What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 172 added, 128 removed, 580 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

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Preferred stock, $ 0.001 par value per share;

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

no shares issued or outstanding as of June 30, 2023 (unaudited) and December 31, 2022

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

no shares issued or outstanding as of September 30, 2023 (unaudited) and December 31, 2022

Common stock, $ 0.001 par value per share;

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

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

issued and outstanding shares –

57,046,172 as of June 30, 2023 (unaudited) and 29,498,488 as of December 31, 2022

58,560,061 as of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

License and collaboration agr eement revenues

Total revenues

Operating expenses:

13 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Consolidated net loss

9 unchanged sentences

(in thousands, except share data)

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

Three and Nine Months Ended September 30, 2023 (unaudited)

Comprehensive

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Balance as of June 30, 2023

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

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

Stock-based compensation

Net unrealized gain on investments, net of tax

Balance as of September 30, 2023

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

Comprehensive

13 unchanged sentences

Balance as of June 30, 2022

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

Stock-based compensation

Net unrealized gain on investments, net of tax

Balance as of September 30, 2022

See accompanying notes.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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(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.

We are a clinical stage biotechnology company leveraging evolutionary intelligence to translate tRNA synthetase biology into new therapies for fibrosis and inflammation.

Principles of Consolidation

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Risks and Uncertainties

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.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including related to the ongoing Ukraine-Russia conflict, the conflict in the Middle East, l abor 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.

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Liquidity and Financial Condition

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 have incurred net losses in each year since our inception in 2005, including a consolidated net loss o f $ 11.3 million and $ 35.6 million for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, we had an accumulated deficit of $ 453.3 million.

We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 105.6 million as of September 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.

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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.

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.

Restricted Cash

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 –

As of September 30, 2023, restricted cash was approximately $ 3.5 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.

Employee Retention Credit

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law providing numerous tax incentives and other stimulus measures, including an employee retention credit (ERC), which is a refundable tax credit against certain employment taxes.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

As a result of the foregoing legislation, we determined that we are eligible to claim an ERC benefit equal to 50 % of qualified wages that we paid to our employees between March 17, 2020 and December 31, 2020, and 70 % of the qualified wages that we paid to our employees between January 1, 2021 and September 30, 2021.

Qualified wages are limited to $ 10,000 per employee for March 17, 2020 through December 31, 2020, and $ 10,000 per employee per calendar quarter from January 1, 2021 through September 30, 2021.

Our credit was primarily derived from qualified wages during January 1, 2021 through September 30, 2021.

To determine eligibility for January 1, 2021 through September 30, 2021, we compared gross receipts for each calendar quarter in 2021 to the corresponding calendar quarter in 2019 and determined that we had met the requirement for a decline in gross receipts.

Accounting Standards Codification (ASC) Topic 105, Generally Accepted Accounting Principles describes the decision-making framework when no guidance exists in U.S.

GAAP for a particular transaction.

Specifically, ASC 105-10-05-2 instructs companies to look for guidance for a similar transaction within U.S.

GAAP and apply that guidance by analogy.

We accounted for the ERC by analogy to International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS).

Under an IAS 20 analogy, a business entity would recognize the credit on a systematic basis over the periods in which the entity recognizes the payroll expenses for which the ERC is intended to compensate when there is reasonable assurance that the entity will comply with any conditions attached to the ERC and the ERC will be received.

During the three months ended September 30, 2023, we amended certain payroll tax filings and applied for a refund of $ 1.2 million of ERC benefits.

The refund was recorded within the other receivables in our unaudited condensed consolidated balance sheet at September 30, 2023, and as a $ 0.8 million reduction of research and development expenses and a $ 0.4 million reduction of general and administrative expenses in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023 .

Allowance of Credit Losses

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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.

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.

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Revenue Recognition

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.

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:

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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,

Nine Months Ended September 30,

Common stock warrants

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for Identical

As of June 30, 2023

As of September 30, 2023

Cash equivalents

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Corporate debt securities

Municipal bonds

treasury bill

government agencies

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Total assets measured at fair value

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

June 30, 2023

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

September 30, 2023

Contractual Maturity

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Corporate debt securities

Municipal bonds

treasury bill

Within 1 year

government agencies

Within 1 year

December 31, 2022

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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 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.

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

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

As of September 30, 2023, $ 82.6 million of our short-term investments had maturities less than one year and $ 9.7 million had maturities greater than one year.

As of September 30, 2023, 28 out of 29 available-for-sale investments were in a gross unrealized loss position of which one available-for-sale investment with a market value of $ 2.0 million were at such position for greater than 12 months .

As of September 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

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We identified the following performance obligations under the Kyorin Agreement:

1) the license of efzofitimod for ILD in Japan;

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

i) the license of efzofitimod for ILD in Japan;

and ii) 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.

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

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.

During the three months and nine months ended September 30, 2023, we recognized $ 0.4 million in collaboration revenue from Kyorin for drug product material sold to Kyorin for the Japan portion of the EFZO-FIT study.

For the three months and nine months ended September 30, 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 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.

As of September 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 September 30, 2023, we received $ 5.0 millio n 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 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.

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 September 30, 2023.

During the second quarter of 2023, additional common area amenities were completed by the Landlord which provided us with access to approximately 1,500 additional rentable square feet.

As a result, our base rent 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 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):

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

Operating Leases

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Long-term operating lease liability, net of current portion

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 %.

For each of the three months ended September 30, 2023 and 2022, we recorded an operating lease exp ense of $ 0.3 million.

For the nine months ended September 30, 2023 and 2022, we recorded an operating lease expense of $ 1.4 million and $ 0.8 million, respectively.

As of September 30, 2023, the weighted-average remaining lease term was 9.6 years and the weighted-average discount rate was 8.8 %.

Financing Leases

In April 2022, we entered into a master financing lease agreement to lease various research and development and information technology equipment over 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):

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

Financing Leases

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Long-term financing lease liability, net of current portion

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.

As of September 30, 2023, the weighted-average remaining lease term was 3.2 years and the weighted-average discount rate was 8.3 %.

Stockholders’

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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.

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 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.

During the nine months ended September 30, 2023, we sold an aggregate of 5,846,099 shares of common stock at a weighted-average price of $ 2.19 per share for net proceeds of approxim ately $ 12.3 million unde r the Jefferies ATM Offering Program.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance was as follows:

June 30, 2023

September 30, 2023

Common stock warrants

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Shares available under the employee stock purchase plan

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

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

Stock Options

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Canceled/forfeited/expired

Outstanding as of June 30, 2023

Outstanding as of September 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,

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term (in years)

2 unchanged sentences

5.98 –

6.02 –

Risk-free interest rate

2 unchanged sentences

1.7 % –

Expected volatility

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84.5 % –

84.7 % –

Expected dividend yield

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

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

Number of Outstanding

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Balance as of December 31, 2022

Balance as of June 30, 2023

Balance as of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

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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.

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

We have concentrated our research and development efforts on a newly discovered area of biology, the extracellular functionality and signaling pathways of tRNA synthetases.

Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their extracellular targets, such as neuropilin-2 (NRP2).

Our primary focus is efzofitimod, a clinical-stage product candidate which 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).

We are a clinical stage biotechnology company leveraging evolutionary intelligence to translate tRNA synthetase biology into new therapies for fibrosis and inflammation.

tRNA synthetases are ancient, essential proteins that have evolved novel domains that regulate diverse pathways extracellularly in humans.

Our discovery platform is focused on unlocking hidden therapeutic intervention points by uncovering signaling pathways driven by its proprietary library of domains derived from all 20 tRNA synthetases.

Efzofitimod is a first-in-class biologic immunomodulator in clinical development for the treatment of interstitial lung disease (ILD), a group of immune-mediated disorders that can cause inflammation and fibrosis, or scarring, of the lungs.

Efzofitimod is a tRNA synthetase derived therapy that selectively modulates activated myeloid cells through neuropilin-2 (NRP2) to resolve inflammation without immune suppression and potentially prevent the progression of fibrosis.

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

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

Based on current enrollment projections, we expect to complete enrollment in the study early in the second quarter of 2024.

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.

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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.

This is 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.

The primary objective of the study is 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.

The study was initiated in the third quarter of 2023, and in October 2023, we dosed the first patient in this study.

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

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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.

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.

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Impact of Geopolitical and Macroeconomic Conditions

Global economic and business activities continue to face widespread macroeconomic uncertainties, including related to the ongoing Ukraine-Russia conflict, the conflict in the Middle East, 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 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;

future developments, which are uncertain and cannot be predicted;

however, any continued or renewed disruption resulting from these factors could negatively impact our business.

Employee Retention Credit

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

During the three months ended September 30, 2023, we amended certain payroll tax filings and applied for a refund of $1.2 million of ERC benefits.

The refund was recorded within the other receivables in our unaudited condensed consolidated balance sheet at September 30, 2023, and as a $0.8 million reduction of research and development expenses and a $0.4 million reduction of general and administrative expenses in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023.

Liquidity and Capital Resources

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

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.

As of September 30, 2023, we had an accumulated deficit of $453.3 million and we expect to continue to incur net losses for the foreseeable future.

As of September 30, 2023, we had cash, cash equivalents, restricted cash and available-for-sale investments of $105.6 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’

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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.

In addition, during the nine months ended September 30, 2023, we sold an aggregate of 5,846,099 shares of common stock at a weighted-average price of $2.19 per share for net proceeds of approximately $12.3 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.

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Sources of Cash

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.

From our inception through September 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

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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 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.

During the nine months ended September 30, 2023, we sold an aggregate of 5,846,099 shares of common stock at a weighted-average price of $2.19 per share for net proceeds of approximately $12.3 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.

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.

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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,

Nine Months Ended September 30,

Net cash provided by (used in):

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Operating activities.

Net cash used in operating activities for the 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.

Net cash used in operating activities for the nine months ended September 30, 2023 and 2022 was $22.2 million and $31.5 million, respectively.

The net cash used in operating activities in each of these periods primarily consisted of cash used to support our EFZO-FIT and EFZO-CONNECT studies 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 nine months ended September 30, 2023.

No milestone payments were received during the nine months ended September 30, 2022.

Investing activities.

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.

Net cash (used in) provided by investing activities for the nine months ended September 30, 2023 and 2022 was $(37.9) million and $45.2 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.

Net cash used in investing activities for the nine months ended September 30, 2023 included $4.1 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 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.

Net cash provided by financing activities for the nine months ended September 30, 2023 and 2022 was $60.2 million and $4.5 million, respectively.

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted primarily of $48.1 million in net proceeds from our underwritten follow-on public offering and $12.3 million in net proceeds from the issuance of common stock through the Jefferies ATM Offering Program.

Net cash provided by financing activities for the nine months ended September 30, 2022 consisted primarily of $4.6 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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potential delays of our planned clinical trials of efzofitimod;

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 ;

any resulting cost increases as a result of geopolitical and macroeconomic conditions, including the ongoing Ukraine-Russia conflict, the conflict in the Middle East, 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;

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 the geopolitical and macroeconomic conditions , including the ongoing Ukraine-Russia conflict, the conflict in the Middle East, 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 ;

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 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.

As of September 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 information technology equipment.

New Corporate Headquarters Facility Lease

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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 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.

As of September 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 September 30, 2023, we received $5.0 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 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.

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 September 30, 2023.

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

As a result, our base rent 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 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.

Financing lease liabilities total $1.9 million as of September 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 September 30, 2023.

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

Financial Operations Overview

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was incorporated in the State of Delaware in September 2005.

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.

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 September 30, 2023.

All intercompany transactions and balances are eliminated in consolidation.

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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.

During the three months ended September 30, 2023, we recognized $0.4 million in collaboration revenue from Kyorin for drug product material sold to Kyorin for the Japan portion of the EFZO-FIT study.

Research and Development Expenses

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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.

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.

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General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits.

Other significant general and administrative expenses include accounting, legal services, expenses associated with applying for and maintaining patents, cost of insurance, cost of various consultants, occupancy costs, information systems costs and depreciation.

Critical Accounting Estimates

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Results of Operations

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,

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

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

Three Months Ended September 30,

License and collaboration agreement revenues

Research and development expenses

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Other income (expense), net

License and collaboration agreement revenues.

Revenues of $0.4 million for the three months ended September 30, 2023 consisted of drug product material sold to Kyorin for the Japan portion of the EFZO-FIT study.

Research and development expenses.

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.

Research and development expenses were $10.3 million and $9.9 million for the three months ended September 30, 2023 and 2022, respectively.

The increase of $0.5 million was due primarily to an increase of $1.1 million in manufacturing costs due to the timing of the associated manufacturing activities conducted and an increase of $0.6 million in clinical trial costs for the EFZO-FIT and EFZO-CONNECT studies offset by a reduction of $0.6 million in earlier stage discovery research and development costs and a reduction of $0.7 million in personnel related expenses.

The reduction in personnel related expenses was primarily due to the recognition of the ERC benefit made available under the CARES Act as discussed under Item 1.

Financial Statements, Note 1 - “Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies.”

General and administrative expenses.

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.

General and administrative expenses were $2.6 million and $3.6 million for the three months ended September 30, 2023 and 2022 respectively.

The decrease of $1.0 million was due primarily to a decrease of $0.7 million in personnel related expenses.

The reduction in personnel related expenses was primarily due to the recognition of the ERC benefit made available under the CARES Act as discussed under Item 1.

Financial Statements, Note 1 - “Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies.”

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,

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

The increase was primarily a result of higher cash, cash equivalents, restricted cash and available-for-sale investments balances during the three months ended September 30, 2023 as compared to the same period in the prior year and increased interest rates.

Comparison of the Nine Months Ended September 30, 2023 and 2022

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

Nine Months Ended September 30,

License and collaboration agreement revenues

Research and development expenses

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Other income (expense), net

License and collaboration agreement revenues.

Revenues of $0.4 million for the nine months ended September 30, 2023 consisted of product material sold to Kyorin for the Japan portion of the EFZO-FIT study.

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.

Research and development expenses were $29.5 million and $27.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase of $1.6 million was due primarily to an increase of $5.0 million in clinical trial costs for the EFZO-FIT and EFZO-CONNECT studies offset by reductions of $2.0 million in earlier stage discovery research and development costs, $0.8 million in manufacturing costs due to the timing of the associated manufacturing activities conducted, and $0.4 million in personnel related expenses.

The reduction in personnel related expenses was primarily due to the recognition of the ERC benefit made available under the CARES Act as discussed under Item 1.

Financial Statements, Note 1 - “Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies.”

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.

General and administrative expenses were $9.8 million and $10.6 million for the nine months ended September 30, 2023 and 2022, respectively.

The decrease of $0.8 million was due primarily to a decrease of $0.8 million in personnel related expense.

The reduction in personnel related expenses was primarily due to the recognition of the ERC benefit made available under the CARES Act as discussed under Item 1.

Financial Statements, Note 1 - “Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies.”

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.

Other income (expense), net was $3.3 million and $0.6 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase was primarily a result of higher cash, cash equivalents, restricted cash and available-for-sale investments balances during the nine months ended September 30, 2023 as compared to the same period in the prior year and increased interest rates.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 1. Financial Statements