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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-13 · 143 added, 158 removed, 58 unchanged (84% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, the consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 26, 2020 (2019 Annual Report).

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended or the Exchange Act.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, the consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC), on March 24, 2021 (2020 Annual Report).

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).

Such forward looking statements, which represent our intent, belief or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.

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

Our primary focus is on ATYR1923, a clinical stage product candidate which downregulates immune responses by binding to the NRP2 receptor and is in development for the treatment of severe inflammatory lung diseases.

ATYR1923, a fusion protein comprised of the immuno-modulatory domain of histidyl tRNA synthetase (HARS) fused to the fragment cystallizable (FC) region of a human antibody, is a selective modulator of NRP2 that downregulates the innate and adaptive immune response in inflammatory disease states.

We began developing ATYR1923 as a potential therapeutic for patients with interstitial lung diseases (ILDs), a group of immune-mediated disorders that cause progressive fibrosis of the lung tissue.

We selected pulmonary sarcoidosis, a major form of ILD, as our first clinical indication and are currently enrolling a proof-of-concept Phase 1b/2a clinical trial in patients.

The study has been designed to evaluate the safety, tolerability and immunogenicity of multiple doses of ATYR1923 and to evaluate established clinical endpoints and certain biomarkers to assess preliminary activity of ATYR1923.

A blinded interim analysis of safety and tolerability, the primary endpoint of our ongoing Phase 1b/2a clinical trial, showed study drug (ATYR1923 or placebo) was observed to be generally well tolerated with no drug-related serious adverse events (SAEs), consistent with the earlier Phase 1 study results in healthy volunteers.

The final results of our current Phase 1b/2a clinical trial will guide future development of ATYR1923 in pulmonary sarcoidosis and provide insight for the potential of ATYR1923 in other ILDs, such as connective tissue disease ILD (CTD-ILD) and chronic hypersensitivity pneumonitis (CHP).

In response to the COVID-19 pandemic, we are investigating ATYR1923’s potential as a treatment for COVID-19 patients with severe respiratory complications.

The inflammatory lung injury related to COVID-19 may be similar to that of interstitial lung diseases.

By targeting aberrant immune responses, we believe that ATYR1923’s mechanism of action has substantial overlap with this disease pathology.

Our Phase 2 clinical trial is a randomized, double blind, placebo-controlled study of ATYR1923 in hospitalized COVID-19 patients with severe respiratory complications who do not require mechanical ventilation.

The trial is designed to evaluate the preliminary safety and efficacy of ATYR1923 as compared to placebo through the assessment of key clinical outcome measures.

In October 2020, we completed enrollment in the Phase 2 clinical trial with a total of 32 patients exceeding the target enrollment of 30 patients.

We expect to report topline data from this trial at the turn of the calendar year.

In January 2020, we entered into a license with Kyorin Pharmaceutical Co., Ltd.

(Kyorin) for the development and commercialization of ATYR1923 for ILDs in Japan.

Under the collaboration and license agreement with Kyorin (the Kyorin Agreement), Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan for all forms of ILDs.

We received an $8.0 million upfront payment and we are eligible to receive an additional $167.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan.

Under the terms of the Kyorin Agreement, Kyorin will fund all research, development, regulatory, marketing and commercialization activities in Japan.

In September 2020, Kyorin began dosing of its Phase 1 trial of ATYR1923 (known as KRP-R120 in Japan).

The Phase 1 trial, which is being conducted and funded by Kyorin, is a placebo-controlled study to evaluate the safety, pharmacokinetics and immunogenicity of ATYR1923 in 32 healthy Japanese male volunteers.

Assuming successful completion of the study, Kyorin would then be able to initiate patient trials in ILDs in Japan.

Our lead clinical product candidate, ATYR1923, a is a selective modulator of NRP2 that downregulates both the innate and adaptive immune responses in uncontrolled inflammatory disease states.

We are developing ATYR1923 as a potential disease-modifying therapy for patients with severe inflammatory lung diseases with high unmet medical need.

This includes interstitial lung diseases (ILD), a group of rare immune-mediated disorders that cause progressive fibrosis of the lung, and severe respiratory complications caused by COVID-19.

We selected pulmonary sarcoidosis as our first ILD indication and completed enrollment in a Phase 1b/2a multi-center clinical trial.

The study has been designed to evaluate the safety, tolerability, steroid-sparing effect and immunogenicity of multiple doses of ATYR1923 and to evaluate established clinical endpoints and certain biomarkers to assess

preliminary clinical activity of ATYR1923.

The results of this study will guide future development of ATYR1923 in pulmonary sarcoidosis and provide insight for the potential of ATYR1923 in other ILD such as chronic hypersensitivity pneumonitis (CHP) and connective tissue disease related ILD (CTD-ILD).

In response to the COVID-19 pandemic, we conducted a Phase 2 study in patients with COVID-19 related severe respiratory complications.

The study was designed to evaluate the safety and preliminary efficacy of ATYR1923 as compared to placebo through the assessment of key clinical outcome measures.

In early 2021, we reported positive data which showed that the trial met its primary endpoint of safety, demonstrating that a single, intravenous (IV) dose of ATYR1923 was generally safe and well-tolerated in both the 1.0 and 3.0 mg/kg treatment groups, with no drug-related serious adverse events.

The study also showed a signal of activity in the 3.0 mg/kg cohort.

In addition, p atients treated with ATYR1923 demonstrated a trend of overall improvement in key biomarkers analyzed compared to placebo.

We plan on leveraging data from our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications for our mechanistic understanding of ATYR1923 and for its application in ILD.

Future development plans in COVID-19 are being assessed in light of the evolving pan demic and therapeutics landscap e and availability of non-dilutive financing.

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

(Kyorin) for the development and commercialization of ATYR1923 for ILD in Japan.

Under the agreement (the Kyorin Agreement), Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan for all forms of ILD.

Under the terms of the Kyorin Agreement, Kyorin is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan.

In September 2020, Kyorin began dosing patients in a Phase 1 clinical trial of ATYR1923 (known as KRP-R120 in Japan) and completed the last subject visit in December 2020.

The Phase 1 clinical trial, which was conducted and funded by Kyorin, is a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of ATYR1923 in 32 healthy Japanese male volunteers.

Results from this clinical trial are intended to enable Kyorin to initiate clinical trials in ILD in Japan.

We received an $8.0 million upfront payment in January 2020 and a $2.0 million milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial, and are eligible to receive up to an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan.

In conjunction with our clinical development of ATYR1923, we have in parallel been advancing our discovery pipeline of NRP2 antibodies and tRNA synthetases.

In November 2020, we declared an IND candidate in oncology from our NRP2 antibody program, ATYR2810.

We intend to evaluate this fully humanized monoclonal antibody for the potential treatment of certain aggressive tumors where NRP2 is implicated.

NRP2 expression is associated with worsened patient outcomes in many cancers.

NRP2 is also a receptor that plays a key role in lymphatic development and in regulating inflammatory responses.

NRP2 can interact with multiple ligands and coreceptors to influence their functional roles.

We continue to actively investigate NRP2 receptor biology, both internally and in collaboration with key academic thought leaders, to identify new product candidates for a variety of disease settings, including cancer, inflammation, and lymphangiogenesis.

In November 2020, we declared our lead Investigational New Drug (IND) candidate in oncology from our NRP2 antibody program, ATYR2810.

ATYR2810 is a fully humanized monoclonal antibody that specifically and functionally blocks the interaction between NRP2 and one of its primary ligands, vascular endothelial growth factor (VEGF).

ATYR2810 is in preclinical development for the potential treatment of certain aggressive cancers where NRP2 is implicated.

NRP2 is highly expressed on certain tumors and increased NRP2 expression is associated with worse outcomes in many cancers, such as overall survival, metastasis and resistance to targeted therapies.

The role of NRP2 and VEGF signaling in the tumor microenvironment and its importance in the progression of certain aggressive cancers is becoming increasingly validated.

In March 2020, our subsidiary, Pangu BioPharma Limited (Pangu BioPharma), together with the Hong Kong University of Science and Technology (HKUST) was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies.

The two-year project is being funded by the Hong Kong government’s Innovation and Technology Commission under the Partnership Research Program (PRP).

The PRP aims to support research and development projects

undertaken by companies in collaboration with local universities and public research institutions.

The grant will fund approximately 50% of the total estimated project cost, with our company contributing the remain ing 50%.

Our continued research of tRNA synthetases is being conducted through both industry and academic collaborations.

In November 2020, we announced the identification of receptor targets for two tRNA synthetases from our pipeline.

The receptor targets may have utility in the development of new therapeutics to treat cancer and fibrosis.

Human tRNA synthetases play a role in extracellular responses in certain disease states, including cellular stress and tissue homeostasis.

Identifying target receptors for an extracellular tRNA synthetase helps inform discovery and development activities by providing additional focus towards relevant disease pathways and potential therapeutic applications.

The discovery work was completed as part of a research collaboration with CSL Behring (CSL), a global biotherapeutics leader specializing in immunology, hematology and other rare and serious medical conditions.

The PRP aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions.

The grant is expected to fund approximately 50% of the total estimated project cost, and we expect to contribute the remaining 50%.

In February 2021, we announced two new discovery programs from our tRNA synthetase platform.

These programs will investigate the functionality of selected fragments of Alanyl-tRNA synthetase (AARS) and Aspartyl-tRNA synthetase (DARS) in immunology, fibrosis and cancer.

We are also advancing our preclinical pipeline of NRP2 targeting candidates through internal research efforts and industry and academic collaborations.

The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Impacts to our business have included the delay in enrollment of our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our employee's ability to travel and delays in certain research and development activities.

Other potential impacts to our business include, but are not limited to disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

Other potential impacts to our business include, but are not limited to disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, inflation, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

Liquidity and Capital Resources

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

As of March 31, 2021, we had an accumulated deficit of $345.7 million and we expect to continue to incur net losses for the foreseeable future.

As of March 31, 2021, we had cash, cash equivalents and available-for-sale investments of $50.6 million.

We believe that our current cash, cash equivalents and available-for-sale investments, will be sufficient to meet our anticipated cash requirements for a period of at least one year from the date of this Quarterly Report on Form 10-Q.

Sources of Liquidity

From our inception through March 31, 2021, 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.

Sales of Equity Securities

In May 2019, we entered into a sales agreement with H.C.

Wainwright & Co., LLC (Wainwright) for an ATM Offering Program under which we could offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million.

In November 2020, we amended our sales agreement with Wainwright to increase the amount of the ATM Offering Program to $20.0 million.

Wainwright was entitled to a commission at a fixed commission rate equal to 3% of the gross proceeds.

In March 2021, the ATM Offering with Wainwright automatically terminated upon the issuance and sale of all of the shares having an aggregate offering price of $20.0 million.

Under the ATM Offering Program with Wainwright, during 2020, we sold an aggregate of 1,657,075 shares of common stock at an average price of $4.07 per share for net proceeds of $6.4 million.

For the three months ended March 31, 2021, we sold an aggregate of 1,988,254 shares of common stock at an average price of $4.99 per share for net proceeds of $9.6 million.

In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share.

In March 2020, the underwriters fully exercised their over-allotment option for the issuance of an additional 635,294 shares of common stock.

The total gross proceeds from the underwritten follow-on public offering, including from the exercise of the over-allotment option, was approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.

Additionally, in September 2020 , we entered into the Purchase Agreement with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement.

Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act, registering the sale of the shares of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement.

For the three months March 31, 2021, we sold an aggregate of 3,000,000 shares of common stock at an average price of $5.09 per share for net proceeds of $15.2 million under this Purchase Agreement.

In March 2021, we entered into a Capital on Demand TM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) to create an ATM Offering Program under which we may offer and sell shares of our common stock having an aggregate offering price of up to $25.0 million.

JonesTrading is entitled to a commission at a commission rate up to 3% of the gross proceeds.

For the three months ended March 31, 2021, we did not issue any shares under this ATM Offering Program.

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

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net change in cash and cash equivalents

Operating activities.

Net cash used in operating activities for the three months ended March 31, 2021 was related to our net loss of $7.2 million, adjusted for non-cash stock-based compensation expense of $0.4 million and net cash inflows from the changes in our operating assets and liabilities of $0.6 million.

Net cash provided by operating activities for the three months ended March 31, 2020 was primarily related to the receipt of an $8.0 million upfront payment associated with the Kyorin Agreement resulting in net income of $1.8 million plus cash outflows from the changes in our operating assets and liabilities of $0.6 million and adjusted for non-cash stock-based compensation expense of $0.4 million.

Investing activities.

Net cash provided by (used in) investing activities for the three months ended March 31, 2021 and 2020 was $(23.4) million and $11.4 million, respectively.

The fluctuation in net cash provided by or used in investing activities resulted primarily from the timing differences in investment purchases, sales and maturities, and the fluctuation of our portfolio mix between cash equivalents and investment holdings.

The average term to maturity in our investment portfolio is less than two years.

Financing activities.

Net cash provided by financing activities for the three months ended March 31, 2021 consisted primarily of $9.6 million proceeds from the issuance of common stock through the ATM Offering Program, net of offering costs and $15.2 million proceeds from issuance of common stock through the Purchase Agreement, net of offering costs.

Net cash provided by financing activities for the three months ended March 31, 2020 consisted primarily of $18.8 million proceeds from the issuance of common stock through the underwritten follow-on public financing in February 2020, net of offering costs, which was partially offset by $2.0 million of repayments on our term loans.

Funding Requirements

To date, we have not generated any revenues from product sales.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to advance ATYR1923 in clinical development, including manufacturing activities for ATYR1923, continue IND-enabling studies and manufacturing activities for ATYR2810, continue our research and development activities with respect to other potential therapies based on tRNA synthetase biology and NPR2 biology, and seek marketing approval for product candidates that we may develop.

In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

We currently have no sales or marketing capabilities and would need to expand our organization to support these activities.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

the type, number, scope progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;

delays of our current and planned clinical trials of ATYR1923 and any resulting cost increases as a result of the COVID-19 pandemic;

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;

our ability to maintain existing and enter into new collaboration and licensing arrangements and the timing of any payments we may receive under such arrangements;

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

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

the extent to which we acquire or in-license other products and technologies.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings.

To the extent we raise additional capital

through the sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.

If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us.

The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

We may be unable to raise additional funds on acceptable terms or at all.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, includ ing severely diminished liquidity and credit availability, declines in consumer confidence, declines i n economic growth, increases in unemployment rates , inflation, and uncertainty about economic stability.

If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

If we are unable to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturing organizations and with vendors for preclinical safety and research studies, research supplies and other services and products purposes.

These contracts generally provide for termination after a notice period, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

Our contractual obligations have not materially changed outside the ordinary course of our business during the three months ended March 31, 2021, as compared to those disclosed in our 2020 Annual Report.

Financial Operations Overview

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was incorporated in the State of Delaware in September 2005.

The condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited as of September 30, 2020.

The condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma as of March 31, 2021.

All intercompany transactions and balances are eliminated in consolidation.

Revenue Recognition

In January 2020, we entered into the Kyorin Agreement for the development and commercialization of ATYR1923 for ILDs in Japan.

Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan for all forms of ILDs.

In January 2020, we entered into a collaboration and license agreement with Kyorin for the development and commercialization of ATYR1923 for ILD in Japan.

Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan for all forms of ILD.

Under the terms of the Kyorin Agreement, Kyorin will fund all research, development, regulatory, marketing and commercialization activities in Japan.

In September 2020, Kyorin began dosing of its Phase 1 trial of ATYR1923 (known as KRP-R120 in Japan) and completed the last subject visit in December 2020.

This achievement triggered a $2.0 million milestone payment, which we received in January 2021.

The Phase 1 trial, which was conducted and funded by Kyorin, is a placebo-controlled study to evaluate the safety, PK and immunogenicity of ATYR1923 in 32 healthy Japanese male volunteers.

Results from this study are intended to enable Kyorin to initiate patient trials in ILD in Japan.

We received an $8.0 million upfront payment and a $2.0 milestone payment and we are eligible to receive an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan.

The $8.0 million upfront payment received from Kyorin is non-refundable and non-creditable and is considered fixed consideration.

We determined that the relative stand-alone selling price was $7.9 million when the license was delivered to Kyorin in January 2020.

We determined that the relative standalone selling price was $0.1 million for the free clinical trial material delivered to Kyorin in June 2020, using the “expected cost plus a margin” approach.

In December 2020, Kyorin completed the last subject visit in its Phase 1 trial of ATYR1923.

This achievement triggered a $2.0 million milestone payment which we recognized as license and collaboration revenue in December 2020.

We received the $2.0 million from Kyorin in January 2021.

For the three months ended March 31, 2021, there were no activities that triggered additional license and collaboration agreement revenue.

Following the first anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason upon 90 days advance written notice.

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 .

For the nine months ended September 30, 2020, we recognized $8.0 million as license revenue under the Kyorin Agreement.

In March 2019, we entered into a research collaboration and option agreement with CSL for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline (CSL Agreement).

For the nine months ended September 30, 2020, we recognized $0.4 million as license revenue under the CSL Agreement.

Research and Development Expenses

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect that the levels of our research and development expenses will increase in the current year and will consist primarily of costs related to our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis, our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications, and other potential therapeutics based on tRNA synthetase biology and NRP2 biology.

We expect that the levels of our research and development expenses will increase in the current year and potentially future years and will consist primarily of costs related to our clinical development and manufacturing of ATYR1923 for patients with pulmonary sarcoidosis, our preclinical development and manufacturing of ATYR2810 and other potential therapeutics based on tRNA synthetase biology and NRP2 biology.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates.

In particular, as a result of the COVID-19 pandemic, many clinical trial sites in our ongoing Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis temporarily suspended dosing of previously-enrolled patients and/or enrollment of new patients.

While the majority of such sites are now continuing enrollment and trial activities, the availability of top-line results from the clinical trial is delayed.

This delay may also cause certain research and development expenses related to the trial to be incurred in future quarters, and ultimately, the incurrence of such expenses related to the clinical trial could shift materially.

If continued dosing of enrolled patients is delayed for an extended period of time, our Phase 1b/2a clinical trial could be further delayed or otherwise adversely affected.

At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs, we are unable to estimate with any certainty the costs we will incur or the timelines we will require in the continued development of our product candidates.

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

Other Expense, net

In November 2016, we entered into a loan and security agreement, as amended (Loan Agreement) with Silicon Valley Bank (SVB) and Solar Capital Ltd.

(together with SVB, the Lenders) to borrow up to $20.0 million issuable in three separate tranches (the Term Loans), $10.0 million of which was funded in November 2016, $5.0 million of which was funded in June 2017 and $5.0 million of which was funded in December 2017.

Other expense, net consists primarily of interest income earned on cash, cash equivalents and available-for-sale investments and interest expense on our Term Loans outstanding with the Lenders as discussed below.

Critical Accounting Policies and Significant Judgments and Estimates

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

Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates.

We discuss our accounting policies and assumptions that involve a higher degre e of judgment and complexity within Note 2 to our audited consolidated financial statements in our 2019 Annual Report.

There have been no material changes to our critical accounting policies and estimates as disclosed in our 2019 Annual Report other than n oted above.

Though the impact of the COVID-19 pandemic to our

business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates.

We discuss our accounting policies and assumptions that involve a higher degree of judgment and complexity within Note 2 to our audited consolidated financial statements in our 2020 Annual Report.

There have been no material changes to our critical accounting policies and estimates as disclosed in our 2020 Annual Report.

Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30,

Research and development expenses

General and administrative expenses

Other expense, net

Revenues for the three months ended September 30, 2020 and 2019 were $0.1 million and $0.2 million, respectively, consisting of license revenues.

Research and development expenses.

Research and development expenses were $4.6 million and $3.8 million for the three months ended September 30, 2020 and 2019, respectively.

The increase of $0.8 million was due primarily to the progression of our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

General and administrative expenses.

General and administrative expenses were $2.0 million and $1.9 million for the three months ended September 30, 2020 and 2019, respectively.

The increase of $0.2 million was due primarily to an increase in insurance costs.

Other expense, net.

Other expense, net was $0.1 million for each of the three months ended September 30, 2020 and 2019.

The decrease was primarily a result of lower balances on our Term Loans which we started paying down in June 2018.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

License and collaboration agreement revenues

Research and development expenses

General and administrative expenses

Other expense, net

Revenues were $8.4 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively.

The increase of $8.1 million was due primarily to $8.0 million from license revenue under the Kyorin Agreement.

Other income (expense), net

License and collaboration agreement revenues.

Revenues for the three months ended March 31, 2020 consisted primarily of $7.9 million of license revenue under the Kyorin Agreement.

Research and development expenses.

Research and development expenses were $12.6 million and $10.5 million for the nine months ended September 30, 2020 and 2019, respectively.

The increase of 2.1 million was due primarily to the progression of our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

Research and development expenses were $4.5 million and $3.6 million for the three months ended March 31, 2021 and 2020, respectively.

The increase of $0.9 million was due primarily to $0.4 million higher manufacturing related costs for ATYR1923 and $0.4 million of research and development expenses related to ATYR2810 and $0.1 million expenses related to the research program between Pangu BioPharma, HKUST and the Government of the Hong Kong Special Administration Region.

General and administrative expenses.

General and administrative expenses were consistent between the periods at $6.8 million for each of the nine months ended September 30, 2020 and 2019.

Other expense, net.

Other expense, net was $0.3 million and $0.6 million for the nine months ended September 30, 2020 and 2019, respectively.

The $0.3 million decrease was primarily a result of lower balances on our Term Loans which we started paying down in June 2018.

Liquidity and Capital Resources

Other than the net income generated in the three months ended March 31, 2020, we have incurred losses and negative cash flows from operations since our inception.

As of September 30, 2020, we had an accumulated deficit of $333.6 million and we expect to continue to incur net losses for the foreseeable future.

We believe that our existing cash, cash equivalents and available-for-sale investments, of $36.1 million as of September 30, 2020 will be sufficient to meet our anticipated cash requirements for a period of at least one year from the filing date of this Quarterly Report on Form 10-Q.

Sources of Liquidity

From our inception through September 30, 2020, we have financed our operations primarily through the sale of equity securities and convertible debt and through venture debt and term loans.

Equity Securities

In May 2019, we entered into a sales agreement with H.C.

Wainwright & Co., LLC (Wainwright) with respect to an at-the-market offering program (ATM Offering Program) under which we may offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million.

In November 2020, we entered into an amendment to our sales agreement with Wainwright to increase the amount of the ATM Offering Program from $10.0 million to $20.0 million.

Wainwright is entitled to a commission at a fixed rate equal to 3% of the gross proceeds.

Under the ATM Offering Program, during 2019, we sold an aggregate of 611,687 shares of common stock at an average price of $5.43 per share for gross proceeds of $3.3 million.

During the nine months ended September 30, 2020, we sold an aggregate of 630,685 shares of common stock at an average price of $4.00 per share for gross proceeds of $2.5 million under the ATM Offering Program.

In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share.

In March 2020, the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 635,294 shares of common stock.

The total gross proceeds from the underwritten follow-on public offering, including the underwriters’ option to purchase additional shares, was approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.

We anticipate using the net proceeds from the offering for general corporate purposes, including clinical trial expenses, research and development expenses, manufacturing expenses, and general administrative expenses.

Additionally, in September 2020 , we entered into a common stock purchase agreement (Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement.

As of September 30, 2020, we had not sold any shares of common stock to Aspire Capital under this Purchase Agreement.

Debt Financing

We have a Loan Agreement with our Lenders for the Term Loans which were fully repaid on November 3, 2020, including the final payment equal to 8.75% of the funded amounts.

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

Nine Months Ended September 30,

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net change in cash and cash equivalents

Operating activities.

Net cash used in operating activities was $9.9 million and $15.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Net cash used in operating activities for the nine months ended September 30, 2020 was primarily related to our n et loss of $11.3 million, adjusted for non-cash stock-based compensation expense of $1.1 million and net cash outflows from the changes in our operating assets and liabilities of $1.1 million.

Net cash used in operating activities for the nine months ended September 30, 2019 was primarily related to our net loss of $17.6 million, adjusted for non-cash stock-based compensation expense of $1.4 million and net cash outflows from the changes in our operating assets and liabilities of $0.1 million.

Investing activities.

Net cash provided by investing activities for the nine months ended September 30, 2020 and 2019 was $3.7 million and $6.1 million, respectively.

The fluctuation in net cash 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 short-term investment holdings.

The average term to maturity in our investment portfolio is less than one year.

Financing activities.

Net cash provided by financing activities for the nine months ended September 30, 2020 consisted primarily of $18.8 million in proceeds from the issuance of common stock through an underwritten follow-on public offering in February 2020, net of offering costs and $2.4 million in proceeds from the issuance of common stock through the ATM Offering Program, net of offering costs, offset by a $6.0 million repayment on our Term Loans.

Net cash provided by financing activities for the nine months ended September 30, 2019 consisted of $4.9 million in proceeds from the issuance of common stock through a registered direct offering, net of offering costs and $4.4 million proceeds from issuance of common stock through the ATM Offering Program, offset by a $6.0 million repayment on our Term Loans.

Funding Requirements

To date, we have not generated any revenues from product sales.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to advance ATYR1923 in clinical development, continue our research and development activities with respect to other potential therapies based on tRNA synthetase biology and NPR2 biology, and seek marketing approval for product candidates that we may develop.

We currently have no sales or marketing capabilities and would need to expand our organization to support these activities.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

our ability to initiate, and the progress and results of, our clinical trials of ATYR1923;

delays of our current clinical trials of ATYR 1923 and any resulting cost increases as a result of the COVID-19 pandemic;

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;

our ability to maintain existing and enter into new collaboration and licensing arrangements and the timing of any payments we may receive under such arrangements;

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

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

the extent to which we acquire or in-license other products and technologies.

To the extent we raise additional capital through the sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.

The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree

to certain restrictive covenants, such as limitations on our ability to incur addition al debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

We may be unable to raise additional funds on acceptable terms or at all.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, includ ing severely diminished liquidity and credit availability, declines in co nsumer confidence, declines i n economic growth, increases in unemployment rates and uncertainty about economic stability.

If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

If we are unable to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwis e prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

These contracts generally provide for termination after a notice period, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

Our contractual obligations have not materially changed outside the ordinary course of our business during the nine months ended September 30, 2020, as compared to those disclosed in our 2019 Annual Report.

We have a Loan Agreement with our Lenders for the Term Loans which were fully repaid on November 3, 2020, including the final payment equal to 8.75% of the funded amounts.

General and administrative expenses were consistent between periods at $2.7 million and $2.6 million for the three months ended March 31, 2021 and 2020, respectively.

Other income (expense), net.

Other income (expense), net was $47,000 and $(0.1) million for the three months ended March 31, 2021 and 2020, respectively.

The change was primarily a result of term loans which were paid in full in November 2020.

Recent Accounting Pronouncements

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We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Quantitative and Qualitative Disclosures about Market Risk

Not Applicable.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis