Aura Biosciences, Inc. 10-Q

Item 1. Financial Statements. Aura Biosciences, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share and per share amounts) June 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 53,849 $ 149,063 Marketable securities 68,282 — Restricted cash and deposits 28 23 Prepaid expenses and other current assets 5,510 4,618 Total current assets 127,669 153,704 Restricted cash and deposits, net of current portion 893 125 Right of use assets - operating lease 656 950 Property and equipment, net 5,803 5,251 Total Assets $ 135,021 $ 160,030 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable 1,198 2,401 Short-term operating lease liability 633 615 Accrued expenses and other current liabilities 3,981 4,256 Total current liabilities 5,812 7,272 Long-term operating lease liability 51 360 Warrant liability 67 83 Total Liabilities 5,930 7,715 Commitments and Contingencies (Note 12) Stockholders’ Equity: Common stock, $ 0.00001 par value, 150,000,000 authorized at June 30, 2022 and December 31, 2021, and 29,266,848 and 29,211,643 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively — — Additional paid-in capital 307,659 304,452 Accumulated deficit ( 178,440 ) ( 152,137 ) Accumulated other comprehensive loss ( 128 ) — Total Stockholders’ Equity 129,091 152,315 Total Liabilities and Stockholders’ Equity $ 135,021 $ 160,030 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 Aura Biosciences, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating Expenses: Research and development $ 9,510 $ 6,632 $ 17,786 $ 10,817 General and administrative 4,306 $ 2,169 8,841 3,911 Total operating expenses 13,816 8,801 26,627 14,728 Total operating loss ( 13,816 ) ( 8,801 ) ( 26,627 ) ( 14,728 ) Other income (expense): Change in fair value of warrant liability 61 ( 3 ) 16 1 Change in fair value of derivative liability — ( 52 ) — ( 52 ) Interest income, including amortization and accretion income 292 4 319 3 Other expense ( 5 ) — ( 11 ) ( 3 ) Total other income (expense) 348 ( 51 ) 324 ( 51 ) Net loss ( 13,468 ) ( 8,852 ) ( 26,303 ) ( 14,779 ) Net loss attributable to common stockholders—basic and diluted (Note 13) ( 13,468 ) ( 12,480 ) ( 26,303 ) ( 20,738 ) Net loss per share attributable to common stockholders—basic and diluted ( 0.46 ) ( 28.53 ) ( 0.90 ) ( 49.49 ) Weighted average common stock outstanding—basic and diluted 29,251,480 437,464 29,232,661 419,059 Comprehensive loss: Net loss $ ( 13,468 ) $ ( 8,852 ) $ ( 26,303 ) $ ( 14,779 ) Other comprehensive items: Unrealized loss on marketable securities ( 123 ) — ( 128 ) — Total other comprehensive loss ( 123 ) — ( 128 ) — Total comprehensive loss $ ( 13,591 ) $ ( 8,852 ) $ ( 26,431 ) $ ( 14,779 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Aura Biosciences, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (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, 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 $ 232 — — — — — — — — — — — — 102,671,041 80,251 — — — — — 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 $ 80,251 435,419 $ — $ 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 $ 80,251 439,068 $ — $ 8,914 $ ( 131,665 ) $ ( 122,751 ) Additional Accumulated Total Common Stock Paid-In Accumulated Other Comprehensive Stockholders’ Shares Amount Capital Deficit Loss Amount Equity Balance, December 31, 2021 29,211,643 $ — $ 304,452 $ ( 152,137 ) $ — $ 152,315 Stock-based compensation expense — — 1,594 — — 1,594 Stock option exercises 5,593 — 17 — — 17 Unrealized loss on marketable securities — — — — ( 5 ) ( 5 ) Net loss — — — ( 12,835 ) — ( 12,835 ) Balance, March 31, 2022 29,217,236 $ — $ 306,063 $ ( 164,972 ) $ ( 5 ) $ 141,086 Stock-based compensation expense — — 1,287 — — 1,287 Stock option exercises 49,612 — 309 — — 309 Unrealized loss on marketable securities — — — — ( 123 ) ( 123 ) Net loss — — — ( 13,468 ) — ( 13,468 ) Balance, June 30, 2022 29,266,848 $ — $ 307,659 $ ( 178,440 ) $ ( 128 ) $ 129,091 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Aura Biosciences, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 26,303 ) $ ( 14,779 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 552 385 Change in fair value of warrant liability ( 16 ) ( 1 ) Change in fair value of derivative liability — 52 Stock-based compensation expense 2,881 456 Accretion on marketable securities ( 143 ) — Other ( 4 ) ( 1 ) Changes in operating assets and liabilities: Prepaid expenses and other assets ( 892 ) 396 Accounts payable ( 1,515 ) 1,612 Accrued expenses and other liabilities ( 388 ) 246 Net cash used in operating activities ( 25,828 ) ( 11,634 ) Cash flows from investing activities: Purchases of property and equipment ( 673 ) ( 733 ) Purchase of marketable securities ( 71,266 ) — Maturities of marketable securities 3,000 — Net cash used in investing activities ( 68,939 ) ( 733 ) Cash flows from financing activities: Proceeds from exercise of stock options 326 285 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 Payment made for deferred offering costs — ( 280 ) Net cash provided by financing activities 326 87,233 Net (decrease) increase in cash, cash equivalents and restricted cash ( 94,441 ) 74,866 Cash, cash equivalents and restricted cash at beginning of period 149,211 17,487 Cash, cash equivalents and restricted cash at end of period $ 54,770 $ 92,353 Supplemental disclosure of cash flow information: Purchases of property and equipment in accounts payable and accrued expenses and other liabilities $ 426 $ 152 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 Deferred offering costs in accounts payable $ — $ 55 The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands): Six Months Ended June 30, 2022 2021 Cash and cash equivalents, end of period $ 53,849 $ 92,197 Short-term restricted cash, end of period 28 31 Long-term restricted cash, end of period 893 125 Cash, cash equivalents and restricted cash at end of period $ 54,770 $ 92,353 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Aura Biosciences, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business Aura Biosciences, Inc. (the “Company” or “Aura”) 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 unaudited condensed consolidated financial statements, unless the context otherwise requires, references to the Company or Aura refer to Aura Biosciences, Inc and its subsidiary on a consolidated basis. The Company’s proprietary platform enables the targeting of a broad range of solid tumors using Virus-Like Particles, or VLPs, that are manufactured using standard recombinant protein technology. These synthetic VLPs 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 belzupacap sarotalocan, 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 belzupacap sarotalocan for additional ocular oncology indications, including choroidal metastases, and in non-muscle invasive bladder cancer, or NMIBC. 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 Boston, 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. 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 unaudited condensed consolidated financial statements, have been retroactively adjusted, to reflect this reverse stock split and adjustment of the convertible preferred stock conversion ratios. Initial Public Offering 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 $ 78.3 million in net proceeds after deducting underwriting discounts, commissions and offering expenses. Liquidity Through June 30, 2022, the Company has funded its operations primarily with proceeds from the initial closing and additional closings of its convertible preferred stock financings, through its license agreements, and through its IPO. The Company has incurred recurring losses and negative operating cash flows from operations since its inception, including net losses of $ 26.3 million and $ 14.8 million for the six months ended June 30, 2022 and 2021 , respectively. As of June 30, 2022, the Company had cash and cash equivalents and marketable securities of $ 122.1 million and an accumulated deficit of $ 178.4 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these unaudited condensed consolidated financial statements for the six months ended June 30, 2022 , the Company expects that its cash and cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of these condensed consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations. 5 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated 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 consolidated 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. The financial data and other information disclosed in these notes related to the three months and six months ended June 30, 2022 and 2021 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, 2022. Certain information and footnote disclosures normally included in annual consolidated 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 consolidated financial statements are read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K. Significant Accounting Policies The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2021, in the Company's Annual Report on Form 10-K filed with the SEC on March 23, 2022. There have been no changes to the Company's significant accounting policies except as noted below. Marketable Securities All marketable securities have original maturities greater than 90 days. The Company has classified its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of marketable securities to be available-for-sale. Accordingly, these investments are recorded at fair value. Unrealized gains and losses are reported as the accumulated other comprehensive items in stockholders’ equity. Amortization and accretion of premiums and discounts are recorded in other income (expense) within the consolidated statements of operations and comprehensive loss. Realized gains or losses are included in interest income or interest expense, respectively. If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence such as industry, financial inputs, and capital markets data to evaluate the extent to which the decline is other than temporary and, if so, marks the investment to market on the Company’s condensed consolidated statement of operations and comprehensive loss. Recently Adopted Accounting Pronouncements The Company assessed the recent accounting pronouncements for the six months ended June 30, 2022 and determined no pronouncements have material impact to the condensed consolidated financial statements. Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which was subsequently amended in November 2018 through ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financing receivables, debt securities and other instruments, which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. ASU No. 2018-19 further clarifies that receivables arising from operating leases are not within the scope of Topic 326. Instead, impairment from receivables of operating leases should be accounted for in accordance with Topic 842, Leases. As per the latest ASU 2020-02, FASB deferred the timelines for certain small public and private entities, thus the new guidance will be adopted by the Company for the annual reporting period beginning January 1, 2023, including interim periods within that annual reporting period. The standard will apply as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company does not expect adoption of this new guidance to have a material impact on its results of operations, financial condition, and financial statement disclosures. 6 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 June 30, 2022 and December 31, 2021 (in thousands): Description June 30, 2022 Quoted prices active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant other observable inputs (Level 3) Financial assets Cash equivalents: Money market funds $ 50,851 $ 50,851 $ — $ — Marketable securities: Commercial paper 30,735 — 30,735 — Corporate bonds 20,580 — 20,580 — U.S. Government agencies 16,967 — 16,967 — Total financial assets $ 119,133 $ 50,851 $ 68,282 $ — Financial liabilities Warrant Liability $ 67 $ — $ — $ 67 Total financial liabilities $ 67 $ — $ — $ 67 Description December 31, 2021 Quoted prices active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant other observable inputs (Level 3) Financial assets Cash equivalents: Money market funds $ 24,063 $ 24,063 $ — $ — Total financial assets $ 24,063 $ 24,063 $ — $ — Financial liabilities Warrant Liability $ 83 $ — $ — $ 83 Total financial liabilities $ 83 $ — $ — $ 83 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 six months ended June 30, 2022 and 2021, t here were no transfers into or out of Level 3. The following table set forth a summary of changes in the fair value of the common stock 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 unaudited condensed consolidated statements of operations and comprehensive loss (in thousands): Common Stock ( 12,686 warrants) Fair value at December 31, 2021 $ 83 Change in fair value ( 16 ) Fair value at June 30, 2022 $ 67 7 4. Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): June 30, 2022 December 31, 2021 Assets under construction $ 2,179 $ 2,365 IT equipment 85 85 Leasehold improvements 13 13 Lab equipment 6,751 5,489 Office furniture 63 63 $ 9,091 $ 8,015 Less—accumulated depreciation ( 3,288 ) ( 2,764 ) Property and equipment, net $ 5,803 $ 5,251 Depreciation expense wa s $ 0.3 million and $ 0.2 million for the three months ended June 30, 2022 and 2021 , respectively. Depreciation expense was $ 0.6 million an d $ 0.4 million for the six months ended June 30, 2022 and 2021 , respectively. 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): June 30, 2022 December 31, 2021 Prepaid insurance $ 1,083 $ 2,734 Prepaid research and development expenses 4,118 1,754 Prepaid license agreements 48 64 Other 261 66 Prepaid expenses and other current assets $ 5,510 $ 4,618 6. Marketable Securities Marketable securities consist of the following (in thousands): June 30, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Commercial paper $ 30,735 $ — $ — $ 30,735 Corporate bonds 20,686 — ( 106 ) $ 20,580 U.S. Government agencies 16,989 — ( 22 ) $ 16,967 Total $ 68,410 $ — $ ( 128 ) $ 68,282 There were no impairments of the Company’s assets measured and carried at fair value dur ing the six months ended June 30, 2022 . 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): June 30, 2022 December 31, 2021 Accrued research and development expenses $ 1,594 $ 1,686 Accrued compensation 1,887 2,147 Other 500 423 Accrued expenses and other current liabilities $ 3,981 $ 4,256 8 8. Equity The Company had 150,000,000 authorized shares of common stock, par value $ 0.00001 per share, of which 29,266,848 and 29,211,643 shares were issued and outstanding at June 30, 2022 and December 31, 2021, respectively. Upon closing of the IPO on November 2, 2021, all of the Company's outstanding shares of convertible preferred stock automatically converted into 22,550,561 shares of common stock. In addition, the Company authorized 10,000,000 shares of preferred stock, par value $ 0.00001 per share, all of which shares of preferred stock will be undesignated. 9. Stock-Based Compensation 2018 Stock Option and Incentive Plan On December 12, 2018, the Company adopted the Aura Biosciences, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). 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 right. The Board of Directors (the "Board") has determined not to make any further awards under the 2018 Plan as of November 2, 2021. However, the 2018 Plan will continue to govern outstanding equity awards granted thereunder. 2021 Stock Option and Incentive Plan The 2021 Stock Option and Incentive Plan, (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 increased on January 1, 2022 and will continue to increase 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. On January 1, 2022, the shares reserved for issuance was increased to 4,812,748 shares. 2021 Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan, (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 increased on January 1, 2022 and will continue to increase 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. On January 1, 2022, the shares reserved for issuance was increased to 627,333 shares. Stock Options With the transfer of the available options from the 2018 Plan to the 2021 Plan, there were 3,570,917 options available for grant under the 2021 Plan at June 30, 2022. The Board is authorized to administer the 2021 Plan. In accordance with the provisions of the 2021 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. 9 In addition, the Board may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. 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 2021 Plan. The following table summarizes stock option activity under the 2018 Plan and 2021 Plan for the six months ended June 30, 2022: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 4,232,991 $ 7.43 8.66 $ 40,437 Granted 269,997 17.38 Exercised ( 55,205 ) 5.90 Cancelled/Forfeited ( 312,571 ) 11.06 Outstanding at June 30, 2022 4,135,212 $ 7.82 8.32 $ 27,145 Exercisable at June 30, 2022 1,457,054 $ 4.18 6.89 $ 14,575 The weighted-average grant date fair value of stock options granted during the six months ended June 30, 2022 and 2021 was $ 11.56 and $ 3.56 per share, respectively. The fair value of options vested during the six months ended June 30, 2022 and 2021 was $ 1.2 million and $ 0.5 million, respectively. The total intrinsic value of options exercised was $ 0.6 million and $ 0.01 million for the six months ended June 30, 2022 and 2021, respectively. 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 six months ended June 30, 2022 and 2021 was measured with the following weighted-average assumptions: Six Months Ended June 30, Three Months Ended June 30, 2022 2021 Risk-free interest rate 2.53 % 1.07 % 3.09 % 1.07 % Expected term (years) 5.90 6.01 5.84 6.01 Expected volatility of the underlying stock 75.44 % 74.37 % 76.85 % 74.43 % Expected dividend rate — % — % — % — % Restricted Stock Units The Company has granted restricted stock units with service-based vesting conditions. Unvested shares of restricted common stock may not be sold or transferred by the holder. A summary of the restricted stock units activity during the six months ended June 30, 2022 is as follows: 10 Restricted Stock Units Weighted- Average Grant Date Fair Value Unvested at December 31, 2021 231,920 $ 14.00 Forfeited ( 24,987 ) 14.00 Unvested at June 30, 2022 206,933 $ 14.00 As a result of the 2021 Equity Incentive Plan, the Company granted restricted stock units which vest in increments of 25 % annually over a period of four years . No restricted stock units vested during the six months ended June 30, 2022. Stock-based Compensation Expense The Company recorded stock-based compensation expense as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Research and development $ 465 $ 62 $ 1,020 $ 106 General and administrative 822 $ 209 1,861 350 Total $ 1,287 $ 271 $ 2,881 $ 456 As of June 30, 2022 , there was $ 14.9 million of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.87 years. As of June 30, 2022 , there was $ 2.4 million of unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted-average period of 3.33 years. 10. Common Stock Warrants In February 2015 and May 2015, the Company issued warrants to purchase 1,650,098 and 887,536 shares of Series B convertible preferred stock, respectively, at an exercise price of $ 1.24235 per share (the "Series B Warrants"). Each Series B Warrant was immediately exercisable and expires 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. A total of 173,827 of the Series B Warrants were outstanding as of June 30, 2021. The Series B Warrants were converted into warrants to purchase 12,686 shares of common stock with an exercise price of $ 17.03 upon the completion of the IPO in November 2021. A total of 12,686 of the common stock warrants remained outstanding as of June 30, 2022. 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: Common Stock Warrants June 30, 2022 Fair value $ 14.17 Volatility 85.11 % Expected term (years) 2.66 Risk free rate 2.99 % Dividend yield 7.00 % 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 $ 0.3 m illion and $ 0.1 million for the six months ended June 30, 2022 and 2021 , respectively. 11 12. Commitments and Contingencies Lease Commitments The Company has historically entered into lease arrangements for its facilities. The Company has 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. 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 a commencement date of May 1, 2021 , and the addition of 1,000 square feet of laboratory space with a 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. On May 16, 2022, the Company entered into an office and laboratory lease in Boston, MA with an initial 10 -year term and one renewal option to extend the lease for an additional seven years . Estimated payments due under the initial term total $ 35.2 million. The lease requires a letter of credit totaling $ 0.8 million which is classified as long-term restricted cash and deposits on the condensed consolidated balance sheet. The landlord will reimburse the Company up to $ 0.5 million for certain costs related to expansion of the laboratory space. As of June 30, 2022, the Company has not received access to the space and construction plans have not started. In addition, as of June 30, 2020, there are no right of use assets and lease liabilities on the condensed consolidated balance sheet. The term of the lease commenced on August 1, 2022 . 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 six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Lease Cost Amortization of finance right-of-use assets $ — $ 3 $ — $ 11 Operating lease costs 155 129 309 216 Variable lease costs 161 76 337 142 Short-term lease costs 2 — 4 — Total lease costs $ 318 $ 208 $ 650 $ 369 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 $ 305 $ 214 Weighted-average remaining lease term—finance leases (years) — — Weighted-average remaining lease term—operating leases (years) 1.08 2.08 Weighted-average discount rate—finance leases — 7.94 % Weighted-average discount rate—operating leases 3.51 % 3.51 % 12 The following table reconciles the future minimum commitments to the Company’s operating lease liabilities at June 30, 2022 (in thousands): The table does not include the Boston lease entered into as the lease commenced on August 1, 2022. Operating lease payments as of June 30, 2022 2022 $ 319 2023 377 Thereafter — Total lease payments 696 Less: interest ( 12 ) Total operating lease liabilities at June 30, 2022 684 Less: current portion of lease liabilities 633 Lease liabilities, net of current portion $ 51 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. (LI-COR) for the license of IRDye 700DC and related licensed patents for the treatment and diagnosis of ocular cancers in humans as amended in January 2016, July 2017, April 2018 and April 2019. The LI-COR Exclusive License Agreement required a one-time upfront license issue fee of $ 0.1 million and 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 three and six months ended June 30, 2022 and 2021, respectively. 13 LI-COR Non-Exclusive License and Supply Agreement In December 2014, the Company entered into a Non-Exclusive License Agreement with LI-COR for the supply of IRDye 700DX to the Company for the treatment and diagnosis of non-ocular solid tumor cancers in humans. Under the 2014 Non-Exclusive, 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, aggregate milestone payments of up to $ 0.3 million upon certain regulatory and development milestones; and during the term, the Company must pay LI-COR a low-single digit percentage royalty 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 aggregate. During the six months ended June 30, 2022 and 2021, the Company recognized immaterial milestones related to this agreement. Life Technologies Corporation In December 2014, the Company entered into a non-exclusive, perpetual license agreement with Life Technologies Corporation (“Life Technologies”), which allows for five licensed 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 payment of the initial license fee and due annually or 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, there will be a change of control fee of $ 0.2 million. In January 2022, the Company entered into the First Amendment to the non-exclusive, perpetual license agreement with Life Technologies for use of the license in an additional indication. The cost of this amendment was a one-time fee of $ 0.05 million. During the six months ended June 30, 2022 and 2021 , the Company recognized $ 0.05 million and $ 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 NIH for a non-exclusive right to use materials described in Schiller et al., Virology 2004 Apr.10, 321(2):205-16. This agreement 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 (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 this agreement, the Company is required to make annual payments of $ 0.03 million to fund the research activities, the first payment of which was paid within 30 days of the effective date. Subsequent payments are due within 30 days of the anniversary of the effective date. This agreement was first amended in 2012, 2013, 2014, 2015, 2016, 2018 and most recently in September of 2020. During the six months ended June 30, 2022 and 2021, the Company paid $ nil million and $ 0.03 million of research collaboration fees related to this agreement. A seventh amendment was made in October 2020, requiring payment of $ 0.04 million within 30 days of October 1, 2020, and another $ 0.03 million within 30 days of the 10th anniversary of the CRADA, which was paid in July 2021. This seventh amendment extended the term of the CRADA to September 30, 2022. The Company recognized no milestones related to this agreement and related amendments for the six months ended June 30, 2022 and 2021. 14 National Institute of Health (NIH)-Exclusive Patent License Agreement In September 2013, the Company entered into an exclusive patent license agreement (the “NIH Exclusive License Agreement”) with the NIH, that required the Company to pay a license issue royalty 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 of up to $ 0.7 million in 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 the NIH are subject to an annual minimum royalty payment of low five figures. The Company recognized no expenses for patent licensing fees for the six months ended June 30, 2022 and 2021. 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. Inserm-Transfert License Agreement In November 2009, the Company entered into an exclusive, royalty-bearing patent license agreement with Inserm-Transfert of France. The agreement expires on a country by country basis based on the last to expire any patent encompassed within the scope of the patent rights or 10 years from the date of the first commercial sales by the Company, whichever is later. 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 June 30, 2022 . Upon the sublicense by the Company of a product for which royalties are payable under the agreement, low- to mid-single-digit royalty payments 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 six months ended June 30, 2022 and 2021. Clearside In July 2019, the Company entered into an exclusive license agreement with Clearside Biomedical, Inc. (“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 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 to mid-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 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. The Company recognized no expenses related to this agreement and related amendments for the six months ended June 30, 2022 and 2021 . 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. 15 The Company has calculated basic and diluted net loss per share for the three and six months ended June 30, 2022 and 2021 as follows (in thousands, except share and per share data): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator: Net loss $ ( 13,468 ) $ ( 8,852 ) $ ( 26,303 ) $ ( 14,779 ) Less: Accruals of dividends of preferred stock — ( 3,628 ) — ( 5,959 ) Net loss attributable to common stockholders—basic and diluted $ ( 13,468 ) $ ( 12,480 ) $ ( 26,303 ) $ ( 20,738 ) Denominator: Weighted-average common stock outstanding 29,251,480 437,464 29,232,661 419,059 Net loss per share attributable to common stockholders—basic and diluted $ ( 0.46 ) $ ( 28.53 ) $ ( 0.90 ) $ ( 49.49 ) 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: Six Months Ended June 30, 2022 2021 Convertible preferred stock — 22,550,561 Stock options to purchase common stock 4,135,212 2,908,580 Restricted stock units that vest into common stock 206,933 — Warrants to purchase preferred stock — 12,686 Warrants to purchase common stock 12,686 — Total potential dilutive shares 4,354,831 25,471,827 14. Income Taxes The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2022 as the Company incurred losses for the three and six months ended June 30, 2022, and is forecasting additional losses through the remainder of fiscal year ending December 31, 2022, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2022. 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 June 30, 2022 , the Company had no unrecognized income tax benefits that would reduce the Company’s effective tax rate if recognized. 15. Subsequent Events Subsequent events have been evaluated through the date of filing of the unaudited condensed consolidated financial statements. The Company has identified the following subsequent events that require disclosure. Boston Lease On May 16, 2022, the Company entered into an office and laboratory lease in Boston, MA with an initial 10 -year term and one renewal option to extend the lease for an additional seven years . Estimated payments due under the initial term total $ 35.2 million. The lease requires a letter of credit totaling $ 0.8 million which is classified as long-term restricted cash and deposits on the condensed consolidated balance sheet. The landlord will reimburse the Company up to $ 0.5 million for certain costs related to expansion of the laboratory space. The term of the lease commenced on August 1, 2022 . 16 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 heparan sulfate proteoglycans, or HSPGs, that are specifically modified and broadly expressed on many tumors. Belzupacap sarotalocan, 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 the feedback from U.S. Food and Drug Administration, or the FDA. These data supported advancement into a Phase 2 dose escalation trial, where we are currently evaluating suprachoroidal, or SC, administration of belzupacap sarotalocan. We plan to present six to twelve-month safety and efficacy data from this trial in 2022 and make a decision on the route of administration to initiate a pivotal trial in the second half of 2022. We are also developing belzupacap sarotalocan 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 and having received fast track designation by the FDA for belzupacap sarotalocan for the treatment of non-muscle invasive bladder cancer, or NMIBC, we intend to initiate a Phase 1 trial in NMIBC, our first non-ophthalmic solid tumor indication, in the third quarter of 2022 and plan to present initial data from this trial in 2023. We were incorporated as a Delaware corporation in 2009 and, as of August 1, 2022, our headquarters are located in Boston, 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 warrants. From inception through June 30, 2022, we have raised an aggregate of approximately $218.9 million of gross proceeds primarily from private placements of our equity and convertible preferred stock 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 initial public offering. We received approximately $78.3 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 $26.3 million and $14.8 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $178.4 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. 17 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 incur additional costs associated with operating as a public company. We expect that our expenses and capital requirements will increase substantially if and as we: ▪ conduct our current and future clinical trials of belzupacap sarotalocan; ▪ 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 June 30, 2022, we had cash and cash equivalents and marketable securities of $122.1 million. We believe that our existing cash and cash equivalents and marketable securities 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 Ongoing COVID-19 Pandemic The ongoing 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. 18 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 Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q 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 belzupacap sarotalocan 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 belzupacap sarotalocan, 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 belzupacap sarotalocan 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 belzupacap sarotalocan 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 belzupacap sarotalocan 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. 19 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. 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, accretion and interest income on marketable securities, 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, 2021, we had federal gross operating loss carryforwards of approximately $138.7 million which may be available to offset future taxable income, of which $44.2 million begin to expire in 2029 and go through 2037 and $94.5 million do not expire. The state gross operating loss carryforwards of $113.6 million, which may be available to offset future taxable income and which would begin to expire in 2030. As of December 31, 2021, we had federal and state research and experimentation credit carryforwards of $4.7 million and $1.4 million, respectively, which may be available to offset future income tax liabilities and which would begin to expire in 2029 and 2028, 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 June 30, 2022 and 2021 The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021: Three Months Ended June 30, 2022 2021 Change (in thousands) Operating expenses: Research and development $ 9,510 $ 6,632 $ 2,878 General and administrative 4,306 2,169 2,137 Total operating expenses 13,816 8,801 5,015 Loss from operations (13,816 ) (8,801 ) (5,015 ) Other income (expense): Change in fair value of warrant liability 61 (3 ) 64 Change in fair value of derivative liability — (52 ) 52 Interest income, including amortization of discount 292 4 288 Other expense (5 ) — (5 ) Total other income (expense) 348 (51 ) 399 Net loss $ (13,468 ) $ (8,852 ) $ (4,616 ) Other comprehensive items: Unrealized loss on marketable securities (123 ) — (123 ) Total other comprehensive loss (123 ) — (123 ) Net loss and comprehensive loss $ (13,591 ) $ (8,852 ) $ (4,739 ) 20 Research and Development Expenses The following table summarizes our research and development expenses for the three months ended June 30, 2022 and 2021: Three Months Ended June 30, 2022 2021 Change (in thousands) Preclinical $ 472 $ 194 $ 278 Clinical trials 1,115 741 374 Manufacturing development 2,416 2,885 (469 ) Personnel/overhead expenses 5,507 2,812 2,695 Total research and development expenses $ 9,510 $ 6,632 $ 2,878 Research and development expenses increased to $9.5 million for the three months ended June 30, 2022 from $6.6 million for the three months ended June 30, 2021, primarily due to ongoing preclinical costs, clinical costs for belzupacap sarotalocan, and higher personnel expenses from growing headcount. General and Administrative Expenses General and administrative expenses increased to $4.3 million for the three months ended June 30, 2022 from $2.2 million for the three months ended June 30, 2021, primarily driven by personnel expenses, as well as increases in general corporate expenses related to operating as a public company. Comparison of the Six Months Ended June 30, 2022 and 2021 The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 Change (in thousands) Operating expenses: Research and development $ 17,786 $ 10,817 $ 6,969 General and administrative 8,841 3,911 4,930 Total operating expenses 26,627 14,728 11,899 Loss from operations (26,627 ) (14,728 ) (11,899 ) Other income (expense): Change in fair value of warrant liability 16 1 15 Change in fair value of derivative liability — (52 ) 52 Interest income, including amortization of discount 319 3 316 Other expense (11 ) (3 ) (8 ) Total other income (expense) 324 (51 ) 375 Net loss $ (26,303 ) $ (14,779 ) $ (11,524 ) Other comprehensive items: Unrealized loss on marketable securities (128 ) — (128 ) Total other comprehensive loss (128 ) — (128 ) Net loss and comprehensive loss $ (26,431 ) $ (14,779 ) $ (11,652 ) 21 Research and Development Expenses The following table summarizes our research and development expenses for the six months ended June 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 Change (in thousands) Preclinical $ 777 $ 270 $ 507 Clinical trials 2,311 1,491 820 Manufacturing development 4,204 4,211 (7 ) Personnel/overhead expenses 10,494 4,845 5,649 Total research and development expenses $ 17,786 $ 10,817 $ 6,969 Research and development expenses increased to $17.8 million for the six months ended June 30, 2022 from $10.8 million for the six months ended June 30, 2021, primarily due to ongoing preclinical costs, clinical costs for belzupacap sarotalocan, and higher personnel expenses from growing headcount. General and Administrative Expenses General and administrative expenses increased to $8.8 million for the six months ended June 30, 2022 from $3.9 million for the six months ended June 30, 2021, primarily driven by personnel expenses, as well as increases in general corporate expenses related to operating as a public company. Liquidity and Capital Resources To date we have funded our operations primarily through the sale of convertible preferred stock, and common stock. Through June 30, 2022, we have raised an aggregate of approximately $218.9 million of gross proceeds primarily from private placements of our equity and convertible preferred stock 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 $78.3 million in net proceeds after deducting underwriting discounts, commissions and offering expenses. Cash Flows The following table summarizes our cash flows for each of the periods presented: Six Months Ended June 30, 2022 2021 (in thousands) Net cash used in operating activities $ (25,828 ) $ (11,634 ) Net cash used in investing activities (68,939 ) (733 ) Net cash provided by financing activities 326 87,233 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (94,441 ) $ 74,866 Operating Activities During the six months ended June 30, 2022, net cash used in operating activities was $25.8 million, primarily due to our net loss of $26.3 million and decrease in accounts payable related to the timing of vendor invoicing and payments, partially offset by the non-cash charge related to stock compensation expense. During the six months ended June 30, 2021, net cash used in operating activities was $11.6 million, primarily due to our net loss of $14.8 million offset by an increase in accounts payable related to the timing of vendor invoicing and payments, partially offset by the non-cash charge related to stock compensation expense. 22 Investing Activities Net cash used in investing activities during the six months ended June 30, 2022 was $68.9 million due to purchases of marketable securities and purchases of property and equipment offset by maturities of marketable securities. Net cash used in investing activities during the six months ended June 30, 2021 was $0.7 million due to purchases of property and equipment. Financing Activities During the six months ended June 30, 2022, net cash provided by financing activities was $0.3 million from proceeds from stock options exercises. During the six months ended June 30, 2021, net cash provided by financing activities was $87.2 million from the net proceeds from the sale of the second tranche of the Series D-2 preferred stock, net proceeds from the sale of Series E preferred stock, and proceeds from stock option exercises offset by deferred offering cost payments. Funding Requirements Our plan of operation is to continue implementing our business strategy, continue research and development of belzupacap sarotalocan 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. In addition, we expect to incur additional costs associated with operating as a public company. 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 ongoing 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 June 30, 2022, we had cash and cash equivalents and marketable securities of $122.1 million. 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. 23 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 preferred stock, 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. Material Cash Requirements The following table summarizes our contractual obligations and commitments as of June 30, 2022. 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) $ 696 $ 643 $ 53 $ — $ — Total $ 696 $ 643 $ 53 $ — $ — (1) Amounts in the table above reflect payments due for our lease of office space in Cambridge, Massachusetts, that expires in July 2023. On May 16, 2022, the Company entered into an office and laboratory lease in Boston, MA, with estimated payments due under the initial term total $35.2 million. Payments began on the lease commencement date of August 1, 2022. Except as disclosed in the table above, we have no long-term debt or finance leases and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase-order basis. We enter into contracts in the normal course of business with equipment and reagent vendors, CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the preceding table as the amount and timing of such payments are not known. There were no material changes to our contractual obligations and commitments during the six months ended June 30, 2022, from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on the Form 10-K. 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 consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our condensed consolidated 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 condensed consolidated 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. During the six months ended June 30, 2022, there were no material changes to our critical accounting policies from those described in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. 24 Recent Accounting Pronouncements We assessed the recent accounting pronouncements for the six months ended June 30, 2022 and determined no pronouncements have material impact to the condensed consolidated financial statements. 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. Accordingly, our consolidated 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. We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. 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.