 2023 2022 Research and development $ 129 $ 107 General and administrative 490 310 Total stock-based compensation expense $ 619 $ 417 6. 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. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q (Quarterly Report), our audited consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 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” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such forward looking statements, which represent our intent, belief or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Factors that could cause or contribute to differences in results include, but are not limited to those set forth under “Risk Factors” under Part II, Item 1A, and elsewhere in this Quarterly Report. Except as required by law we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes. 15 Overview We are a biotherapeutics company engaged in the discovery and development of first-in-class medicines from our proprietary tRNA synthetase platform. We have concentrated our research and development efforts on a newly discovered area of biology, the extracellular functionality and signaling pathways of tRNA synthetases. Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their extracellular targets, such as neuropilin-2 (NRP2). Efzofitimod 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. 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. The study is currently enrolling and intends to enroll 264 subjects with pulmonary sarcoidosis at multiple centers in the United States, Europe and Japan. The trial design incorporates a forced steroid taper. The primary endpoint of the study is steroid reduction. Secondary endpoints include measures of lung function and sarcoidosis symptoms. 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. (Kyorin) for the development and commercialization of efzofitimod for the treatment of ILD in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD, and is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing patients in a Phase 1 clinical trial of efzofitimod (known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was conducted and funded by Kyorin, was a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of efzofitimod in 32 healthy Japanese male volunteers. Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events, and PK findings were consistent with previous studies of 16 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. Discovery Pipeline 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. 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. 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; however, any continued or renewed disruption resulting from these factors could negatively impact our business. Liquidity and Capital Resources We have incurred losses and negative cash flows from operations since our inception. 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 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 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. 17 Public Offerings 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 $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 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 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. Cash Flows The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands): March 31, 2023 2022 Net cash provided by (used in): Operating activities $ (590 ) $ (10,119 ) Investing activities (38,172 ) 14,626 Financing activities 49,496 1,481 Net change in cash, cash equivalents and restricted cash $ 10,734 $ 5,988 Operating activities. 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 (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 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, 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 18 product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We currently have no sales or marketing capabilities and would need to expand our organization to support these activities. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors, including: • the type, number, scope progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future, including changes in our clinical research organizations (CROs); • the costs, timing and outcome of regulatory review of our product candidates; • 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), 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; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and • 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. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. To the extent we raise additional capital through the sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We may be unable to raise additional funds on acceptable terms or at all. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. 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 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 19 $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 $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 Organization and Business; Principles of Consolidation We conduct substantially all of our activities through aTyr Pharma, Inc., a Delaware corporation, at our facility in San Diego, California. aTyr Pharma, Inc. was incorporated in the State of Delaware in September 2005. The condensed consolidated financial statements in this Quarterly Report include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma, as of March 31, 2023. All intercompany transactions and balances are eliminated in consolidation. Revenue Recognition In January 2020, we entered into the Kyorin Agreement with Kyorin for the development and commercialization of efzofitimod for ILD in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD, and Kyorin is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. 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. 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. 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. 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 for potential therapeutics based on tRNA synthetase biology and NRP2 biology. These expenses consist primarily of: • salaries and employee-related expenses, including stock-based compensation and benefits for personnel in research and product development functions; • costs associated with conducting our preclinical, development and regulatory activities, including fees paid to third-party professional consultants, service providers and our scientific, therapeutic and clinical advisory board; • costs to acquire, develop and manufacture preclinical study and clinical trial materials; • costs incurred under clinical trial agreements with CROs and investigative sites; • costs for laboratory supplies; and • allocated facilities, depreciation and other allocable expenses. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that the levels of our research and development expenses will continue to increase in future years and will consist primarily of costs related to our clinical development and manufacturing of efzofitimod for patients with pulmonary sarcoidosis and SSc-ILD, and other potential therapeutics based on tRNA synthetase biology. 20 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. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which programs or product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include accounting, legal services, expenses associated with applying for and maintaining patents, cost of insurance, cost of various consultants, occupancy costs, information systems costs and depreciation. Critical Accounting 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. We base our estimates on our historical experience and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. 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. There have been no material changes to our critical accounting policies and estimates as disclosed in our 2022 Annual Report. Results of Operations 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, Increase/ 2023 2022 Decrease Research and development expenses $ 9,379 $ 8,896 $ 483 General and administrative expenses 3,408 3,482 (74 ) Other income (expense), net 835 224 611 Research and development expenses. 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 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. 21 Recent Accounting Pronouncements For discussion of recently issued accounting pronouncements, refer to Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited) – Note 1 – Recent Accounting Pronouncements of this Quarterly Report. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Not Applicable.