Aura Biosciences, Inc. 10-Q

Item 1. Financial Statements. Aura Biosciences, Inc. Condensed Balance Sheets (Unaudited) (in thousands, except share and per share amounts) As of September 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 81,829 $ 17,393 Restricted cash and deposits 20 19 Prepaid expenses and other current assets 1,609 1,043 Total current assets 83,458 18,455 Restricted cash and deposits, net of current portion 125 75 Right of use assets - operating lease 1,096 - Property and equipment, net 4,442 3,574 Deferred offering costs 1,583 - Total Assets $ 90,704 $ 22,104 Liabilities, Convertible Preferred Stock, and Stockholders’ Deficit Current liabilities: Accounts payable 1,736 611 Current portion of operating lease liabilities 607 - Accrued expenses and other current liabilities 3,488 2,050 Total current liabilities 5,831 2,661 Deferred rent - 8 Operating lease liabilities, net of current portion 513 - Warrant liability 71 72 Total Liabilities 6,415 2,741 Commitments and Contingencies (Note 12) Series A convertible preferred stock, $ 0.00001 par value, 1,701,141 shares authorized , issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 3,403 at September 30, 2021 and December 31, 2020, respectively 3,368 3,368 Series A-1 convertible preferred stock, $ 0.00001 par value, 3,298,732 shares authorized , issued, and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 8,196 at September 30, 2021 and December 31, 2020, respectively 7,837 7,837 Series A-2 convertible preferred stock, $ 0.00001 par value, 4,325,021 shares authorized, and 4,324,998 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 5,373 at September 30, 2021 and December 31, 2020, respectively 5,373 5,373 Series B convertible preferred stock, $ 0.00001 par value, 22,705,646 shares authorized, and 22,531,819 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 38,894 and $ 37,429 at September 30, 2021 and December 31, 2020, respectively 20,806 20,806 Series C-1 convertible preferred stock, $ 0.00001 par value, 58,109,711 shares authorized , issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 37,736 and $ 36,150 at September 30, 2021 and December 31, 2020, respectively 29,353 29,353 Series C-2 convertible preferred stock, $ 0.00001 par value, 33,218,192 shares authorized , issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 15,332 and $ 14,697 at September 30, 2021 and December 31, 2020, respectively 11,746 11,746 Series D-1 convertible preferred stock, $ 0.00001 par value, 57,878,742 shares authorized , issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 46,003 and $ 43,908 at September 30, 2021 and December 31, 2020, respectively 39,686 39,686 Series D-2 convertible preferred stock, $ 0.00001 par value, 24,598,481 shares authorized , and 24,598,481 and 14,469,710 issued and outstanding at September 30, 2021 and December 31, 2020, respectively, and a liquidation preference of $ 17,982 and $ 10,176 at September 30, 2021 and December 31, 2020, respectively 16,889 9,907 Series E convertible preferred stock, $ 0.00001 par value, 102,671,041 shares authorized, issued and outstanding at September 30, 2021, and a liquidation preference of $ 83,525 at September 30, 2021; no shares authorized, issued or outstanding at December 31, 2020, respectively 80,246 - Stockholders’ Deficit: Common stock, $ 0.00001 par value, 470,183,383 and 232,697,999 authorized at September 30, 2021 and December 31, 2020, and 442,717 and 381,123 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively - - Additional paid-in capital 9,488 8,173 Accumulated deficit ( 140,503 ) ( 116,886 ) Total Stockholders’ Deficit ( 131,015 ) ( 108,713 ) Total Liabilities, Convertible Preferred Stock, and Stockholders’ Deficit $ 90,704 $ 22,104 The accompanying notes are an integral part of these unaudited condensed financial statements. 1 Condensed Statements of Operations and Comprehensive Loss (Unaudited) (in thousands except for share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating Expenses: Research and development $ 6,365 $ 2,850 $ 17,182 $ 14,499 General and administrative 2,530 781 6,441 2,798 Total operating expenses 8,895 3,631 23,623 17,297 Total operating loss 8,895 3,631 23,623 17,297 Other income (expense): Change in fair value of warrant liability - - 1 - Change in fair value of derivative liability 52 - - - Interest income (expense), including amortization of discount 5 - 8 ( 2 ) Loss from disposal of assets - - ( 3 ) - Total other income (expense) 57 - 6 ( 2 ) Net loss and comprehensive loss $ ( 8,838 ) $ ( 3,631 ) $ ( 23,617 ) $ ( 17,299 ) Net loss attributable to common stockholders— basic and diluted $ ( 12,506 ) $ ( 5,579 ) $ ( 33,244 ) $ ( 23,101 ) Net loss per share attributable to common stockholders— basic and diluted ( 28.33 ) ( 14.81 ) ( 77.93 ) ( 63.69 ) Weighted average common stock outstanding— basic and diluted 441,448 376,738 426,604 362,735 The accompanying notes are an integral part of these unaudited condensed financial statements. 2 Aura Biosciences, Inc. Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit (Unaudited) (in thousands, except share data) Convertible Preferred Stock Additional Total Series A Series A-1 Series A-2 Series B Series C-1 and C-2 Series D-1 and D-2 Series E Common Stock Paid-In Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Balance, December 31, 2019 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 57,878,742 $ 39,686 — — 340,591 — $ 7,274 $ ( 94,680 ) $ ( 87,406 ) Stock-based compensation expense — — — — — — — — — — — — — — — — 177 — 177 Stock option exercises — — — — — — — — — — — — — — 7,880 — 33 — 33 Net loss — — — — — — — — — — — — — — — — — ( 7,512 ) ( 7,512 ) Balance, March 31, 2020 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 57,878,742 $ 39,686 — $ — 348,471 $ — $ 7,484 $ ( 102,192 ) $ ( 94,708 ) Stock-based compensation expense — — — — — — — — — — — — — — — — 189 — 189 Stock option exercises — — — — — — — — — — — — — — 24,648 — 97 — 97 Net loss — — — — — — — — — — — — — — — — — ( 6,156 ) ( 6,156 ) Balance, June 30, 2020 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 57,878,742 $ 39,686 — $ — 373,119 $ — $ 7,770 $ ( 108,348 ) $ ( 100,578 ) Stock-based compensation expense — — — — — — — — — — — — — — — — 191 — 191 Stock option exercises — — — — — — — — — — — — — — 6,783 — 18 — 18 Net loss — — — — — — — — — — — — — — — — — ( 3,631 ) ( 3,631 ) Balance, September 30, 2020 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 57,878,742 $ 39,686 — $ — 379,902 $ — $ 7,979 $ ( 111,979 ) $ ( 104,000 ) Balance, December 31, 2020 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 72,348,452 $ 49,593 — $ — 381,123 $ — $ 8,173 $ ( 116,886 ) $ ( 108,713 ) Issuance of Series D Tranche 2, convertible preferred stock, net of issuance costs of $ 18 — — — — — — — — — — 10,128,771 6,982 — — — — — — — Issuance of Series E convertible preferred stock, net of issuance costs of $ 237 — — — — — — — — — — — — 102,671,041 80,246 — — — — — Stock-based compensation expense — — — — — — — — — — — — — — — — 185 — 185 Stock option exercises — — — — — — — — — — — — — — 54,296 — 265 — 265 Net loss — — — — — — — — — — — — — — — — — ( 5,927 ) ( 5,927 ) Balance, March 31, 2021 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 82,477,223 $ 56,575 102,671,041 $ 80,246 435,419 $ — $ 8,623 $ ( 122,813 ) $ ( 114,190 ) Stock-based compensation expense — — — — — — — — — — — — — — — — 271 — 271 Stock option exercises — — — — — — — — — — — — — — 3,649 — 20 — 20 Net loss — — — — — — — — — — — — — — — — — ( 8,852 ) ( 8,852 ) Balance, June 30, 2021 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 82,477,223 $ 56,575 102,671,041 $ 80,246 439,068 $ — $ 8,914 $ ( 131,665 ) $ ( 122,751 ) Stock-based compensation expense — — — — — — — — — — — — — — — — 554 — 554 Stock option exercises — — — — — — — — — — — — — — 3,649 — 20 — 20 Net loss — — — — — — — — — — — — — — — — — ( 8,838 ) ( 8,838 ) Balance, September 30, 2021 1,701,141 $ 3,368 3,298,732 $ 7,837 4,324,998 $ 5,373 22,531,819 $ 20,806 91,327,903 $ 41,099 82,477,223 $ 56,575 102,671,041 $ 80,246 442,717 $ — $ 9,488 $ ( 140,503 ) $ ( 131,015 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Aura Biosciences, Inc. Condensed Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 23,617 ) $ ( 17,299 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 601 605 Change in fair value of warrant liability ( 1 ) - Stock-based compensation expense 1,010 557 Loss on disposal of property and equipment ( 3 ) - Operating lease expense 4 - Changes in operating assets and liabilities: Prepaid expenses and other assets ( 566 ) ( 52 ) Accounts payable 891 ( 1,837 ) Accrued expenses and other liabilities 1,357 ( 2,538 ) Net cash used in operating activities ( 20,324 ) ( 20,564 ) Cash flows from investing activities: Purchases of property and equipment ( 1,306 ) ( 639 ) Net cash used in investing activities ( 1,306 ) ( 639 ) Cash flows from financing activities: Proceeds from exercise of stock options 305 148 Advanced proceeds from issuance of Series D convertible preferred stock, net of issuance costs - 4,849 Proceeds from issuance of Series D convertible preferred stock, net of issuance costs 6,982 - Proceeds from issuance of Series E convertible preferred stock, net of issuance costs 80,246 - Payments made for deferred offering costs ( 1,416 ) - Payments made for deferring financing costs related to issuance of Series D convertible preferred stock - ( 69 ) Other - ( 25 ) Net cash provided by financing activities 86,117 4,903 Net increase (decrease) in cash, cash equivalents and restricted cash 64,487 ( 16,300 ) Cash, cash equivalents and restricted cash at beginning of period 17,487 32,543 Cash, cash equivalents and restricted cash at end of period $ 81,974 $ 16,243 Supplemental Disclosure of Cash Flow Information: Purchases of property and equipment in accounts payable and accrued expenses and other liabilities $ 159 $ — Initial measurement of right-of-use assets and lease liabilities for operating lease $ 536 $ — Remeasurement of right-of-use assets and lease liabilities for lease modification $ 390 $ — Right-of-use assets obtained in exchange for operating lease liabilities $ 516 $ — The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows (in thousands): September 30, 2021 September 30, 2020 Cash and cash equivalents, end of period $ 81,829 $ 11,302 Short-term restricted cash, end of period 20 4,866 Long-term restricted cash, end of period 125 75 Cash, cash equivalents and restricted cash at end of period $ 81,974 $ 16,243 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Aura Biosciences, Inc. Notes to Unaudited Condensed Financial Statements 1. Description of Business Aura Biosciences, Inc. is a clinical-stage biotechnology company leveraging its novel targeted oncology platform to develop a potential new standard of care across multiple cancer indications, with an initial focus on ocular and urologic oncology. Within these condensed financial statements, unless the context otherwise requires, references to the Company or Aura refer to Aura Biosciences, Inc. The Company’s proprietary platform enables the targeting of a broad range of solid tumors using Virus-Like Particles, or VLPs, that can be conjugated with drugs or loaded with nucleic acids to create Virus-Like Drug Conjugates, or VDCs. The Company’s VDCs are largely agnostic to tumor type and can recognize a surface marker, known as HSPGs, that are specifically modified and more broadly expressed on many tumors. The Company is developing AU-011, its first VDC product candidate for the first line treatment of primary choroidal melanoma, a rare disease with no drugs approved. The Company is also developing AU-011 for additional ocular oncology indications and in non-muscle invasive bladder cancer. Aura’s team combines expertise in cancer cell biology, ophthalmology, and targeted therapies together with experience in the development and commercialization of orphan products for significant unmet medical needs. Aura’s headquarters are located in Cambridge, Massachusetts. The Company’s operations to date have consisted primarily of conducting research and development and raising capital. The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, the successful development and commercialization of products, fluctuations in operating results and financial risks, need for additional financing or alternative means of financial support or both to fund its current operating plan, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaborative partners, competition, customer demand, management of growth, and the effectiveness of marketing by the Company. Liquidity and Going Concern Through September 30, 2021, the Company has funded its operations primarily with proceeds from the initial closing and additional closings of its convertible preferred stock financings. The Company has incurred recurring losses and negative cash flows from operations since its inception, including net losses of $ 23.6 million and $ 17.3 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the Company had cash and cash equivalents of $ 82.0 million and an accumulated deficit of $ 140.5 million. The Company expects to continue to generate operating losses for the foreseeable future. On November 2, 2021, the Company completed its initial public offering, or the IPO, in which it issued and sold 6,210,000 shares of common stock, including the full exercise of the underwriters’ option to purchase additional shares at a price to the public of $ 14.00 per share for aggregate gross proceeds of $ 86.9 million . The Company received approximately $ 77.9 million in net proceeds after deducting underwriting discounts, commissions and estimated offering expenses. As of November 24, 2021, the issuance date of these condensed financial statements, the Company expects that its cash and cash equivalents and total net proceeds from the IPO of $ 77.9 million will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of these condensed financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations. Impact of COVID-19 In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government- imposed travel restrictions on travel between the United States, Europe and certain other countries. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as certain worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain. 5 The Company is monitoring the potential impact of COVID-19 on its business and condensed financial statements. The effects of the public health directives and the Company’s work-from-home policies may negatively impact productivity, disrupt its business, and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on its ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in the Company’s operations could negatively impact business, results of operations and financial condition, including its ability to obtain financing. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and are not aware of any specific related event or circumstance that would require the Company to revise its estimates reflected in the condensed financial statements. The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact its business, results of operations, financial condition, and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. In management’s opinion, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations, and cash flows. Unaudited Interim Financial Information The accompanying condensed balance sheet as of September 30, 2021, the condensed statements of operations and comprehensive loss, condensed statement of convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2021 and 2020, and the condensed statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021 and the results of its operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The unaudited condensed results of operations are not necessarily indicative of the operating results that may occur for the full fiscal year ending December 31, 2021. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission, or the SEC. Management believes that the disclosures provided here are adequate to make the information presented not misleading when these unaudited condensed financial statements are read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2020. The balance sheet data as of December 31, 2020 was derived from the Company’s audited financial statements included in the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on November 1, 2021. Significant Accounting Policies The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2020, filed with the SEC as a part of the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on November 1, 2021. Since the date of those financial statements, there have been no changes to the Company's significant accounting policies except as noted below. Cash Equivalents Cash equivalents are highly liquid investments with an original maturity of 90 days or less at the date of purchase and consist of time deposits and investments in money market funds that invest in U.S. Treasury obligations and government funds with commercial banks and financial institutions. 6 Leases Prior to January 1, 2021, the Company accounted for leases in accordance with ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For operating leases, the Company recognized rent expense, inclusive of rent escalation, holidays and lease incentives, on a straight-line basis over the lease term. The difference between rent expense recorded and the amount paid was charged to deferred rent. The Company presented lease incentives as deferred rent and amortized the incentives as a reduction to rent expense on a straight-line basis over the lease term. The Company classified deferred rent as current and noncurrent liabilities based on the portion of the deferred rent that was scheduled to mature within the proceeding twelve months. Effective January 1, 2021, the Company accounts for leases in accordance with ASU No. 2016-02, Leases (Topic 842) (“ASC 842”) . At contract inception, the Company determines if an arrangement is or contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease. For each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability. The Company adopted the n ew leasing standard effective January 1, 2021 , using the modified retrospective transition approach which uses the effective date, or January 1, 2021, as the date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840. ASC 842 provides several optional practical expedients in transition. The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for any existing leases. A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term. A lease liability represents the obligation to make lease payments arising from the lease. The Company elected the practical expedient to not separate lease and non-lease components for all classes of underlying assets and therefore measures each lease payment as the total of the fixed lease and associated non-lease components. Lease liabilities are measured at lease commencement and calculated as the present value of the future lease payments in the contract using the rate implicit in the contract, when available. If an implicit rate is not readily determinable, the Company uses an incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date. Right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The lease term is measured as the noncancelable period in the contract, adjusted for any options to extend or terminate when it is reasonably certain the Company will extend the lease term via such options based on an assessment of economic factors present as of the lease commencement date. The Company elected the practical expedient to not recognize leases with a lease term of twelve months or less. Components of a lease are split into three categories: lease components, non-lease components, and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) are allocated, based on the respective relative fair values, to the lease components and non-lease components. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only. The Company’s operating leases are presented in the condensed balance sheet as operating lease right-of-use assets, classified as noncurrent assets, and operating lease liabilities, classified as current and noncurrent liabilities. Operating lease expense is recognized on a straight-line basis over the lease term. Variable costs associated with a lease, such as maintenance and utilities, are not included in the measurement of the lease liabilities and right-of-use assets but rather are expensed when the events determining the amount of variable consideration to be paid have occurred. Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process preferred stock or common stock financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of convertible preferred stock or in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. As of September 30, 2021, the Company had deferred offering costs of $ 1.6 million. 7 Recently Adopted Accounting Pronouncements Upon adoption of ASC 842, the Company recorded lease liabilities and their corresponding right-of-use assets based on the present value of lease payments over the remaining lease term. The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $ 0.6 million and operating lease right-of-use assets of $ 0.5 million and the derecognition of deferred rent liabilities of $ 0.02 million on the Company’s balance sheet as of January 1, 2021. The adoption impact relates to the Company’s existing operating lease for operating and laboratory space. The adoption of ASC 842 did not have a material impact on the Company’s statements of operations and comprehensive loss or statements of cash flows. 3. Fair Value of Assets and Liabilities The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of September 30, 2021 and December 31, 2020 (in thousands): Description September 30, 2021 Quoted prices active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant other observable inputs (Level 3) Assets Money market funds $ 79,829 $ 79,829 $ — $ — Total financial assets $ 79,829 $ 79,829 $ — $ — Liability Warrant liability $ 71 $ — $ — $ 71 Total financial liabilities $ 71 $ — $ — $ 71 Description December 31, 2020 Quoted prices active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant other observable inputs (Level 3) Liability Warrant liability $ 72 $ — $ — $ 72 Total financial liabilities $ 72 $ — $ — $ 72 At September 30, 2021, the Company’s cash equivalents include investments in money market funds that invest in U.S. Treasury obligations and government funds, the fair value of which is valued using level 1 inputs. The fair value of the warrant liability was determined based on Level 3 inputs and utilizing the Black-Scholes option pricing model (see Note 10). Significant changes to these assumptions would result in increases or decreases to the fair value of the warrant liability. During the nine months ended September 30, 2021 and 202 0 , there were no transfers into or out of Level 3. The following table set forth a summary of changes in the fair value of the Series B Warrants, which represents a recurring fair value measurement that is classified within Level 3 of the fair value hierarchy. Changes in fair value are recognized in other (expense) income as “Change in fair value of warrant liability” in the Company’s condensed statements of operations and comprehensive loss (in thousands): Series B Warrants ( 173,827 warrants) Fair value at December 31, 2020 $ 72 Change in fair value ( 1 ) Fair value at September 30, 2021 $ 71 8 4. Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): September 30, 2021 December 31, 2020 Assets under construction $ 1,741 $ 1,154 IT equipment 73 — Leasehold improvements 13 — Lab equipment 5,085 4,708 Office furniture 63 64 Total property and equipment $ 6,975 $ 5,926 Less—accumulated depreciation ( 2,533 ) ( 2,352 ) Property and equipment, net $ 4,442 $ 3,574 Depreciation expense was $ 0.2 million for the three months ended September 30, 2021 and 2020, and was $ 0.6 million for the nine months ended September 30, 2021 and 2020. 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): September 30, 2021 December 31, 2020 Prepaid insurance $ 80 $ 51 Prepaid research and development expenses 1,474 976 Other 55 16 Prepaid expenses and other current assets $ 1,609 $ 1,043 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): September 30, 2021 December 31, 2020 Accrued research and development expenses $ 1,184 $ 750 Accrued compensation 1,569 1,023 Other 735 277 Accrued expenses and other current liabilities $ 3,488 $ 2,050 7. Convertible Preferred Stock As of September 30, 2021, the Company had 1,701,141 authorized, issued and outstanding shares of Series A Preferred stock, par value $ 0.00001 , or the Series A, 3,298,732 authorized, issued and outstanding shares of Series A-1 Preferred stock, par value $ 0.00001 , or the Series A-1, 4,325,021 authorized shares and 4,324,998 issued and outstanding shares of Series A-2 Preferred stock, par value $ 0.00001 , or the Series A-2, and 22,705,646 authorized shares and 22,531,819 issued and outstanding shares of Series B Preferred stock, par value $ 0.00001 , or the Series B, 58,109,711 authorized, issued and outstanding shares of Series C-1 Preferred stock, par value $ 0.00001 , or the Series C-1, 33,218,192 authorized, issued and outstanding shares of Series C-2 Preferred stock, par value $ 0.00001 , or the Series C-2, together with Series C-1, the Series C, 57,878,742 authorized, issued and outstanding shares of Series D-1 Preferred stock, par value $ 0.00001 , or the Series D-1, and 24,598,481 authorized, issued and outstanding shares of Series D-2 Preferred stock, par value $ 0.00001 , or the Series D-2, together with the Series D-1, the Series D, 102,671,041 authorized, issued, and outstanding shares of Series E Preferred stock, par value $ 0.00001 , or the Series E, and together with the Series D, the Series C and the Series B, collectively the Senior Preferred Stock. All series of convertible preferred stock are collectively referred to as the Preferred Stock, each with a par value of $ 0.00001 per share. Series D-2 Offering On June 25, 2020, the Company entered into a Series D-2 Convertible Preferred Stock Purchase Agreement, or the Series D-2 Agreement, with certain investors to sell up to 24,598,481 shares of the Series D-2 stock at a purchase price of $ 0.6911 per share. The Series D-2 Agreement provides for two closings, the first on October 1, 2020, and the second upon the achievement or waiver of certain milestone events. The Company sold 14,469,710 shares of the Series D-2 on October 1, 2020, at the first tranche closing for gross proceeds of $ 10.0 million. 9 On March 5, 2021, the Company completed the second tranche of the Series D-2 offering and issued 10,128,771 shares of the Series D-2 at a purchase price of $ 0.6911 per share for gross proceeds of $ 7.0 million. Costs incurred in connection with the Series D-2 offering totaled $ 0.1 million and were recorded as a reduction of proceeds from the Series D-2. The majority of offering costs were incurred during the year ended December 31, 2020. Offering costs incurred during the nine months ended September 30, 2021, were $ 0.02 million. Series E Offering On March 18, 2021, the Company completed its Series E offering and issued 102,671,041 shares of Series E stock, $ 0.00001 par value per share, at a purchase price of $ 0.7839 per share for gross proceeds of $ 80.5 million. Costs incurred in connection with the Series E offering totaled $ 0.2 million during the nine months September 30, 2021 and were recorded as a reduction to the Series E convertible preferred stock. The rights and privileges of the Company’s Preferred Stock are as follows: Voting Except as otherwise required by law or by other provisions, holders of the Preferred Stock vote together with the holders of common stock as a single class. Holders of the Preferred Stock may cast the number of votes equal to the number of shares of common stock to which such shares of the Preferred Stock are convertible into. Dividends Series C, D, and E Dividends: From and after the date of the issuance of any shares of the Series C-1, Series C-2, Series D-1, Series D-2, and Series E, dividends at the annual rate of seven percent ( 7 %) per annum of the original share price per share accrue on such shares of the Series C-1, Series C-2, Series D-1, Series D-2, and Series E. Dividends accrue from day to day, whether or not declared, and are cumulative, but not compounding. Such dividends are only payable when and if declared by the Board of Directors (the "Board") or in the event of a Deemed Liquidation Event (as defined in the amended and restated Certificate of Incorporation). No other dividends may be declared or paid on any other class of stock unless the holders of the shares of the Series E then outstanding first receive, or simultaneously receive, their applicable dividend. As of September 30, 2021, $ 7.4 million, $ 3.2 million, $ 6.0 million, $ 1.0 million, and $ 3.0 million of cumulative dividends on the Series C-1, Series C-2, Series D-1, Series D-2, and Series E respectively, are included in the liquidation preference amount indicated on the balance sheet. Series B Dividends: From and after the date of the issuance of any shares of the Series B, dividends at the annual rate of $ 0.0869645 per share accrue on such shares of the Series B. Dividends accrue from day to day, whether or not declared, and are cumulative, but not compounding. Such dividends are only payable when and if declared by the Company’s Board or in the event of a Deemed Liquidation Event (as defined in the amended and restated Certificate of Incorporation). No other dividends may be declared or paid on any other class of stock unless the holders of the shares of the Series B then outstanding first receive, or simultaneously receive, their applicable dividend. As of September 30, 2021, $ 10.9 million of cumulative dividends on the Series B are included in the liquidation preference amount indicated on the balance sheet. Series A Dividends From and after the date of the issuance of the Series A, Series A-1, and Series A-2, if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of the Series A, Series A-1, and Series A-2 convertible preferred stock shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend. No other dividends, or dividends on common stock payable in shares of common stock, may be declared or paid unless the holders of the Series A, Series A-1, and Series A-2 then outstanding first receive, or simultaneously receive, their applicable dividend. As of September 30, 2021, no dividends have been declared on the common stock or the Preferred Stock. 10 Liquidation Rights In the event of a Deemed Liquidation Event, as defined in the Company’s amended and restated Certificate of Incorporation, the assets of the Company will be distributed first to the holders of the Series E. The holders of the Series E will receive, in preference to all other stockholders, an amount equal to the sum of the Series E original issue price (equal to the cash price paid per share of $ 0.783900 ), plus unpaid dividends on such shares. Next, the holders of the Series D will receive, in preference to all other stockholders other than the Series E, an amount equal to the sum of the Series D original issue price, plus unpaid dividends on such shares. Next, the holders of the Series C will receive, in preference to all stockholders other than the Series E and D holders, an amount equal to the sum of the Series C original issue price plus unpaid dividends on such shares. Next, the holders of the Series B will receive, in preference to the holders of the Series A, Series A-1, Series A-2 and common stock, an amount equal to the sum of the Series B original issue price plus unpaid dividends on such shares. Next, the holders of the Series A, Series A-1, and Series A-2 will receive, in preference to the holders of common stock, an amount equal to the greater of their applicable liquidation preference or what they would have received had their shares converted into common stock. If the proceeds available are not sufficient to satisfy the full liquidation preference, the entire proceeds are to be distributed pro-rata among the Series E holders in proportion to the full preferential amount the Series E holders are entitled to receive. Conversion The Senior Preferred Stock converts into common stock on a one-for- one basis . Each share of the Series B, Series C-1, Series C-2, Series D-1, Series D-2, and Series E is convertible into the number of shares of common stock as is determined by dividing the respective original issue price by the conversion price in effect at the time of conversion. The Series E conversion price is set at $ 0.7839 per share, the Series D-1 and Series D-2 conversion price is set at $ 0.6911 per share, the Series C-1 conversion price is set at $ 0.5213 per share, the Series C-2 conversion price is set at $ 0.36491 per share, and the Series B conversion price is set at $ 1.24235 per share; none represents a beneficial conversion feature. Subject to certain exceptions, the Senior Preferred Stock has the benefit of anti- dilution protection on a weighted-average basis in the event that the Company sells stock at less than the applicable conversion price per share. Each share of the Series A and Series A-1 was originally convertible into the number of shares of common stock determined by dividing the respective Series A and Series A-1 original issue price by the conversion price in effect at the time of conversion. The Series A conversion price was originally equal to $ 2.00 per share and the Series A-1 conversion price was originally equal to $ 2.4847 per share. As the Series A-2 was sold at $ 1.24235 per share, less than the per share prices of the Series A and Series A-1, anti-dilution protections were triggered. Pursuant to the anti-dilution protection terms, on February 24, 2015, the Series A conversion price was reduced from $2.00 to $ 1.8191 per share of common stock and the Series A-1 conversion price was reduced from $2.4847 to $ 2.1898 per share of common stock and, therefore, the Series A conversion ratio was changed from 1 to 1 to 1 to 1.099 and the Series A-1 conversion ratio was changed from 1 to 1 to 1 to 1.135 . The Company evaluated the Series A and Series A-1 with the updated conversion ratios and determined that there was no beneficial conversion feature. The Series A-2 converts into common stock on a one-for- one basis . The Series A-2 conversion price is set at $ 1.24235 per share and does not represent a beneficial conversion feature. According to the terms of the Company’s amended and restated Certificate of Incorporation, in the event that the applicable conversion price for any series of Senior Preferred Stock is reduced, then the applicable conversion price for each series of the Series A convertible preferred stock shall be uniformly and concurrently reduced. Each share of the Preferred Stock will automatically convert into common stock upon (a) the occurrence of an event, specified by vote or written consent of certain stockholders or (b) the completion of a public stock offering involving a price per share of common stock of not less than $ 1.554975 per share, subject to certain adjustments, where such offering results in aggregate gross proceeds to the Company of at least $ 50.0 million and the common stock is listed for trading on either the New York Stock Exchange or the Nasdaq Stock Market. The Company must reserve and keep available out of its authorized but unused capital stock such number of authorized shares of common stock to sufficiently effect the conversion of all outstanding Preferred Stock. In considering the features of the convertible preferred stock, the Company determined that none of the features, including the conversion features, requires bifurcation during the nine months ended September 30, 2021 and 2020. 11 The conversion ratios for the Series A was changed to 13.700 to 1.099 , Series A-1 was changed to 13.7 to 1.135 , and the Series A-2 through the Series E was changed to 13.7 to 1 upon the Company’s filing of its amendment to its amended and restated Certificate of Incorporation on October 22, 2021 (see Note 16). 8. Common Stock The Company had 470,183,383 and 232,697,999 authorized shares of common stock, par value $ 0.00001 per share, of which 442,717 and 381,123 shares were issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. 9. Stock-Based Compensation On January 15, 2009, the Company’s Board adopted the 2009 Long-Term Incentive Stock Option Plan (the “2009 Plan”) for the issuance of stock-based compensation to both employees and non- employees. The awards under this plan typically vest over a 24, 36 or 48-month period, depending on the option agreement and have a 10-year term. On December 12, 2018 , the 2009 Plan expired, and the Company adopted the Aura Biosciences, Inc. 2018 Equity Incentive Plan (the “2018 Plan” and collectively with the 2009 Plan, the "Plans”). No options were modified in conjunction with the expiration of the 2009 Plan. The options granted under the 2009 Plan continue to be outstanding in accordance with their original terms. The 2018 Plan will expire in 2028. Under the 2018 Plan, Aura may grant incentive stock options, non-qualified stock options, restricted and unrestricted stock awards and stock rights. The Board is authorized to administer the 2018 Plan. In accordance with the provisions of the 2018 Plan, the Board determines the terms of Aura options and other awards issued pursuant thereto, including the following:  which employees, directors and consultants shall be granted awards;  the number of shares of common stock subject to options and other awards;  the exercise price of each option, which generally shall not be less than fair market value of the common stock on the date of grant;  the termination or cancellation provisions applicable to options;  the terms and conditions of other awards, including conditions for repurchase, termination or cancellation, issue price and repurchase price; and  all other terms and conditions upon which each award may be granted in accordance with the 2018 Plan. In addition, the Board or any committee to which the Board delegates authority may, with the consent of the affected plan participants, re-price or otherwise amend outstanding awards consistent with the terms of the 2018 Plan. On March 18, 2021, the Board approved an increase to the 2018 Plan available option pool of 2,346,228 options. With this increase and the transfer of the available options from the 2009 Plan, there were 650,795 options available for grant under the 2018 Plan at September 30, 2021. The following table summarizes the combined stock option activity under the 2009 and the 2018 Plan for the nine months ended September 30, 2021: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at December 31, 2020 1,512,129 $ 3.84 7.77 $ 1,174 Granted 1,883,480 6.13 - - Exercised ( 61,594 ) 4.95 - - Cancelled or forfeited ( 169,066 ) 4.50 - - Outstanding at September 30, 2021 3,164,949 $ 5.15 8.60 $ 14,053 Exercisable at September 30, 2021 1,024,453 $ 3.85 6.75 $ 5,849 The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2021 and 2020 is $ 3.97 and $ 2.74 per share, respectively. The total intrinsic value of options exercised was $ 0.01 million and $ 0.02 million for the nine months ended September 30, 2021 and 2020, respectively. 12 The Company has elected to use the Black-Scholes option pricing model to determine the fair value of options granted and generally recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award. The determination of the fair value of stock-based payment awards utilizing the Black-Scholes option pricing model is affected by the estimated fair value of the Company’s common stock and a number of other assumptions, including expected volatility, expected life, risk-free interest rate, and expected dividends. The fair value of the stock options issued for the three and nine months ended September 30, 2021 and 2020 was measured with the following weighted-average assumptions: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Weighted average risk-free interest rate 1.00 % 0.33 % 1.06 % 0.58 % Expected term (years) 6.06 5.67 6.02 6.03 Expected volatility 73.36 % 73.71 % 74.21 % 74.16 % Expected dividend yield 0.00 % 0.00 % 0.00 % 0.00 % The Company recorded stock-based compensation expense as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Research and development $ 157 $ 47 $ 263 $ 153 General and administrative 397 144 747 404 Total $ 554 $ 191 $ 1,010 $ 557 As of September 30, 2021, there was $ 7.9 million of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.61 years. 10. Series B Warrants In February 2015 and May 2015, the Company issued warrants to purchase 1,650,098 and 887,536 shares of the Series B convertible preferred stock, respectively, at an exercise price of $ 1.24235 per share. Each Series B Warrant was immediately exercisable and expires in ten years from the original date of issuance. Pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity , the Series B Warrants were classified as a liability and are re-measured to fair value at each balance sheet date and immediately prior to exercise. The Series B Warrants were converted into warrants to purchase 12,686 shares of common stock upon the completion of the IPO in November 2021. A total of 173,827 of the Series B Warrants remained outstanding at September 30, 2021 and December 31, 2020. The warrants were valued using the Black-Scholes option pricing model. The estimated fair value of the warrants and the significant assumptions used were as follows: Series B Warrants September 30, 2021 December 30, 2021 Series B estimated fair value $ 1.12 $ 1.17 Volatility 79.50 % 74.07 % Expected term (years) 3.5 4.2 Risk free rate 0.76 % 0.27 % Dividend yield 7.00 % 7.00 % During the nine months ended September 30, 2021, the change in fair value of the warrant liability was deemed immaterial. 13 11. Compensation In January 2012, the Company adopted the Aura Biosciences 401(k) Profit Sharing Plan and Trust (the “401(k) Plan”) for its employees, which is designed to be qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the 401(k) Plan within statutory and 401(k) Plan limits. The Company makes matching contributions of 100 % of the first 6 % of employee contributions. The Company made matching contributions in the amount of $ 0.2 million and $ 0.1 million for the nine months ended September 30, 2021 and 2020, respectively. 12. Commitments and Contingencies Lease Commitments The Company has historically entered into lease arrangements for its facilities. As of December 31, 2020, the Company had one operating lease for its office and laboratory facility with required future minimum payments. The lease does not contain any options to renew, terminate, or purchase the underlying asset, and was set to expire on July 31, 2022 . As part of its adoption of ASC 842, the Company recorded a right-of-use asset and operating lease liability for this lease as of the effective date. On March 31, 2021, the Company executed an amendment to the facility lease which included an extension of the expiration date of the original leased premises, the addition of 4,516 square feet of laboratory space with an expected commencement date of May 1, 2021 , and the addition of 1,000 square feet of laboratory space with an expected commencement date of June 15, 2021 . The lease term for the original and new spaces will expire on July 31, 2023 , with an option to renew for an additional 12 months . Upon the execution of the amendment, which was deemed to be a lease modification, the Company re-evaluated the assumptions made at the original lease commencement date. The Company determined the amendment consists of two separate contracts under ASC 842. One contract is related to the modification of term for the original space, and the other is related to a new right-of-use for the two additional spaces, which are to be accounted for as new leases. The Company remeasured the lease liability and corresponding right-of-use asset for the original space as of the effective date of the amendment to reflect the extended term and recorded in the second quarter of 2021 an additional right-of-use asset and lease liability upon lease commencement of each of the additional space. The Company also leases office and laboratory equipment for which the related expense is immaterial. The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s leases for the three and nine months ended September 30, 2021 (in thousands): Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Lease Cost Financing lease costs: Amortization of finance right-of-use assets $ - $ 11 Operating lease costs 154 370 Variable lease costs 90 233 Total lease costs $ 244 $ 614 Cash paid for amounts included in the measurement of lease liability—finance leases $ 15 Cash paid for amounts included in the measurement of lease liability—operating leases $ 367 Weighted-average remaining lease term—operating leases (years) 1.83 Weighted-average discount rate—finance leases 7.94 % Weighted-average discount rate—operating leases 3.51 % 14 The following table reconciles the future minimum commitments to the Company’s operating lease liabilities at September 30, 2021 (in thousands): Operating lease payments as of September 30, 2021 2021 (excluding nine months ended September 30, 2021) $ 153 2022 625 2023 377 Total lease payments 1,155 Less: interest ( 35 ) Total operating lease liabilities at September 30, 2021 1,120 Less: current portion of lease liabilities 607 Lease liabilities, net of current portion $ 513 In May 2021, the Company paid in full its finance lease. Laser Purchasing Commitment On April 5, 2019, the Company entered into a purchase agreement for equipment with future commitments payable in three installments of € 0.2 million each. The first two installments of € 0.2 million were paid by the Company in April 2019 and August 2019. Upon receipt of the laser systems, the Company will assess whether the laser systems have an alternative future use and, if so, will capitalize the lasers as a component of fixed assets. License Agreements The Company has entered into the following key agreements that relate to the core technology under development: LI-COR Exclusive License and Supply Agreement In January 2014, the Company entered into an Exclusive License and Supply Agreement, or the LI-COR Exclusive License Agreement, with LI-COR, Inc., or LI-COR, for the license of IRDye 700DX and related licensed patents for the treatment and diagnosis of ocular cancers in humans, and as amended in January 2016, July 2017, April 2018 and April 2019. LI-COR is a related party owning shares of the Company’s capital stock. The LI-COR Exclusive License Agreement required a one-time upfront license issue fee of $ 0.1 million and requires aggregate milestone payments of up to $ 0.2 million upon certain regulatory and development milestones. The Company is also required to pay LI-COR low-single digit royalties on net sales. The term of the LI-COR Exclusive Agreement expires on a country-by-country basis, until the longer of (i) ten years from the first commercial sale of a licensed product in such country and (ii) the last to expire valid claim in such country. The Company recognized no expenses related to this agreement and related amendments for the nine months ended September 30, 2021 and 2020, respectively. LI-COR Non-Exclusive License and Supply Agreement In December 2014, the Company entered into a Non-Exclusive License Agreement, or the 2014 Non-Exclusive Agreement, for LI-COR to supply IRDye 700DX to the Company for the treatment and diagnosis of non-ocular cancers in humans. Under the 2014 Non-Exclusive Agreement, the Company paid a license issue fee of $ 0.03 million on the effective date. The Company must also pay LI-COR a non-refundable, non-creditable fee of $ 0.03 million per each licensed product upon pre-IND designation, as defined, of such licensed product. During the term, the Company must pay LI-COR low-single digit royalties on net sales. LI-COR receives 10% of all sublicensee income within 30 days of the Company’s receipt from the sublicensee. The 2014 Non-Exclusive Agreement also required the Company to make certain payments upon the achievement of specified development and commercial milestones of up to $ 0.4 million in the aggregate. 15 Life Technologies Corporation In December 2014, the Company entered into a non-exclusive, perpetual license agreement with Life Technologies Corporation, or Life Technologies, which allows the use of their HEK293 cell lines to manufacture Aura’s products. Under this agreement the Company is required to pay an initial license fee of $ 0.1 million for each product. An annual development fee of $ 0.1 million is due within a year from the payment of the initial license fee and due annually until the earlier of (i) payment of a commercialization fee or (ii) all development work is terminated. The commercialization fee is a one-time, non-refundable, non-creditable fee of $ 0.3 million due upon receipt of approval of a licensed product. In the event of a change of control of an above 50 % change in voting share, there will be a change of control fee of $ 0.2 million. The Company recorded a derivative liability due an increased probability of payment assessed in June 2021 to account for the change of control fee. Such amount was reduced to nil during the three months ended September 30, 2021 as the probability of a change of ownership above 50 % of voting shares for the pending IPO was deemed probable not to occur. During the nine months ended September 30, 2021 and 2020, the Company recognized $ 0.03 million of expenses related to this agreement. National Institute of Health (NIH)-Biologic Materials License Agreement In December 2010, the Company entered into a Biologic Materials License Agreement with National Institutes of Health, or the NIH, for a non-exclusive right to use materials described in Schiller et al., Virology 2004 Apr.10, 321(2):205-16, which required a one-time non-refundable license issuance fee of $ 0.02 million. No future milestone payments or royalties are due under this agreement. National Institute of Health (NIH)-Collaboration Research and Development Agreement In July 2011, the Company entered into a Collaboration Research and Development Agreement, or CRADA, with Dr. John Schiller at the NIH, for a period of two years with the rights to an exclusive license to all technology generated within the collaboration. Under the agreement, the Company was required to make annual payments each year to fund the research activities, with the first payment due within 30 days of the effective date and subsequent payments due within 30 days of the anniversary date. This agreement was further amended in 2012, 2013, 2014, 2015, 2016, 2018 and most recently in September of 2020. During 2011-2020, the Company paid an aggregate of $ 0.3 million in research collaboration fees, $ 0.04 million of which was paid in 2020. In September 2020, the Company executed the seventh amendment to the CRADA agreement. In this amendment the term of this agreement is extended until September 30, 2022, and the Company paid $ 0.03 million on the tenth anniversary of the CRADA agreement which occurred in July of 2021. National Institute of Health (NIH)-Exclusive Patent License Agreement In 2013, the Company entered into an exclusive patent license agreement that required the Company to pay a license issue royalty fee of $ 0.1 million and reimburse the NIH for any patent expenses incurred. Under the agreement, the Company is required to make low single-digit percentage royalty payments based on specified levels of annual net sales of licensed products subject to certain specified reductions. The Company is required to make development and regulatory milestone payments up to $ 0.7 million in the aggregate and sales milestone payments up to $ 0.6 million in the aggregate. The Company is also required to pay NIH a mid-single to low teen-digit percentage of any sublicensing revenue the Company receives. Additionally, the Company’s payment obligations to NIH are subject to an annual minimum royalty payment of low five figures. As of September 30, 2021, the Company has paid NIH approximately $ 0.4 million in aggregate milestones under the NIH license agreement. In addition to milestones under the agreement, the Company reimburses the NIH for any patent filing costs incurred. As of September 30, 2021, the Company has reimbursed the NIH approximately $ 0.3 million in aggregate. The Company accrued $ 0.03 million and $ 0.02 million in patent licensing reimbursement fees as of September 30, 2021 and December 31, 2020. In 2015, 2018 and 2019, the Company amended its exclusive patent license to include updates on the status of the commercial development and update/expand the list of licensed patents and patent applications. Each of those amendments required a $ 0.03 million payment that the Company paid. 16 Inserm In November 2009, the Company entered into an exclusive, royalty-bearing license agreement with Inserm-Transfert of France for use of its patents. The agreement expires on a country by country basis based on the last to expire of any patent encompassed within the scope of the patent rights or 10 years from the date of the first commercial sale by the Company, whichever is later. There are potential milestone payments of € 0.5 million ($ 0.5 million at December 31, 2020) in the aggregate associated with this agreement. The IND filing milestone of € 0.01 million was accrued in 2016 and paid in 2017 by the Company. The milestones for the successful Phase I, II and III clinical trials are based on receiving a final report and achieving the primary endpoints defined in that trial and those milestones have not been achieved as of September 30, 2021. Upon the sublicense by the Company of a product for which royalties are payable under this agreement, low- to mid-single-digit royalty payments would be due by the Company. If Aura sublicenses the delivery platform for use with multiple drugs, low- to mid-teen payments on receipts would be due by the Company . The non-milestone payments in this agreement are subject to an anti-stacking clause. The Company did no t incur any expense in the period ended September 30, 2021 and 2020. Clearside In July 2019, the Company entered into an exclusive license agreement with Clearside Biomedical, Inc., or Clearside, for the license of Clearside’s Suprachoroidal Microneedle Technology for use in the treatment of indeterminate lesions, and choroidal tumors. Upon execution of the license agreement, the Company paid Clearside an upfront payment of $ 0.1 million which was expensed as incurred. Under the Clearside license agreement, the Company is required to pay milestones up to $ 21.0 million in the aggregate to Clearside upon the achievement of specified regulatory and development milestones, and upon the achievement of certain commercial sales milestones The Company is also required to pay low single digit royalties on net sales. If the Company sublicenses a product for which royalties are payable, then the Company is required to pay the greater of 20 % received or low single digit royalties on net sales. The Company has made no milestone or royalty payments as of September 30, 2021. The Clearside license agreement expires on a country-by-country basis upon the later of the last to expire patent or ten years from the date of the first commercial sale of a product. 13. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is the same as basic net loss per share for the periods presented since the effects of potentially dilutive securities are antidilutive given the net loss of the Company. The Company has calculated basic and diluted net loss per share for the three and nine months ended September 30, 2021 and 2020 as follows (in thousands, except share and per share data): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Numerator: Net loss $ ( 8,838 ) $ ( 3,631 ) $ ( 23,617 ) $ ( 17,299 ) Less: Accruals of dividends of preferred stock ( 3,668 ) ( 1,948 ) ( 9,627 ) ( 5,802 ) Net loss attributable to common stockholders—basic and diluted $ ( 12,506 ) $ ( 5,579 ) $ ( 33,244 ) $ ( 23,101 ) Denominator: Weighted-average common stock outstanding 441,448 376,738 426,604 362,735 Net loss per share attributable to common stockholders— basic and diluted ( 28.33 ) ( 14.81 ) ( 77.93 ) ( 63.69 ) 17 The following potentially dilutive securities were excluded from the computation of the diluted net loss per share for the periods presented because their effect would have been antidilutive: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Convertible preferred stock on as if converted basis 22,550,561 13,260,868 22,550,561 13,260,868 Stock options to purchase common stock 3,164,949 1,412,791 3,164,949 1,412,791 Warrants to purchase preferred stock 12,686 12,686 12,686 12,686 Total potential dilutive shares 25,728,196 14,686,345 25,728,196 14,686,345 14. Income Taxes The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2021 as the Company incurred losses for the nine months ended September 30, 2021, and is forecasting additional losses through the remainder of fiscal year ending December 31, 2021, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2021. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method. Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not. As of September 30, 2021, the Company had no unrecognized income tax benefits that would reduce the Company’s effective tax rate if recognized. 15. Related Parties During the nine months ended September 30, 2021 and 2020, the Company incurred $ 0.4 million and $ 0.3 million in expenses to a stockholder that provided research and development related services. Of these amounts, $ 0.01 and $ 0.1 million were in accrued expenses as of September 30, 2021 and 2020. 16. Subsequent Events Subsequent events have been evaluated through the date of filing of the unaudited condensed financial statements. The Company has identified the following subsequent events that require disclosure: A. Election of Automatic Conversion of Preferred Stock On October 7, 2021, the required convertible preferred stockholders authorized the automatic conversion of all shares of convertible preferred stock in an initial public offering, subject to the price per share of the common stock in the Company’s sale of shares of common stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $ 75.0 million of gross proceeds to the Company and such shares being listed on the Nasdaq Stock Market, or a Public Offering, being at least $ 0.94068 (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock), (ii) subject to and effective upon the closing of the Public Offering and (iii) subject to the Public Offering being consummated no later than February 28, 2022 . B. Reverse Stock Split On October 22, 2021, the Company effected a reverse stock split of the Company’s common stock on a 1-for-13.7 basis, or the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the Company’s convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. Accordingly, all common stock share and per share amounts, for all periods presented in these condensed financial statements, have been retroactively adjusted, to reflect this reverse stock split and adjustment of the convertible preferred stock conversion ratios. 18 C. Initial Public Offering On November 2, 2021, the Company completed its IPO, in which it issued and sold 6,210,000 shares of common stock, including the full exercise of the underwriters’ option to purchase additional shares at a price to the public of $ 14.00 per share for aggregate gross proceeds of $ 86.9 million. The Company received approximately $ 77.9 million in net proceeds after deducting underwriting discounts, commissions and estimated offering expenses. D. 2021 Stock Option and Incentive Plan The 2021 Stock Option and Incentive Plan, or the 2021 Plan, was adopted by the Board on October 7, 2021, approved by the Company’s stockholders on October 22, 2021 and became effective on November 1, 2021. The 2021 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The number of shares initially reserved for issuance under the 2021 Plan was 3,352,166 , which will automatically increase on January 1, 2022 and each January 1 thereafter, by 5 % of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. The maximum number of shares of common stock that may be issued in the form of incentive stock options shall not exceed the initial limit, cumulatively increased on January 1, 2022 and on each January 1 thereafter by the lesser of the annual increase for such year or 3,352,166 shares of common stock. E. 2021 Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan, or the ESPP, was adopted by the Board on October 7, 2021, approved by the Company’s stockholders on October 22, 2021 and became effective on November 1, 2021. A total of 335,217 shares of common stock were initially reserved for issuance under this plan, which will automatically increase on January 1, 2022 and each January 1 thereafter through January 1, 2031, by the least of (i) 335,217 shares of common stock, (ii) 1 % of the outstanding number of shares of common stock on the immediately preceding December 31 or (iii) such lesser number of shares of common stock as determined by the administrator of the ESPP. 19 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. You should carefully read the “Risk Factors” section of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Overview We are a clinical-stage biotechnology company leveraging our novel targeted oncology platform to develop a potential new standard of care across multiple cancer indications, with an initial focus on ocular and urologic oncology. Our proprietary platform enables the targeting of a broad range of solid tumors using Virus-Like Particles, or VLPs, that can be conjugated with drugs or loaded with nucleic acids to create Virus-Like Drug Conjugates, or VDCs. Our VDCs are largely agnostic to tumor type and can recognize a surface marker, known as heparin sulfate proteoglycans, or HSPGs, that are specifically modified and broadly expressed on many tumors. We are focusing our initial development of VDCs to treat tumors of high unmet need in ocular and urologic oncology. AU-011, our first VDC candidate, is being developed for the first line treatment of primary choroidal melanoma, a rare disease with no drugs approved. We have completed a Phase 1b/2 trial using intravitreal administration that has demonstrated a statistically significant growth rate reduction in patients with prior active growth and high levels of tumor control with visual acuity preservation in a majority of patients, as assessed using clinical endpoints in alignment with feedback from the FDA. These data supported advancement into a Phase 2 dose escalation trial, where we are currently evaluating suprachoroidal, or SC, administration of AU-011. We plan to present six to twelve months safety and efficacy data from this trial in 2022. We intend to select the route of administration and initiate a pivotal trial in the second half of 2022. We are also developing AU-011 for additional ocular oncology indications and plan to file an IND in the United States in the second half of 2022 for choroidal metastases. Leveraging our VDCs’ broad tumor targeting capabilities, we also plan to initiate a Phase 1a trial in non-muscle invasive bladder cancer, or NMIBC, our first non-ophthalmic solid tumor indication, in the second half of 2022 and present Phase 1a data from this trial in 2023. We were incorporated as a Delaware corporation in 2009 and our headquarters are located in Cambridge, Massachusetts. Since our inception, we have focused our efforts on identifying and developing potential product candidates, conducting preclinical studies and clinical trials, organizing and staffing our company, business planning, establishing our intellectual property portfolio, raising capital, conducting discovery, research and development activities and providing general and administrative support for these operations. We do not have any product candidates approved for sale and have not generated any revenue to date. We have funded our operations primarily through the sale of convertible preferred stock, common stock, and convertible debt. From inception through September 30, 2021, we have raised an aggregate of approximately $218.5 million of gross proceeds primarily from private placements of our equity and convertible debt securities as well as through the issuance of our common stock. In November 2021, we issued and sold 6,210,000 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares at a price to the public of $14.00 per share for aggregate gross proceeds of $86.9 million in our IPO. We received approximately $77.9 million in net proceeds after deducting underwriting discounts, commissions and offering expenses We have incurred significant operating losses in every year since our inception in 2009 and have not generated any revenue. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net losses were $23.6 million and $17.3 million for the nine months ended September 30, 2021 and 2020, respectively, and $22.2 million for the year ended December 31, 2020. As of September 30, 2021, we had an accumulated deficit of $140.5 million. In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. 20 We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical studies and clinical trials of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company following the completion of the IPO. We expect that our expenses and capital requirements will increase substantially if and as we:  conduct our current and future clinical trials of AU-011;  progress the preclinical and clinical development of new indications;  establish our manufacturing capability, including developing our contract development and manufacturing relationships;  seek to identify and develop additional product candidates;  seek regulatory approval of our current and future product candidates;  expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, manufacturing and commercialization efforts;  maintain, expand and protect our intellectual property portfolio; and  incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain marketing approval for our product candidates. The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any delay or failure to obtain regulatory approvals would materially adversely affect the development efforts of our product candidates and our business overall. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2021, we had cash and cash equivalents of $82.0 million. In November 2021, we issued and sold 6,210,000 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares at a price to the public of $14.00 per share for aggregate gross proceeds of $86.9 million in our IPO. We received approximately $77.9 million in net proceeds after deducting underwriting discounts, commissions and estimated offering expenses. We believe that the anticipated net proceeds from the IPO, together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources” below. Impact of the COVID-19 Pandemic The COVID-19 pandemic continues to present substantial public health and economic challenges around the world, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by federal, state or local authorities. In addition, we have taken steps to minimize the current environment’s impact on our business and strategy, including devising contingency plans and securing additional resources from third party service providers. For the safety of our employees and families, we have introduced enhanced safety measures for scientists to be present in our labs and increased the use of third party service providers for the conduct of certain experiments and studies for research programs. To date, we’ve only encountered minor delays in our manufacturing process due to a supply chain constraint with one of our vendors. 21 Beyond the impact on our pipeline, the extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the emergence of new variants, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others. If we or any of the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, results of operations and financial condition. Although to date, our business has not been materially impacted by COVID-19, it is possible that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. See “Risk Factors” for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations. Components of Our Results of Operations Revenue Since inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for one or more of our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements. We cannot predict if, and when, or to what extent, we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our AU-011 program, and include:  employee-related expenses, including salaries, related-benefits and stock-based compensation expense for employees engaged in research and development functions;  fees paid to consultants for services directly related to our product development and regulatory efforts;  expenses associated with conducting preclinical studies performed by ourselves, outside vendors or academic collaborators;  expenses incurred under agreements with contract research organizations, or CROs, as well as consultants that conduct and provide supplies for our preclinical studies and clinical trials;  the cost of manufacturing AU-011, including the potential cost of CMOs that manufacture product for use in our preclinical studies and clinical trials and perform analytical testing, scale-up and other services in connection with our development activities;  costs associated with preclinical activities and development activities;  costs associated with our intellectual property portfolio;  costs related to compliance with regulatory requirements; and  allocated expenses for utilities and other facility-related costs. We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses. We allocate our direct external research and development costs across the entire AU-011 program. Preclinical expenses consist of external research and development costs associated with activities to support our current and future clinical programs, but are not allocated by specific indications due to the overlap of the potential benefit of those efforts across the entire AU-011 program. Research and development activities are central to our business. We expect that our research and development expenses will increase for the foreseeable future as we continue clinical development for AU-011 and continue to discover and develop additional product candidates. If any of our product candidates enter into later stages of clinical development, they will 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. 22 General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive and finance functions. General and administrative expenses also include professional fees for legal, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include allocated expenses for rent and maintenance of facilities and other operating costs not included in research and development. We expect that our general and administrative expenses will increase in the near-term as we continue to build a team to support our administrative, accounting and finance, communications, legal and business development efforts. Following this offering, we expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services; director and officer insurance costs; and investor and public relations costs. Other Income (Expense) Our other income (expense) consists of changes in the fair value of our warrant liability and derivative, gain/loss on disposal of fixed assets, and interest income on our invested cash balances. Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to the uncertainty of realizing a benefit from those items. As of December 31, 2020, we had federal and state gross operating loss carryforwards of $106.1 million and $89.3 million, respectively, which may be used to offset future taxable income, if any. Federal gross operating loss carryforwards of $44.2 million begin to expire in 2029 and go through 2037 and federal gross operating loss carryforwards of $61.9 million do not expire. The state gross operating loss carryforwards begin to expire in 2030. As of December 31, 2020, we had federal and state research and development tax credit carryforwards of $3.8 million and $1.1 million, respectively, which may be used to offset future income tax liabilities and begin to expire in 2029 and 2027, respectively. Due to the degree of uncertainty related to the ultimate use of the deferred tax assets, we have fully reserved these tax benefits, as the determination of the realization of the deferred tax benefits was not determined to be more likely than not. Results of Operations Comparison of the Three Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Change (in thousands) Operating expenses: Research and development $ 6,365 $ 2,850 $ 3,515 General and administrative 2,530 781 1,749 Total operating expenses 8,895 3,631 5,264 Loss from operations (8,895 ) (3,631 ) (5,264 ) Other income (expense): Change in fair value of derivative liability 52 - 52 Interest income, including amortization of discount 5 - 5 Total other income (expense) 57 - 57 Net loss and comprehensive loss $ (8,838 ) $ (3,631 ) $ (5,207 ) 23 Research and Development Expenses The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Change (in thousands) Preclinical $ 489 $ 655 $ (166 ) Clinical trials 950 613 337 Manufacturing development 1,376 (85 ) 1,461 Personnel/overhead expenses 3,550 1,667 1,883 Total research and development expenses $ 6,365 $ 2,850 $ 3,515 Research and development expenses increased to $6.4 million for the three months ended September 30, 2021 from $2.9 million for the three months ended September 30, 2020, primarily due to progression of clinical trials and ongoing manufacturing development costs for AU-011. In addition, research and development expenses related to personnel increased from growing headcount due to the progression of clinical trials . General and Administrative Expenses General and administrative expenses increased to $2.5 million for the three months ended September 30, 2021 from $0.8 million for the three months ended September 30, 2020. General and administrative expenses include $0.4 million and $0.1 million of stock-based compensation for the three months ended September 30, 2021 and 2020, respectively. The increase was primarily related to an increase in personnel expenses due to an increase in headcount, as well as general increases in audit, legal, consulting and facilities expenses in anticipation of becoming a public company. Comparison of the Nine Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Change (in thousands) Operating expenses: Research and development $ 17,182 $ 14,499 $ 2,683 General and administrative 6,441 2,798 3,643 Total operating expenses 23,623 17,297 6,326 Loss from operations (23,623 ) (17,297 ) (6,326 ) Other income (expense): Change in fair value of warrant liability 1 - 1 Interest income (expense), including amortization of discount 8 (2 ) 10 Loss from disposal of assets (3 ) - (3 ) Total other income (expense) 6 (2 ) 8 Net loss and comprehensive loss $ (23,617 ) $ (17,299 ) $ (6,318 ) Research and Development Expenses The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Change (in thousands) Preclinical $ 759 $ 2,078 $ (1,319 ) Clinical trials 2,441 2,458 (17 ) Manufacturing development 5,587 4,238 1,349 Personnel/overhead expenses 8,395 5,725 2,670 Total research and development expenses $ 17,182 $ 14,499 $ 2,683 24 Research and development expenses increased to $17.2 million for the nine months ended September 30, 2021 from $14.5 million for the nine months ended September 30, 2020, due to ongoing manufacturing development costs for AU-011 and higher personnel expenses from growing headcount due to the progression of clinical trials. General and Administrative Expenses General and administrative expenses increased to $6.4 million for the nine months ended September 30, 2021 from $2.8 million for the nine months ended September 30, 2020. General and administrative expenses include $0.7 million and $0.4 million of stock-based compensation for the nine months ended September 30, 2021 and 2020, respectively. The increase was primarily related to an increase in personnel expenses due to an increase in headcount, as well as general increases in audit, legal, consulting and facilities expenses in anticipation of becoming a public company. Liquidity and Capital Resources To date we have funded our operations primarily through the sale of convertible preferred stock, common stock, and convertible debt. Through September 30, 2021, we have raised an aggregate of approximately $218.5 million of gross proceeds primarily from private placements of our equity and convertible debt securities and warrants, as well as through the issuance of our common stock. In November 2021, we issued and sold a total of 6,210,000 shares in our IPO of our common stock, including the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $14.00 per share for aggregate gross proceeds of $86.9 million. We received approximately $77.9 million in net proceeds after deducting underwriting discounts, commissions and estimated offering expenses. As of September 30, 2021, we had cash and cash equivalents of $82.0 million and an accumulated deficit of $140.5 million. Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized our product candidate for any of its multiple indications, which is in various phases of preclinical and clinical development, depending on the indication, and we do not expect to generate revenue from sales of any products for the foreseeable future, if at all. Since our inception we have incurred losses and negative cash flows from operations and expect these conditions to continue for the foreseeable future. Cash Flows The following table summarizes our cash flows for each of the periods presented: Nine Months Ended September 30, 2021 2020 (in thousands) Net cash used in operating activities $ (20,324 ) $ (20,564 ) Net cash used in investing activities (1,306 ) (639 ) Net cash provided by financing activities 86,117 4,903 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 64,487 $ (16,300 ) Operating Activities During the nine months ended September 30, 2021, net cash used in operating activities was $20.3 million, primarily due to our net loss of $23.6 million partially offset by the non-cash charge related to stock compensation expense of $1.0 million and an increase in accrued expenses and other liabilities related to personnel expenses and clinical trials. During the nine months ended September 30, 2020, net cash used in operating activities was $20.6 million, primarily due to our net loss of $17.3 million and a decrease in accrued expenses and other liabilities and accounts payable due to growth in our business, the advancement of our product candidates, and the timing of vendor invoicing and payments partially offset by non-cash charges related to $0.5 million in stock-based compensation expense. Investing Activities Net cash used in investing activities during the nine months ended September 30, 2021 and 2020 was $1.3 million and $0.6 million, respectively, due to purchases of property and equipment. 25 Financing Activities During the nine months ended September 30, 2021, net cash provided by financing activities was $86.1 million from net proceeds from the sale of Series E and second tranche of the Series D-2 and proceeds from stock options exercises, offset by payments made for deferred offering costs. During the nine months ended September 30, 2020, net cash provided by financing activities was $4.9 million from the advanced net proceeds from the sale of the first tranche of the Series D-2 which was issued in October 2020 and proceeds from stock option exercises. Funding Requirements Our plan of operation is to continue implementing our business strategy, continue research and development of AU-011 and any other product candidates we may acquire or develop and continue to expand our research pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our current and future product candidates. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or terminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including:  the scope, timing, progress, costs, and results of discovery, preclinical development, and clinical trials for our current and future product candidates;  the number of clinical trials required for regulatory approval of our current and future product candidates;  the costs, timing, and outcome of regulatory review of any of our current and future product candidates;  the cost of manufacturing clinical and commercial supplies of our current and future product candidates;  the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;  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, including any claims by third parties that we are infringing upon their intellectual property rights;  our ability to maintain existing, and establish new, strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;  the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;  expenses to attract, hire and retain, skilled personnel;  the costs of operating as a public company;  our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payers;  addressing any potential interruptions or delays resulting from factors related to the COVID-19 pandemic;  the effect of competing technological and market developments; and  the extent to which we acquire or invest in businesses, products, and technologies. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. As of September 30, 2021, we had cash and cash equivalents of $82.0 million. In November 2021, we issued and sold 6,210,000 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares at a price to the public of $14.00 per share for aggregate gross proceeds of $86.9 million in our IPO. We received approximately $77.9 million in net proceeds after deducting underwriting discounts, commissions and offering expenses. Based on our research and development plans, we believe that our existing cash and cash equivalents, will be sufficient to fund our operations into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. 26 Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, or other capital which comes in the form of strategic collaborations, licensing, or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us, or at all. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders. Debt financing or preferred equity financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations. If we raise funds through strategic collaboration, licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2020. Payments Due by Period Total Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years (in thousands) Operating lease commitments(1) $ 571 $ 360 $ 211 $ — $ — Total $ 571 $ 360 $ 211 $ — $ — (1) Amounts in the table above reflect payments due for our lease of office space in Cambridge, Massachusetts, that expires in July 2023. There were no material changes to our contractual obligations and commitments during the nine months ended September 30, 2021, from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on November 1, 2021. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in greater detail in Note 2 to our annual financial statements included in the final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on November 1, 2021, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our condensed financial statements. Research and Development Costs We expense all costs in performing research and development activities in the periods in which they are incurred. Research and development expenses include salaries and benefits, stock-based compensation expense, lab supplies and facility costs, as well as fees paid to nonemployees and entities that conduct certain research and development activities on our behalf and expenses incurred in connection with license agreements. Non-refundable advance payments for goods or services that will be used for rendered or future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. 27 As part of the process of preparing our condensed financial statements, we are required to estimate our accrued research and development expenses. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. Stock-Based Compensation We account for our stock-based compensation as expense in the statements of operations and comprehensive loss based on the awards’ grant date fair values. We account for forfeitures as they occur by reversing any expense recognized for unvested awards. We estimate the fair value of options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Due to the lack of a public market for our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to us, including stage of product development and life science industry focus. We use the simplified method as allowed by the SEC, Staff Accounting Bulletin, or SAB, No. 107, Share-Based Payment , to calculate the expected term for options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock. The fair value of stock-based payments is recognized as expense over the requisite service period which is generally the vesting period. Determination of the Fair Value of Common Stock As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our Board, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the option grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our common stock valuations were prepared using either an option pricing method, or OPM, or a hybrid method, both of which used market approaches to estimate our enterprise value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $4.25 per share as of December 6, 2019, $4.38 per share as of August 25, 2020 and December 31, 2020, $5.48 per share as of March 15, 2021 and $9.59 per share as of August 31, 2021. 28 In addition to considering the results of these third-party valuations, our Board considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:  the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;  the progress of our research and development programs, including the status and results of preclinical studies for our product candidates;  our stage of development and commercialization and our business strategy;  external market conditions affecting the biotechnology industry and trends within the biotechnology industry;  our financial position, including cash on hand, and our historical and forecasted performance and operating results;  the lack of an active public market for our common stock and our preferred stock;  the likelihood of achieving a liquidity event, such as an initial public offering, or sale of our company in light of prevailing market conditions; and  the analysis of initial public offerings and the market performance of similar companies in the biotechnology industry. The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. The fair value of our common stock is determined based on the quoted market price of our common stock on the date of option grant. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. Recent Accounting Pronouncements We early adopted ASU No. 2016-02, Leases (Topic 842) effective January 1, 2021 as disclosed in Note 2 to our condensed financial statements. The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $0.6 million and operating lease right-of-use assets of $0.5 million and the derecognition of deferred rent liabilities of $0.02 million on our balance sheet as of January 1, 2021. A description of recently issued accounting pronouncements not yet adopted that may potentially impact our financial position and results of operations is also disclosed in Note 2 to our annual financial statements included in the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on November 1, 2021. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits that an “emerging growth company” may take advantage of the extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act. However, we did early adopt ASU No. 2016-02, Leases ( Topic 842 ) effective January 1, 2021 as disclosed in Note 2 to our condensed financial statements. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b). We will remain an “emerging growth company” until the earliest of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of our IPO. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. 29