aTYR PHARMA INC 10-Q

Item 1. Financial Statements aTyr Pharma, Inc. Condensed Consolida ted Balance Sheets (in thousands, except share and per share data) March 31, December 31, 2024 2023 (unaudited) Assets Current assets: Cash and cash equivalents $ 6,808 $ 22,544 Available-for-sale investments 77,688 75,622 Other receivables 2,476 2,436 Prepaid expenses 9,944 2,390 Total current assets 96,916 102,992 Restricted cash 3,214 3,484 Property and equipment, net 5,353 5,531 Operating lease, right-of-use assets 5,999 6,727 Financing lease, right-of-use assets 1,639 1,788 Other assets 130 131 Total assets $ 113,251 $ 120,653 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 4,893 $ 3,529 Accrued expenses 9,950 11,559 Current portion of operating lease liability 629 831 Current portion of financing lease liability 507 497 Total current liabilities 15,979 16,416 Long-term operating lease liability, net of current portion 11,693 12,339 Long-term financing lease liability, net of current portion 1,297 1,428 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.001 par value per share; 5,000,000 undesignated authorized shares as of March 31, 2024 (unaudited) and December 31, 2023; no shares issued or outstanding as of March 31, 2024 (unaudited) and December 31, 2023 — — Common stock, $ 0.001 par value per share; 170,000,000 authorized shares as of March 31, 2024 (unaudited) and December 31, 2023; issued and outstanding shares – 68,354,033 as of March 31, 2024 (unaudited) and 63,286,404 as of December 31, 2023 68 63 Additional paid-in capital 568,070 558,692 Accumulated other comprehensive loss ( 158 ) ( 74 ) Accumulated deficit ( 483,514 ) ( 468,023 ) Total aTyr Pharma, Inc. stockholders’ equity 84,466 90,658 Noncontrolling interest in Pangu BioPharma Limited ( 184 ) ( 188 ) Total stockholders’ equity 84,282 90,470 Total liabilities and stockholders’ equity $ 113,251 $ 120,653 See accompanying notes. 3 aTyr Pharma, Inc. Condensed Consolidated S tatements of Operations (in thousands, except share and per share data) Three Months Ended March 31, 2024 2023 (unaudited) Revenues: License and collaboration agreement revenues $ 235 $ — Total revenues 235 — Operating expenses: Research and development 13,364 9,379 General and administrative 3,507 3,408 Total operating expenses 16,871 12,787 Loss from operations ( 16,636 ) ( 12,787 ) Total other income (expense), net 1,149 835 Consolidated net loss ( 15,487 ) ( 11,952 ) Net (gain) loss attributable to noncontrolling interest in Pangu BioPharma Limited ( 4 ) 1 Net loss attributable to aTyr Pharma, Inc. $ ( 15,491 ) $ ( 11,951 ) Net loss per share, basic and diluted $ ( 0.23 ) $ ( 0.29 ) Shares used in computing net loss per share, basic and diluted 66,080,593 41,897,706 See accompanying notes. 4 aTyr Pharma, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) Three Months Ended March 31, 2024 2023 (unaudited) Consolidated net loss $ ( 15,487 ) $ ( 11,952 ) Other comprehensive loss: Change in unrealized gain (loss) on available-for-sale investments, net of tax ( 84 ) 185 Comprehensive loss ( 15,571 ) ( 11,767 ) Comprehensive (gain) loss attributable to noncontrolling interest in Pangu BioPharma Limited ( 4 ) 1 Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders $ ( 15,575 ) $ ( 11,766 ) See accompanying notes. 5 aTyr Pharma, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) Three months ended March 31, 2024 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2023 63,286,404 $ 63 $ 558,692 $ ( 74 ) $ ( 468,023 ) $ ( 188 ) $ 90,470 Issuance of common stock upon release of restricted stock units 22,111 — — — — — — Issuance of common stock from at-the-market offerings, net of offering costs 5,045,518 5 8,638 — — — 8,643 Stock-based compensation — — 740 — — — 740 Net unrealized loss on investments, net of tax — — — ( 84 ) — — ( 84 ) Net gain (loss) — — — — ( 15,491 ) 4 ( 15,487 ) Balance as of March 31, 2024 68,354,033 $ 68 568,070 $ ( 158 ) $ ( 483,514 ) $ ( 184 ) $ 84,282 Three Months Ended March 31, 2023 (unaudited) Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2022 29,498,488 $ 29 $ 489,502 $ ( 433 ) $ ( 417,634 ) $ ( 180 ) $ 71,284 Issuance of common stock upon release of restricted stock units 22,111 — — — — — — Issuance of common stock from at-the-market offerings, net of offering costs 694,012 1 1,488 — — — 1,489 Issuance of common stock from underwritten follow-on public offering, net of offering costs 23,125,000 23 48,050 — — — 48,073 Stock-based compensation — — 619 — — — 619 Net unrealized gain on investments, net of tax — — — 185 — — 185 Net loss — — — — ( 11,951 ) ( 1 ) ( 11,952 ) Balance as of March 31, 2023 53,339,611 $ 53 $ 539,659 $ ( 248 ) $ ( 429,585 ) $ ( 181 ) $ 109,698 See accompanying notes. 6 aTyr Pharma, Inc. Condensed Consolidated S tatements of Cash Flows (in thousands) March 31, 2024 2023 Cash flows from operating activities: Consolidated net loss $ ( 15,487 ) $ ( 11,952 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 178 80 Stock-based compensation 740 619 (Accretion) amortization of (discount) premium of available-for-sale investment securities ( 811 ) ( 419 ) Amortization of right-of-use assets 592 675 Changes in operating assets and liabilities: Other receivables 454 9,883 Prepaid expenses and other assets ( 7,553 ) ( 438 ) Accounts payable and accrued expenses ( 228 ) ( 1,057 ) Operating lease liability ( 265 ) 2,019 Net cash used in operating activities ( 22,380 ) ( 590 ) Cash flows from investing activities: Purchases of property and equipment ( 17 ) ( 1,246 ) Purchases of available-for-sale investment securities ( 21,339 ) ( 46,226 ) Maturities of available-for-sale investment securities 20,000 9,300 Net cash used in by investing activities ( 1,356 ) ( 38,172 ) Cash flows from financing activities: Proceeds from issuance of common stock from at-the-market offerings, net of offering costs 7,851 1,489 Proceeds from issuance of common stock from underwritten follow-on public offering, net of offering costs — 48,073 Principal paid on finance lease liabilities ( 121 ) ( 66 ) Net cash provided by financing activities 7,730 49,496 Net change in cash, cash equivalents and restricted cash ( 16,006 ) 10,734 Cash, cash equivalents and restricted cash at beginning of period 26,028 13,146 Cash, cash equivalents and restricted cash at the end of period $ 10,022 $ 23,880 Cash and cash equivalents at the end of period $ 6,808 $ 20,690 Restricted cash at the end of period 3,214 3,190 Cash, cash equivalents and restricted cash at the end of period $ 10,022 $ 23,880 Supplemental disclosure of cash flow information: Interest paid $ 38 $ 46 Purchases of property and equipment in accounts payable $ 34 $ 2,136 Right-of-use assets obtained in exchange for lease obligation $ — $ 1,043 See accompanying notes. 7 aTyr Pharma, Inc. Notes to Condensed Consolid ated Financial Statements (Unaudited) 1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies Organization and Business We were incorporated in the state of Delaware on September 8, 2005. We are a 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 our proprietary library of domains derived from all 20 tRNA synthetases. Principles of Consolidation 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. Unaudited Interim Financial Information The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and follow the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In our opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2023, contained in our Annual Report on Form 10-K filed with the SEC on March 14, 2024. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period. Risks and Uncertainties Global economic and business activities continue to face widespread macroeconomic uncertainties, including global geopolitical tension, armed conflicts, potential future health pandemics, 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, higher 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; however, any continued or renewed disruption resulting from these factors could negatively impact our business. Liquidity and Financial Condition We have incurred net losses and negative cash flows from operations since our inception in 2005, including a consolidated net loss of $ 15.5 million for the three months ended March 31, 2024. As of March 31, 2024, we had an accumulated deficit of $ 483.5 million. We believe that our existing cash, cash equivalents, restricted cash and available-for-sale investments of $ 87.7 million as of March 31, 2024 will be sufficient to meet our material cash requirements from known contractual and other obligations for a period of at least one year from the filing date of this Quarterly Report on Form 10-Q. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for our product candidates. We anticipate that we will seek to fund our operations through equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. However, 8 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. Restricted Cash As of March 31, 2024, 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. 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 on qualified wages that we paid to our employees between March 2020 and September 2021. Our credit was primarily derived from qualified wages during January 2021 through September 2021 based on gross receipts for each calendar quarter in 2021 compared to the corresponding calendar quarter in 2019. We 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 year ended December 31, 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 consolidated balance sheets, 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 consolidated statements of operations for the year ended December 31, 2023. Allowance of Credit Losses For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the severity of the impairment, any changes in interest rates, market conditions, changes to the underlying credit ratings and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Any impairment that has not been recorded through an allowance for credit losses is included in other comprehensive income (loss) on the unaudited condensed consolidated statements of operations and comprehensive loss. We elected the practical expedient to exclude the applicable accrued interest from both the fair value and amortized costs basis of our available-for-sale securities for purposes of identifying and measuring an impairment. Accrued interest receivable on available-for-sale securities is recorded within prepaid expenses and other current assets on our unaudited condensed consolidated balance sheets. Our accounting policy is to not measure an allowance for credit loss for accrued interest receivable and to write-off any uncollectible accrued interest receivable as a reversal of interest income in a timely manner, which we consider to be in the period in which we determine the accrued interest will not be collected by us. Use of Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure for these items in our unaudited condensed consolidated financial statements and accompanying notes. The most significant estimates in our unaudited condensed consolidated financial statements relate to clinical trial and research and development expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates and assumptions. 9 Accrued Expenses Accrued expenses include salaries, wages, benefits costs, consulting fees, legal and research and development costs. We have entered into contractual arrangements related to our clinical studies with clinical research organizations (CROs) and contracted development and manufacturing organizations (CDMOs) and recognize expense based on work completed and efforts expended pursuant to our contractual arrangements. We make estimates of our accrued CRO costs as of each balance sheet date based on facts and circumstances known at the time and include total trial management costs, sites activated, patients enrolled and number of patient visits. We estimate the time period over which services will be performed and the level of effort to be expended in each period. There may be instances in which payments made to our service providers including CROs and CDMOs, will temporarily exceed the level of services provided and result in a prepayment of the expense. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense balance accordingly. Historically, our estimated accrued liabilities have materially approximated actual expenses incurred. Leases We determine if an arrangement is a lease at inception. Short-term leases with an initial term of 12 months or less are not recorded on our balance sheet. For long-term leases with an initial term of greater than 12 months, we recognize a right-of-use asset (ROU) and a lease liability based on the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses in our unaudited condensed consolidated statements of operations. For financing leases, interest expense and amortization of the ROU is included in operating expenses in our unaudited condensed consolidated statements of operations and variable lease payments are expensed as incurred. If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease. If a lease continues to exist, the lease modification is determined to be a separate contract when the modification grants the lessee an additional ROU that is not included in the original lease and the lease payments increase commensurate with the standalone price for the additional ROU. A lease modification that results in a separate contract will be accounted for in the same manner as a new lease. For a modification that is not a separate contract, we reassess the lease classification using the modified terms and conditions and the facts and circumstances as of the effective date of the modification and recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding ROU asset. Our ROU assets consist of non-cancelable operating leases and financing leases. Non-cancelable operating leases consist of leases for our corporate headquarters and additional laboratory space. Financing leases consist of leases for various research and development and information technology equipment. We do not separate lease and non-lease components for 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: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide research and development services. We recognize revenue at a point in time when we transfer control of a distinct performance obligation to our partner. For example, if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. 10 Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants for common stock, options and restricted stock units outstanding under our stock option plans and estimated shares to be purchased under our employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position. Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common stock equivalents): March 31, 2024 2023 Common stock warrants 5,864 13,760 Common stock options and restricted stock units 5,712,725 3,922,930 Employee stock purchase plan 41,862 34,588 Total 5,760,451 3,971,278 Recent Accounting Pronouncements In December 2023, the FASB, issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the disclosure requirements related to the new standard. 2. Fair Value Measurements The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Investment securities are recorded at fair value. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in commercial paper, corporate debt securities and U.S. government agencies securities. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. 11 Assets measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of March 31, 2024 Assets: Current: Cash equivalents $ 3,459 $ 3,459 $ — $ — Available-for-sale investments: Commercial paper 44,635 — 44,635 — Corporate debt securities 26,142 — 26,142 — U.S. government agencies 6,911 — 6,911 — Total available-for-sale investments 77,688 — 77,688 — Total assets measured at fair value $ 81,147 $ 3,459 $ 77,688 $ — Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2023 Assets: Current: Cash equivalents $ 21,626 $ 21,626 $ — $ — Available-for-sale investments: Commercial paper 31,198 — 31,198 — Corporate debt securities 27,578 — 27,578 — U.S. government agencies 16,846 — 16,846 — Total available-for-sale investments 75,622 — 75,622 — Total assets measured at fair value $ 97,248 $ 21,626 $ 75,622 $ — As of March 31, 2024 and December 31, 2023, available-for-sale investments are detailed as follows (in thousands): March 31, 2024 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 44,708 $ — $ ( 73 ) $ 44,635 Corporate debt securities Within 2 years 26,176 4 ( 38 ) 26,142 U.S. government agencies Within 1 year 6,912 — ( 1 ) 6,911 $ 77,796 $ 4 $ ( 112 ) $ 77,688 December 31, 2023 Contractual Maturity Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Commercial paper Within 1 year $ 31,198 $ 14 $ ( 14 ) $ 31,198 Corporate debt securities Within 2 years 27,607 12 ( 41 ) 27,578 U.S. government agencies Within 1 year 16,841 26 ( 21 ) 16,846 $ 75,646 $ 52 $ ( 76 ) $ 75,622 12 We evaluate our available-for-sale debt securities for credit losses when the amortized cost basis exceeds fair value. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss). When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, our intent to sell or the likelihood that we would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. We recorded no allowance for credit losses in the unaudited condensed consolidated statements of operations and comprehensive loss during the three months ended March 31, 2024. As of March 31, 2024, all available-for-sale investments had a variety of effective maturity dates of less than two years . As of March 31, 2024, $ 76.7 million of our short-term investments had maturities less than one year and $ 1.0 million had maturities greater than one year. As of March 31, 2024, 24 out of 28 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 was in such position for greater than 12 months. As of March 31, 2024 and December 31, 2023, accrued interest receivable on available-for-sale securities for each of the period-ended was $ 0.3 million. 3. License, Collaboration and Other Agreements Kyorin Pharmaceutical Co., Ltd. In January 2020, we entered into a collaboration and license agreement (Kyorin Agreement) with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and commercialization of efzofitimod for the treatment of interstitial lung disease (ILD) in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD, and is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In 2020, Kyorin conducted and funded a Phase 1 clinical trial of efzofitimod (known as KRP-R120 in Japan). The Phase 1 clinical trial was a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of efzofitimod in 32 healthy Japanese male volunteers. Efzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events, and PK findings were consistent with previous studies of efzofitimod. Kyorin is also participating in the EFZO-FIT TM study as the local sponsor in Japan. In February 2023, Kyorin dosed the first patient in Japan in the EFZO-FIT study which triggered a $ 10.0 million milestone payment to us. To date, the Kyorin Agreement has generated $ 20.0 million in upfront and milestone payments to us and we are eligible to receive up to an additional $ 155.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties on any net sales in Japan. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement. We assessed our license and collaboration with Kyorin in accordance with Topic 606 and concluded that Kyorin is a customer. We identified the following performance obligations under the Kyorin Agreement: 1) the license of efzofitimod for ILD in Japan; and 2) free clinical trial material for Kyorin’s Phase 1 clinical trial. Kyorin is participating in the EFZO-FIT study and received approval from the Pharmaceuticals and Medical Devices Agency (PMDA) to commence the EFZO-FIT study in Japan in December 2022. Additionally, i n February 2023, Kyorin dosed the first patient in Japan in the EFZO-FIT study which triggered a $ 10.0 million milestone payment to us. We recognized this $ 10.0 million milestone payment as revenue during the year ended December 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 in February 2023. For the three months ended March 31, 2024 and 2023, we recognized $ 0.2 million and $ 0 in collaboration revenue from Kyorin for drug product material sold to Kyorin for the Japan portion of the EFZO-FIT study. The remaining milestones and royalty payments under the Kyorin Agreement are variable consideration. Since milestone payments are binary in nature, we will use the “most-likely” method to evaluate whether the milestones should be included as revenue. We will constrain these amounts until the milestone is probable of being achieved. The royalties are dependent on future sales by Kyorin which are at the full discretion of Kyorin. Accordingly, we constrain these amounts until the future sales have occurred. 4. Commitments and Contingencies Operating Leases Corporate Headquarters Facility Lease In May 2022, we entered into a lease (the Lease) with San Diego Creekside, LLC (Landlord), as lessor, pursuant to which we agreed to lease from Landlord approximately 23,696 rentable square feet (subject to increase pursuant to the terms of the Lease) of office and laboratory space. The term of the lease (the Lease Term) commenced on March 20, 2023 (the Lease Commencement Date) and will continue for 124 months from the Lease Commencement Date. We also have one option to extend the Lease Term for five 13 years . Base rent during such extension period would be at the fair market rent for the Premises (as that term is defined in the Lease). Under the terms of the Lease, the base rent during the first 12 months of the Lease Term was $ 5.75 per square foot of rentable area per month, and the base rent following the first 12 months of the Lease Term is subject to certain upward adjustments of approximately 3.0 % annually. As of March 31, 2024, we received a $ 5.3 million allowance for tenant improvements, which represents the full allowance to which we were entitled under the Lease. 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, 2024. During the second quarter of 2023, additional common area amenities were completed by the Landlord which provided us with access to an estimated 1,500 additional rentable square feet. In April 2024, we finalized an amendment to the Lease (the Lease Amendment), effective June 2023. The additional rentable square feet was adjusted to 1,170 square feet for a total of 24,866 rentable square feet and 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. Future minimum payments under the facility leases and reconciliation to the operating lease liability as of March 31, 2024 were as follows (in thousands): Operating Leases 2024 $ 1,263 2025 1,722 2026 1,780 2027 1,916 2028 and thereafter 11,812 Less: Amount representing interest ( 6,171 ) Present value of lease payments 12,322 Less: Current portion of operating lease liability ( 629 ) Long-term operating lease liability, net of current portion $ 11,693 For each of the three months ended March 31, 2024 and 2023, we recorded an operating lease expense of $ 0.3 million and $ 0.7 million, respectively. As of March 31, 2024, the weighted-average remaining lease term was 9.3 years and the weighted average discount rate was 8.8 %. Financing Leases In April 2022, we entered into a master financing lease agreement to lease various research and development and information technology equipment over a 48-month term. Future minimum payments under the financing lease and reconciliation to the financing lease liability as of March 31, 2024 were as follows (in thousands): Financing Leases 2024 $ 475 2025 634 2026 676 2027 264 Less: Amount representing interest ( 245 ) Present value of lease payments 1,804 Less: Current portion of financing lease liability ( 507 ) Long-term financing lease liability, net of current portion $ 1,297 As of March 31, 2024, the weighted-average remaining lease term was 2.8 years and the weighted-average discount rate was 8.3 %. As of March 31, 2024, we have a $ 2.5 million deposit held as collateral for the leased equipment, and this deposit is included in restricted cash. 5. Stockholders’ Equity Underwritten Follow-On Public Offerings In February 2023, we completed an underwritten follow-on public offering of 23,125,000 shares of our common stock, including the partial exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 2.25 per share. The total net proceeds from the offering were approximately $ 48.1 million, after deducting underwriting discounts, commissions and offering expenses payable by us. 14 At the Market Offering Programs In April 2022, we entered into an Open Market Sale Agreement SM with Jefferies LLC (Jefferies) implementing an “at-the-market” offering program (the Jefferies ATM Offering Program), pursuant to which we may offer and sell, from time to time and at our option, up to an aggregate of $ 65.0 million of shares of our common stock through Jefferies, acting as sales agent. Jefferies is entitled to a fixed commission rate of up to 3.0 % of the gross sales proceeds of shares sold under the Jefferies ATM Offering Program. During the year ended December 31, 2023, we sold an aggregate of 10,530,795 shares of common stock at a weighted-average price of $ 1.82 per share for net proceeds of approximately $ 18.4 million under the Jefferies ATM Offering Program. During the three months ended March 31, 2024, we sold an aggregate of 5,045,518 shares of common stock at a weighted-average price of $ 1.79 per share for net proceeds of approximately $ 8.6 million under the Jefferies ATM Offering Program of which $ 0.8 million was included in other receivables as of March 31, 2024. Common Stock Reserved for Future Issuance Common stock reserved for future issuance was as follows: March 31, 2024 Common stock warrants 5,864 Common stock options and restricted stock units 5,712,725 Shares available under the 2015 equity incentive plan 2,238,757 Shares available under the 2022 inducement plan 106,483 Shares available under the employee stock purchase plan 727,311 8,791,140 The following table summarizes our stock option activity under all equity incentive plans for the three months ended March 31, 2024: Number of Outstanding Stock Options Weighted- Average Exercise Price Outstanding as of December 31, 2023 3,956,827 $ 6.00 Granted 1,750,098 $ 1.50 Canceled/forfeited/expired ( 35,416 ) $ 4.64 Outstanding as of March 31, 2024 5,671,509 $ 4.62 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 March 31, 2024 2023 Expected term (in years) 5.94 – 6.02 $ 6.02 Risk-free interest rate 3.8 % – 4.0 % 4.0 % Expected volatility 80.3 % – 80.5 % 82.0 % Expected dividend yield 0.0 % 0.0 % The following table summarizes our restricted stock unit activity under all equity incentive plans for the three months ended March 31, 2024: Number of Outstanding Restricted Stock Units Weighted-Average Grant Date Fair Value Balance as of December 31, 2023 63,327 $ 5.45 Released ( 22,111 ) $ 5.39 Balance as of March 31, 2024 41,216 $ 5.48 15 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, 2024 2023 Research and development $ 169 $ 129 General and administrative 571 490 Total stock-based compensation expense $ 740 $ 619 6. Subsequent Events From April 1, 2024 through April 30, 2024, we sold an aggregate of 656,907 shares of common stock at a weighted-average price of $ 1.76 through the Jefferies ATM Offering Program for net proceeds of $ 1.1 million.