What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-09 · 175 added, 123 removed, 533 unchanged (36% of the section changed)

25 unchanged sentences

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

5,000,000 undesignated authorized shares as of June 30, 2023 (unaudited) and December 31, 2022;

no shares issued or outstanding as of June 30, 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;

170,000,000 and 85,000,000 authorized shares as of June 30, 2023 (unaudited) and December 31, 2022, respectively;

issued and outstanding shares –

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

57,046,172 as of June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating expenses:

13 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Consolidated net loss

Other comprehensive loss:

Change in unrealized gain (loss) on available-for-sale investments, net of tax

Change in unrealized (loss) gain on available-for-sale investments, net of tax

Comprehensive loss

6 unchanged sentences

(in thousands, except share data)

Three months ended March 31, 2023 (unaudited)

Three and Six Months Ended June 30, 2023 (unaudited)

Comprehensive

8 unchanged sentences

Balance as of March 31, 2023

Three Months Ended March 31, 2022 (unaudited)

Issuance of common stock pursuant to employee stock purchase plan

Issuance of common stock upon release of restricted stock units

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, 2023

Three and Six Months Ended June 30, 2022 (unaudited)

Comprehensive

8 unchanged sentences

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

See accompanying notes.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Cash flows from operating activities:

20 unchanged sentences

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

17 unchanged sentences

Organization and Business

We were incorporated in the State of Delaware on September 8, 2005.

aTyr Pharma, Inc.

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

We are a biotherapeutics company engaged in the discovery and development of first-in-class medicines from our proprietary tRNA synthetase platform.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts and our 98 % majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma).

Our unaudited 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.

10 unchanged sentences

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.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including related to the ongoing Ukraine-Russia conflict, labor shortages, inflation and monetary supply shifts, liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, rising interest rates and financial and credit market fluctuations, volatility in the capital markets 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 ultimate long-term impact of these 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 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 have incurred net losses in each year since our inception in 2005, including a consolidated net loss o f $ 12.3 million and $ 24.3 million for the three and six months ended June 30, 2023, respectively.

As of June 30, 2023, we had an accumulated deficit of $ 441.9 million.

We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 112.0 million as of June 30, 2023 will be sufficient to meet our material cash requirements from known contractual and other obligat ions 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 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.

As of June 30, 2023, restricted cash was approximately $ 3.4 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.

Allowance of Credit Losses

9 unchanged sentences

Use of Estimates

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.

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.

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 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.

For long-term leases with an initial term of greater than 12 months, we recognize a right-of-use asset (ROU) and a lease liability based on the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise.

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

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

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

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

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 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.

Operating leases include a lease for our new corporate headquarters and laboratory space.

Our prior corporate headquarters lease expired in May 2023.

Financing leases include leases for various research and development and information technology equipment.

We do not separate lease and non-lease components of our long-term leases.

Revenue Recognition

We evaluate our agreements under 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:

We evaluate our agreements under Accounting Standard Codification (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:

(i) identification of the promised goods or services in the contract;

16 unchanged sentences

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

Six Months Ended June 30,

Common stock warrants

8 unchanged sentences

We adopted Topic 326 on January 1, 2023.

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

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

Fair Value Measurements

20 unchanged sentences

for Identical

As of March 31, 2023

As of June 30, 2023

Cash equivalents

18 unchanged sentences

Total assets measured at fair value

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

March 31, 2023

As of June 30, 2023 and December 31, 2022, available-for-sale investments are detailed as follows (in thousands):

June 30, 2023

Contractual Maturity

19 unchanged sentences

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.

We recorded no allowance for credit losses in the unaudited condensed consolidated statement of operations and comprehensive loss during the six months ended June 30, 2023.

As of June 30, 2023, all available-for-sale investments had a variety of effective maturity dates of less than two years .

As of June 30, 2023, $ 88.5 million of our short-term investments had maturities less than one year and $ 7.7 million had maturities greater than one year.

As of June 30.

2023, 29 out of 32 available-for-sale investments were in a gross unrealized loss position of which 3 available-for-sale investments with a market value of $ 6.0 million were at such position for greater than 12 months .

As of June 30, 2023 and December 31, 2022, accrued interest receivable on available-for-sale securities for each of the period-ended was $ 0.2 mil lion.

License, Collaboration and Other Agreements

8 unchanged sentences

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.

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 the 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.

2 unchanged sentences

1) the license of efzofitimod for ILD in Japan;

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

and 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.

Additionally, 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.

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.

For each of the six months ended June 30, 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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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.

As of June 30, 2023, we have incurred $ 5.6 million in tenant improvement costs, and these costs are included in property and equipment, net on our unaudited condensed consolidated balance sheets.

We are entitled to an allowance of up to $ 5.5 million for tenant improvements of which as of June 30, 2023, we received $ 4.8 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.

We provided a $ 0.7 million security deposit in the form of a letter of credit which is included in restricted cash on our unaudited condensed consolidated balance sheet as of June 30, 2023.

During the three months ended June 30, 2023, additional common area amenities were completed by the Landlord which provided us with access to approximately 1,500 additional rentable square feet.

Our base rent will be increased for this additional rentable square feet at the same monthly base rent per rentable square foot as contemplated in the Lease.

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):

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

Future minimum payments under the facility leases and reconciliation to the operating lease liability as of June 30, 2023 were as follows (in thousands):

Operating Leases

5 unchanged sentences

Long-term operating lease liability, net of current portion

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 %.

For the three months ended June 30, 2023 and 2022, we recorded an operating lease expense of $ 0.5 million and $ 0.2 million, respectively.

For the six months ended June 30, 2023 and 2022, we recorded an operating lease expense of $ 1.1 million and $ 0.5 million,

respectively.

As of June 30, 2023, the weighted-average remaining lease term was 9.9 years and the weighted-average discount rate wa s 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 financing lease and reconciliation to the financing lease liability as of March 31, 2023 were as follows (in thousands):

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

Future minimum payments under the financing lease and reconciliation to the financing lease liability as of June 30, 2023 were as follows (in thousands):

Financing Leases

3 unchanged sentences

Long-term financing lease liability, net of current portion

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.

As of Ju ne 30, 2023, the weighted-average remaining lease term was 3.5 years and the weighted-average discount rate was 8.2 %.

We provided a $ 2.7 million deposit to be held as collateral for the leased equipment, and this deposit is included in restricted cash on our unaudited condensed consolidated balance sheet as of June 30, 2023.

Stockholders’

8 unchanged sentences

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.

During the six months ended June 30, 2023, we sold an aggregate of 4,332,210 shares of common stock at a weighted-average price of $ 2.29 per share for net proceeds of approxim ately $ 9.5 million unde r the Jefferies ATM Offering Program.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance was as follows:

March 31, 2023

June 30, 2023

Common stock warrants

3 unchanged sentences

Shares available under the employee stock purchase plan

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

The following table summarizes our stock option activity under all equity incentive plans for the six months ended June 30, 2023:

Stock Options

2 unchanged sentences

Canceled/forfeited/expired

Outstanding as of March 31, 2023

Outstanding as of June 30, 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 June 30,

Six Months Ended June 30,

Expected term (in years)

5.51 –

6.02 –

5.51 –

6.02 –

Risk-free interest rate

3.58 % –

2.8 % –

3.58 % –

1.7 % –

Expected volatility

81.8 % –

84.7 % –

81.8 % –

84.7 % –

Expected dividend yield

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

The following table summarizes our restricted stock unit activity under all equity incentive plans for the six months ended June 30, 2023:

Number of Outstanding

2 unchanged sentences

Balance as of December 31, 2022

Balance as of March 31, 2023

Balance as of June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

1 unchanged sentence

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

15 unchanged sentences

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.

Factors that could cause or contribute to differences in results include, but are not limited to those set forth under the heading “Risk Factors”

in 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.

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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).

The European Commission (EC) granted efzofitimod an orphan drug designation for the treatment of sarcoidosis in January 2023 and for the treatment of SSc in June 2023, 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.

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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 study is currently enrolling and intends to enroll 264 subjects with pulmonary sarcoidosis at multiple centers in the United States, Europe, Brazil, and Japan.

The trial design incorporates a forced steroid taper.

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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.

As such, we designed a focused Phase 2 proof-of-concept study of efzofitimod (the EFZO-CONNECT study) in patients with SSc-ILD.

The EFZO-CONNECT study is 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 will 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.

The study intends 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.

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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 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.

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 the achievement of certain development, regulatory and sales milestones, as well as tiered royalties on any net sales in Japan.

Discovery Pipeline

8 unchanged sentences

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.

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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.

As of June 30, 2023, we had an accumulated deficit of $441.9 million and we expect to continue to incur net losses for the foreseeable future.

As of June 30, 2023, we had cash, cash equivalents, restricted cash and available-for-sale investments of $112.0 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’

2 unchanged sentences

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

In addition, during the six months ended June 30, 2023, we sold an aggregate of 4,332,210 shares of common stock at a weighted-average price of $2.29 per share for net proceeds of approximately $9.5 million under the Jefferies ATM Offering Program as described below.

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.

5 unchanged sentences

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.

From our inception through June 30, 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

7 unchanged sentences

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.

During the six months ended June 30, 2023, we sold an aggregate of 4,332,210 shares of common stock at a weighted-average price of $2.29 per share for net proceeds of approximately $9.5 million under the Jefferies ATM Offering Program.

Kyorin Agreement Milestone Payments

5 unchanged sentences

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

Six Months Ended June 30,

Net cash provided by (used in):

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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.

Net cash used in operating activities for the six months ended June 30, 2023 and 2022 was $12.6 million and $19.2 million, respectively.

The net cash used in operating activities in each of these periods primarily consisted of cash used to support our EFZO-FIT study and research and development expenses.

The fluctuation in net cash used in operating activities resulted primarily from our receipt of the $10.0 million Kyorin milestone payment during the six months ended June 30, 2023.

No milestone payments were received during the six months ended June 30, 2022.

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.

Net cash (used in) provided by investing activities for the six months ended June 30, 2023 and 2022 was $(42.3) million and $24.6 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.

Net cash used in investing activities for the six months ended June 30, 2023 included $3.6 million of tenant improvement costs for our new corporate headquarters facility pursuant to a lease agreement we entered into in May 2022.

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.

Net cash provided by financing activities for the six months ended June 30, 2023 and 2022 was $57.5 million and $1.5 million, respectively.

Net cash provided by financing activities for the six months ended June 30, 2023 consisted primarily of $48.1 million in net proceeds from our underwritten follow-on public offering and $9.5 million in net proceeds from the issuance of common stock through the Jefferies ATM Offering Program.

Net cash provided by financing activities for the six months ended June 30, 2022 consisted primarily of $1.5 million in net proceeds from the issuance of common stock through a prior “at-the-market”

offering program that we terminated in April 2022.

Material Cash Requirements

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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.

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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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 ;

any resulting cost increases as a result of geopolitical and macroeconomic conditions, including the ongoing Ukraine-Russia conflict, outbreaks of contagious diseases (such as the COVID-19 pandemic), liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, rising interest rates and financial and credit market fluctuations, volatility in the capital markets, 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 ongoing Ukraine-Russia conflict, outbreaks of contagious diseases (such as the COVID-19 pandemic), liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, rising interest rates and financial and credit market fluctuations, volatility in the capital markets, 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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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.

As of June 30, 2023, our material cash requirements from known contractual and other obligations consisted primarily of (i) the Lease (as defined below), 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

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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 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.

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 June 30, 2023, we have incurred $5.6 million in tenant improvement costs, and these costs are included in property and equipment, net on our unaudited condensed consolidated balance sheet.

We are entitled to an allowance of up to $5.5 million for tenant improvements of which as of June 30, 2023, we received $4.8 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.

We provided a $0.7 million security deposit in the form of a letter of credit which is included in restricted cash on our unaudited condensed consolidated sheet as of June 30, 2023.

During the three months ended June 30, 2023, additional common area amenities were completed by the Landlord which provided us with access to approximately 1,500 additional rentable square feet.

Our base rent will be increased for this additional rentable square feet at the same monthly base rent per rentable square foot as contemplated in the Lease.

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.

Financing lease liabilities total $2.0 million as of June 30, 2023.

Additionally, we provided $2.7 million in cash collateral for the financing lease, and this amount is included in restricted cash on our unaudited condensed consolidated sheet as of June 30, 2023.

We did not have any off-balance sheet arrangements as of June 30, 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 March 31, 2023.

The unaudited condensed consolidated financial statements in this Quarterly Report include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma, as of June 30, 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.

In January 2020, we entered into the Kyorin Agreement with 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 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.

The Phase 1 clinical trial, which was conducted and funded by Kyorin, was a placebo-controlled clinical trial 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.

In February 2023, Kyorin dosed the first patient in Japan in the 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

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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 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.

Critical Accounting Estimates

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

The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported expenses during the reporting periods.

We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future.

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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,

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,

Research and development expenses

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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.

Research and development expenses were $9.8 million and $9.1 million for the three months ended June 30, 2023 and 2022, respectively.

The increase of $0.7 million was due primarily to an increase of $2.5 million in clinical trial costs for the EFZO-FIT study offset by reductions of $1.0 million in manufacturing costs due to the timing of manufacturing activities and $0.7 million in earlier stage discovery research and development costs.

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.

General and administrative expenses were $3.7 million and $3.4 million for the three months ended June 30, 2023 and 2022 respectively.

The increase of $0.3 million was due primarily to an increase of $0.3 million in compensation related expense.

Other income (expense), net.

Other income (expense), net was $1.2 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively.

The increase was primarily a result of higher cash, cash equivalents, restricted cash and available-for-sale investments balances at June 30, 2023 as compared to the same period in the prior year, which resulted from the underwritten follow-on public offering we completed in February 2023, sales under the Jefferies ATM Offering Program and increased interest rates.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended June 30,

Research and development expenses

General and administrative expenses

Other income (expense), net

Research and development expenses.

Research and development expenses were $19.2 million and $18.0 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $1.2 million was due primarily to an increase of $4.4 million in clinical trial costs for the EFZO-FIT study offset by reductions of $1.9 million in manufacturing activities and ongoing and $1.5 million in earlier stage discovery research and development costs.

General and administrative expenses.

General and administrative expenses were $7.1 million and $6.9 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $0.2 million was due primarily to an increase of $0.2 million in compensation related expense.

Other income (expense), net.

Other income (expense), net was $2.0 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively.

The increase was primarily a result of higher cash, cash equivalents, restricted cash and available-for-sale investments balances at June 30, 2023 as compared to the same period in the prior year, which resulted from the underwritten follow-on public offering in February 2023, sales under the Jefferies ATM Offering Program and increased interest rates.

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.

For discussion of recently issued accounting pronouncements, refer to Note 1 –

Recent Accounting Pronouncements in Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited) –

included elsewhere in this Quarterly Report.

Quantitative and Qualitati ve Disclosures About Market Risk

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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