What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-05-08 compared with 2019-11-06 · 172 added, 166 removed, 53 unchanged (86% of the section changed)

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q, or this Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management’s current expectations.

These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under the caption “Risk Factors” in this Report.

These and other factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this Report.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q (this “Report”).

Except for the historical information contained in this Report, the matters discussed herein may be deemed to be forward-looking statements that involve risks and uncertainties.

We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.

In this Report, words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements.

We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Report.

In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Report, including those risks identified under Item 1A., Risk Factors.

In many instances, dollar amounts contained in the narrative descriptions in the following section of this Report are stated in approximate values, pursuant to generally accepted rounding conventions.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

We disclaim any obligation, except as specifically required by law and the rules of the U.S.

Securities and Exchange Commission (the “SEC”), to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Company Overview

8 unchanged sentences

ELX-02, our lead investigational drug product candidate, is a small molecule designed to restore production of full-length functional proteins.

ELX-02 is in the early stages of clinical development for systemic administration for cystic fibrosis and nephropathic cystinosis.

ELX-02 is in clinical development for systemic administration for cystic fibrosis.

ELX-02 is an investigational drug that has not been approved by any global regulatory body.

In addition, we recently announced a new program studying intravitreal administration of ERSG compounds for rare inherited retinal disorders with an initial focus on Usher Syndrome.

During the quarter ended September 30, 2019, we advanced our clinical program for ELX-02 into Phase 2 studies in cystic fibrosis and nephropathic cystinosis.

In addition, during 2019 we announced new programs studying ERSG compounds for autosomal dominant polycystic kidney disease (ADPKD) and in rare inherited retinal disorders (IRDs) by intravitreal administration with an initial focus on Usher Syndrome.

We hold worldwide development and commercialization rights to ELX-02 and other novel compounds in our read-through library, for all indications, in all territories, under a license from the Technion Research and Development Foundation Ltd.

During 2019, we advanced our clinical program for ELX-02 into Phase 2 studies in cystic fibrosis and nephropathic cystinosis.

We also completed a renal impairment study with ELX-02 in subjects with mild, moderate, and severe renal impairment.

The results from the renal impairment study provide support for both continuing our clinical development programs and evaluating the suitability of our ERSG library for development in additional renal disorders, including autosomal dominant polycystic kidney disease, and cystinuria .

Our preclinical candidate pool consists of a library of novel ERSG drug candidates identified based on read-through potential and cytoplasmic ribosomal selectivity.

Our research and development strategy targets rare or ultra-rare diseases where a high unmet medical need exists, identified nonsense mutation-bearing patient population is established, preclinical read-through can be established in predictive personalized medicine models, and a defined path through Orphan Drug development, regulatory approval, patient access and commercialization is identifiable.

We believe patient advocacy to be an important element of patient focused drug development and seek opportunities to collaborate with patient advocacy groups throughout the discovery and development process.

Our current clinical program for our lead investigational drug product candidate, ELX-02, includes studies in both cystic fibrosis and nephropathic cystinosis.

Our research and development strategy targets rare or ultra-rare diseases where a high unmet medical need exists, a nonsense mutation-bearing patient population is established, preclinical read-through can be established in predictive personalized medicine models, and a defined path through Orphan Drug development, regulatory approval, patient access and commercialization is identified.

We believe patient advocacy is an important element of patient focused drug development, and we seek opportunities to collaborate with patient advocacy groups throughout the discovery and development process.

Our current clinical program for our lead investigational drug product candidate, ELX-02 , includes Phase 2 studies in c ystic f ibrosis .

We intend to be the global leader in the application of the science of translational read-through and the associated pathway of nonsense mediated decay (NMD).

We believe that expanding our expertise across these basic science areas of mRNA regulation, ribosomal function, and protein translation forms a solid foundation to support our discovery and development activities.

Our ERSG compounds modulate the activity of the ribosome, a complex of RNAs and proteins, and therefore, a ribonucleoprotein, responsible for protein production, a process also known as translation.

Our ERSG compounds modulate the activity of the ribosome, a ribonucleoprotein complex of RNAs and proteins responsible for protein production (a process also known as translation).

These novel small molecule ERSG compounds are designed to allow the ribosome to read-through a nonsense mutation in mRNA (which is transcribed from the DNA sequence), to restore the translation process to produce full-length, functional proteins and increase the amount of mRNA that would otherwise be degraded as part of a phenomenon called nonsense mediated mRNA decay.

As our ERSG compounds target the general mechanism for protein production in the cell, we believe they have the potential to treat hundreds of genetic diseases where nonsense mutations have impaired gene function.

As our ERSG compounds target the general mechanism for protein production in the cell, we believe they have the potential to treat numerous genetic diseases where nonsense mutations have impaired gene function.

Since nonsense mutations may occur at different positions within a given gene, a potential advantage of the small molecule ERSG approach is being able to use one molecule to address a range of mutations within a given disease state.

Our subcutaneously injected ERSG molecules have the potential to be self-administered for systemic disease and to be active at most tissue locations across the body.

We believe that our library of related novel small molecules holds the potential to be disease-modifying the rapies that may change the course of hundreds of genetic diseases and improve the lives of patients.

Our early preclinical data in animal models of nonsense mutations suggests that drug product candidates from our read-through compound ERSG library may hav e potential beneficial effects for the following diseases:

cystic fibrosis, nephropathic cystinosis, a variety of inherited retinal dis orders (including Usher Syndrome), primary ciliary dyskinesia, autosomal dominant polycystic kidney disease, cystinuria, mucopolysaccharidosis type 1, Duchenne muscular dystrophy and Rett syndrome, and have shown potential for beneficial effects in multiple organs such as the brain, eye, kidney, muscles and others.

Of the novel compounds in our ERSG l ibrary , approximately 30 compounds have been selected, based on read-through activity, for continued preclinical research and we anticipate additional compounds advancing toward Investigation New Drug (IND) filings.

Currently our lead program, ELX-02, is focused on development for cystic fibrosis and nephropathic cystinosis patients with diagnosed nonsense mutations.

With ELX-02, we have completed a Phase 1 single ascending dose (SAD) trial at sites in Israel (ClinicalTrials.gov Identifier:

NCT02807961) and Belgium (ClinicalTrials.gov Identifier:

NCT03292302), a multiple ascending dose (MAD) trial in Belgium and the U.S.

(ClinicalTrials.gov Identifier:

NCT03309605), and a renal impairment study in the U.S.

(ClinicalTrials.gov Identifier:

NCT03776539) with subjects having mild, moderate and severe renal impairment.

The results of the SAD study were published in the Journal of Clinical Pharmacology in Drug Development in January 2019.

In Canada, our nephropathic cystinosis CTA is approved and with the support of the Genome Canada Genomic Applications Partnership Program, we are currently enrolling 6 patients in this Phase 2 clinical trial (ClinicalTrials.gov Identifier:

NCT04069260).

Paul Goodyer, Professor of Pediatrics at McGill University, is serving as our principal investigator.

This trial will evaluate multiple doses of ELX-02 for the primary endpoint of safety and exploratory endpoints that will include white blood cell cystine levels.

Our Phase 2 cystinosis trial involves two sequential cohorts with three escalating doses per cohort.

A cohort is complete when each patient has escalated through each of the three dosing levels or if the Safety Review Committee recommends halting escalation.

Following the completion of each dose, the Safety Review Committee meets to review the patient safety data prior to escalation to the next dose level.

The first two doses in the first cohort are complete and the safety review committee has authorized us to start the final dose in this first cohort which is currently ongoing.

To date, based on preliminary results, ELX-02 has been well tolerated through the first two dose levels, and at the second 1.0 mg/kg dose level, ELX-02 demonstrated a statistically significant reduction in white blood cell cystine levels.

Upon completion of the first cohort, we will review data with the Principal Investigator and conduct a separate review with a panel of cystinosis scientific and clinical experts before reporting top line data later this year.

We believe that the emerging profile of ELX-02 for cystinosis is suitable for continued development and we intend to seek regulatory advice, following top line results, on initiating an extension study for patients in the first cohort and to expand the trial to include sites and patients in the United States.

We believe that achievement of proof of concept for ELX-02 in cystinosis will provide a basis for expansion to studies of additional kidney diseases, as well as increasing our probability of success in other clinical uses of this dosage range.

We are actively recruiting patients for two Phase 2 cystic fibrosis trials at sites in Europe and Israel and also in the United States.

During the quarter ended September 30, 2019, we announced that the Cystic Fibrosis Foundation (the “CF Foundation”) is providing funding for a portion of the U.S.

Phase 2 cystic fibrosis clinical trial and that we will form a joint program advisory group with the CF Foundation focused on the development of ELX-02 for cystic fibrosis.

The Cystic Fibrosis Therapeutics Development Network (“TDN”) has sanctioned the Phase 2 study protocol (ClinicalTrials.gov Identifiers:

NCT04126473 and NCT04135495) , which will be conducted at TDN member sites.

Ahmet Uluer, Director of the Adult Cystic Fibrosis Program at the Boston Children’s Hospital/ Brigham and Women’s Hospital CF Center, is the lead study investigator and Boston Children’s Hospital is currently recruiting patients for the trial.

We are opening additional clinical sites for the U.S.

trial and anticipate enrolling our first patients for this trial in the fourth quarter of 2019.

In Europe, our clinical trial application (CTA) has been approved by the Federal Agency for Medicines and Health Products (FAMHP) in Brussels and our Phase 2 protocol has been given a “high priority” ranking by the European Cystic Fibrosis Society Clinical Trial Network.

Professor Eitan Kerem, M.D., Head of the Division of Pediatrics, Children’s Hospital, Hadassah Medical Center in Israel, is the global lead investigator.

We are currently enrolling patients at sites in Israel and plan to open additional European sites during the fourth quarter of 2019.

We expect full enrollment to be achieved during the first quarter of 2020.

We are changing our guidance on the time for top line data in cystic fibrosis to better align with the opening of these clinical trial sites and expected completion of patient dosing.

We expect to report top line data in cystic fibrosis during the first half of 2020.

Our subcutaneously injected ERSG molecules have the potential to be self-administered for systemic disease and to be active across many of the body’s tissues.

We believe that our library of related novel small molecules holds the potential to be disease-modifying therapies that may change the course of numerous of genetic diseases and improve the lives of patients.

Our early preclinical data in animal models of nonsense mutations suggests that drug product candidates from our read-through compound ERSG library may have potential beneficial effects for each of the following diseases:

cystic fibrosis, nephropathic cystinosis, ADPKD, a variety of IRDs (including Usher Syndrome), primary ciliary dyskinesia, mucopolysaccharidosis type 1, Duchenne muscular dystrophy and Rett syndrome, and have demonstrated the potential for beneficial effects in multiple organs such as the brain, eye, kidney, muscles and others.

Of the novel compounds in our ERSG Library, approximately 30 compounds have been selected, based on read-through activity, for continued preclinical research and we anticipate additional compounds advancing toward Investigational New Drug (IND) filings.

Our scientific manuscript titled “ELX-02 generates protein via premature stop codon read-through without inducing native stop codon read-through protein” has been accepted for publication by the Journal of Pharmacology and Experimental Therapeutics (JPET).

This manuscript demonstrates that while ELX-02 mediates read-through of premature stop codons, the fidelity of stop codons found at the end of healthy transcripts is maintained.

This indicates that translation integrity is preserved with target-therapeutic exposure of ELX-02, consistent with the favorable tolerability profile across our preclinical and clinical data sets.

The pre-publication version of the manuscript can be found in the “Fast Forward” section of JPET’s website.

Currently, the clinical programs for our lead investigational drug candidate, ELX-02, are focused on development for cystic fibrosis patients with diagnosed nonsense mutations.

We have completed a Phase 1 single ascending dose (SAD) trial at sites in Israel and Belgium, a multiple ascending dose (MAD) trial in Belgium and the United States, and a renal impairment study in the U.S.

with subjects having mild, moderate and severe renal impairment.

The results of the SAD study were published in Clinical Pharmacology in Drug Development in January 2019.

The results from the MAD trial were presented in 2019 at both the European Cystic Fibrosis Society clinical meeting and the North American Cystic Fibrosis Conference (NACFC).

Additionally, the results from the renal impairment study were presented at the 2019 American Society of Nephrology (ASN) Kidney Week in November 2019.

Our Phase 2 cystinosis trial involved two sequential cohorts with three escalating doses in three patients per cohort.

The first cohort enrolled three homozygous W138X patients ages 23 to 38, with prior kidney transplants and varying degrees of renal insufficiency.

In January 2020, we announced positive data from the first cohort of the Phase 2 study of ELX-02 in the treatment of patients with nonsense mutation-mediated nephropathic cystinosis.

The results of the first cohort met the primary safety endpoint and the reductions in white blood cell (WBC) cystine provided a clear indication of biologic activity in these patients at nominal doses > 0.5 mg/kg/day.

Following review of the safety and pharmacokinetic data by an independent Safety Review Committee (SRC), the SRC approved progressing to the second cohort that would enable enrolling patients ages 12 and older.

Due to study design limitations, patients across all dose groups had elevated and uncontrolled pretreatment WBC cystine levels which made it difficult to fully evaluate ELX-02-mediated WBC cystine reductions.

Therefore, we have discontinued this study and will not proceed with the second cohort as contemplated in the original protocol.

We will continue to review these data with a panel of scientific and clinical experts to determine appropriate modifications for a possible new study design.

The clear indications of biologic activity in this study provide human clinical proof of concept for ELX-02 and de-risk other clinical applications of our ERSG library using this dosage range.

These encouraging results also provide a basis for expansion to studies of additional kidney diseases caused by nonsense mutations, such as ADPKD.

Our Phase 2 c ystic f ibrosis clinical trial program for ELX-02 is being conducted at leading global investigator sites in Europe, Israel and the United States .

On March 25, 2020, we announced that enrollment in these trials has been paused temporarily in response to the global COVID-19 pandemic in order to avoid unnecessary exposure in at-risk populations, to maintain the integrity of our study data and to support global healthcare providers in their commitment to ensure patient safety.

COV ID-19 is rapidly evolving and we continue to work closely with our clinical sites and investigators.

We remain committed to completing enrollment in these Phase 2 proof of concept clinical trials and reporting top line data as soon as feasible.

, the Cystic Fibrosis Foundation (“CF Foundation”) is providing funding for a portion of the trial and we have form ed a joint program advisory group with the CF Foundation focused on the development of ELX-02 for cystic fibrosis.

The Cystic Fibrosis Therap eutics Development Network (“TDN”) has sanctioned the Phase 2 study protocol (ClinicalTrials.gov Identifiers:

NCT04126473 and NCT04135495) , which is being conducted at TDN member sites.

In Europe and Israel, Professor Eitan Kerem, M.D., Head of the Division of Pediatrics, Children’s Hospital, Hadassah Medical Center in Israel, is the global lead investigator.

Ahmet Uluer, Director of the Adult Cystic Fibrosis Program at the Boston Children’s Hospital/Brigham and Women’s Hospital CF Center, is the lead study investigator.

The protocols have been sanctioned by the TDN in the U.S.

and the European Cystic Fibrosis Society Clinical Trial Network (which has given our European/Israel trial a “high priority” ranking) .

During October 2019, we completed an interim CMC review meeting with the U.S.

Food and Drug Administration and we have gained alignment with the agency on our manufacturing formulation and process, which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials.

We presented positive data in three scientific presentations at the North American Cystic Fibrosis Conference on October 31-November 2, 2019 in Nashville, Tennessee, from our completed Phase 1 clinical trial program for ELX-02, including results from the SAD study, the MAD study, and additional preclinical data for ELX-02.

These data demonstrated that ELX-02 increases functional CFTR protein in patient-derived organoids and hum an bronchial epithelial cells, Ussing chamber systems, FRT and transgenic mice, and that it restores CFTR mRNA to healthy control levels.

ELX-02 results in a pronounced increase in both CFTR protein expression and mRNA stability and the preclinical efficac y-associated exposures from the completed MAD study translate to the selected Phase 2 clinical trial ascending dose ranges and exposures.

Two abstracts for ELX-02 have been accepted for scientific presentations at the American Society of Nephrology (ASN) K idney Week on November 5-10, 2019 in Washington, D.C.

In our inherited retinal disease program, we are conducting IND enabling studies for several ERSG compounds from our library.

We continue to collaborate and engage in our multi-year partnership with the Foundation Fighting Blindness (FFB) to support its inherited retinal degenerative disease registry and educational programs.

In October 2019, we presented as part of the FFB New York Vision Seminar and we believe that the ongoing research and development consultation and support provided by the FFB will accelerate our development programs that seek to support patients with ocular disorders associated with nonsense mutations, an area of high unmet medical need.

At the FFB New York Vision Seminar, we presented some of our in vivo proof-of-concept data in a nonsense model of oculocutaneous albinism type 2.

We have demonstrated a functional restoration of the OCA2 protein in this model after a single intravitreal injection.

Food and Drug Administration (the “FDA”) and we have gained alignment with the agency on our manufacturing formulation and process, which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials.

The in-person European Cystic Fibrosis Society conference in Lyon, France scheduled for June 2020 has been cancelled, and we have withdrawn our abstract.

We plan to present data for ELX-02 in cystic fibrosis at the North American Cystic Fibrosis Conference in late October.

We are also evaluating the suitability of our ERSG library for development in rare renal diseases associated with nonsense mutations, such as ADPKD.

ADPKD is a relatively common inherited genetic kidney disease occurring in between one in 400 and one in 1,000 patients and is the fourth leading cause of end-stage renal disease in the United States.

Over 25% of the primary genetic changes that cause ADPKD are nonsense mutations, where a premature stop codon in the gene leads to a truncated, often unstable, protein.

We have evaluated the three most relevant ADPKD nonsense mutations in an in vitro read-through assay and have demonstrated significant levels of read-through for ELX-02 and several library compounds, which is the first step in our preclinical development toward an IND.

We continue to progress our ERSG pipeline in IRDs, another area of high unmet medical need, that are associated with vision loss and blindness.

There are over 300 IRDs associated with nonsense mutations.

We recently reported on a critical milestone demonstrating that several of our library compounds successfully reach retinal disorder-relevant tissue layers and can restore protein production in an animal model.

These data support that our ERSG compounds are suitable for reaching and promoting read-through in target cells within the retina.

We are also evaluating the suitability of our ERSG library for development in rare renal disorders associated with nonsense mutations, such as autosomal dominant polycystic kidney disease, and cystinuria.

Currently, the European Medicines Agency (EMA) has designated ELX-02 as an orphan medicine for the treatment of cystic fibrosis and mucopolysaccharidosis type I (MPS I), and the FDA has granted orphan drug designation to ELX-02 for the treatment of cystinosis, MPS I, and Rett Syndrome.

We hold worldwide development and commercialization rights to ELX-02 and all other novel compounds in our ERSG library, for all indications, in all territories, under a license from the Technion Research and Development Foundation Ltd.

Professor Timor Baasov, the inventor of our compounds, has served as our senior consultant since our incorporation.

During the quarter ended September 30, 2019, we appointed Dr.

Thomas Haverty as our Chief Medical Officer.

Haverty has over 30 years of pharmaceutical and biotechnology experience leading clinical research and operations teams with responsibility for large development portfolios in virtually all classes of molecules and indications.

Prior to joining us in his current capacity, Dr.

Haverty, a Board-certified Nephrologist, served as a consultant to us following a long tenured career at Johnson & Johnson, Schering Plough and Merck Research Labs.

Haverty has successfully led the development and approval of over 20 leading drugs.

We believe that our cash, cash equivalents and marketable securities of $64.9 million at September 30, 2019 will enable us to meet the anticipated cash needs required to reach top line Phase 2 data in cystic fibrosis and in cystinosis and maintain our current and planned operations into the first quarter of 2021.

Since our inception, we have incurred significant operating losses.

As of September 30, 2019, we had an accumulated deficit of $125.4 million.

To date, we have financed our operations primarily through equity capital investments, and to a lesser extent, from loans and grants from the Israeli Innovation Authority of the Ministry of Economy and Industry, or the IIA.

We have devoted substantially all of our financial resources and efforts to research and development.

We expect that it will be many years, if ever, before we receive regulatory approval and have a product candidate ready for commercialization.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.

Our net losses may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially if, and as, we:

advance ELX-02 further into clinical trials;

continue the preclinical development of our research programs and advance candidates into clinical trials;

identify additional product candidates and advance them into preclinical development;

pursue regulatory authorization to conduct clinical trials of additional product candidates;

seek marketing approvals for our product candidates that successfully complete clinical trials;

establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval;

maintai n, expand and protect our intellectual property portfolio;

hire additional clinical, regulatory, management and scientific personnel;

add operational, financial and management information systems and personnel, including personnel to support product development;

acquire or in-license other product candidates and technologies;

operate as a public company.

Results of Operations

We had planned to present these data at the Association for Research in Vision and Ophthalmology (ARVO) Annual Meeting in May 2020, but the meeting was cancelled due to the global COVID-19 pandemic.

As an alternative, we submitted a recorded video presentation which became available on ARVO’s website May 6, 2020.

Our IRD research also includes exploring multiple sustained release formulation technologies, and in vitro release rates achieved to date have been consistent with our target release profile of one to three months.

We believe there is a significant unmet medical need in the treatment of cystic fibrosis patients carrying nonsense mutations on one or both alleles of the CFTR gene.

Cystic fibrosis is the most prevalent genetic disease in the western world and there are no currently approved therapies that target the impairment associated with Class 1 CFTR mutations.

We believe that nonsense mutations may impact a similar proportion of patients diagnosed with cystinosis.

Given the high proportion of pediatric patients in many rare orphan diseases, we intend to apply for relevant Orphan Drug incentives in the U.S.

and Europe, including the Rare Pediatric Disease Priority Review Voucher in the U.S.

Currently, the European Medicines Agency (the “EMA”) has designated ELX-02 as an orphan medicine for the treatment of cystic fibrosis and mucopolysaccharidosis type I (MPS I), and the FDA has granted orphan drug designation to ELX-02 for the treatment of nephropathic cystinosis, MPS I, and Rett syndrome.

On February 24, 2020, our Board of Directors approved a leadership and organizational realignment aimed at supporting our efforts to improve operating performance and concentrate development efforts on our core programs.

The organizational realignment reduced managerial layers and consolidated roles across the organization, resulting in the elimination of 13 full-time positions during the three months ended March 31, 2020.

We incurred a resulting one-time pre-tax charge of $4.0 million during the first quarter of 2020.

The outbreak of COVID-19 and the preventative or protective actions that we, our employees, consultants, suppliers, CROs, and other partners or governments may take may significantly disrupt our business operations.

We are diligently working to ensure that we can operate with minimal disruption, and to mitigate the impact of the pandemic on our employees’ health and safety and that of the patients in our clinical trials.

However, there remains a risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to a substantial percentage of personnel contracting the virus or due to shutdowns that may be requested or mandated by governmental authorities.

Given the interconnectivity of the global economy and the possible rate of future global transmission, the full extent to which the pandemic could affect the global economy is unknown and its impact may extend beyond the areas which are currently known by us to be impacted.

We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations as a result of the COVID-19 pandemic, including requiring employees to work remotely.

Notwithstanding these measures, the COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on.

If members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and our operations may be adversely impacted.

We may also experience limitations in employee resources, including because of illness of employees or their families or the desire of employees to avoid contact with individuals or large groups of people.

In addition, we have experienced and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations and travel and other restrictions on our employees which may impact their ability to perform their job responsibilities.

The extent and severity of the impact of the current global crisis on our business and clinical trials will be determined largely by the ability of patients in our clinical trials to access trial sites, CRO personnel to administer our drug in accordance with our protocols and our ability to monitor and communicate effectively with the CROs, trial sites and principal investigators.

In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential advancement of our product candidates.

Critical Accounting Policies and Use of Estimates

5 unchanged sentences

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

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this Report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies through September 30, 2019, from those discussed in our Annual Report on Form 10-K filed with the SEC on March 14, 2019.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this Report are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies through March 31, 2020, from those discussed in our Annual Report on Form 10-K filed with the SEC on March 6, 2020.

Results of Operations

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

Research and development

Research and development, net

General and administrative

Reverse merger related expenses

Restructuring charges

Total operating expenses

2 unchanged sentences

Research and development expense

Research and development expenses were $6.8 million for the three months ended September 30, 2019 compared to $5.4 million for the same period in 2018, an increase of $1.4 million.

Research and development expenses increased $0.4 million primarily related to fees incurred for subcontractors, consultants and advisors in connection with ongoing clinical trials and research and development activities and $1.0 million due to an increase in headcount and related salaries, stock-based compensation, and other personnel related costs.

Research and development expenses for the three months ended September 30, 2019 and 2018 included non-cash stock-based compensation expense totaling $0.7 million and $0.5 million, respectively.

Research and development expenses were $ 20.2 million for the nine months ended September 30, 2019 compared to $ 14.0 million for the same period in 2018, an increase of $ 6.2 mi llion.

Research and development expenses increased $ 3.3 million primarily related to fees incurred for subcontractors, consultants and advisors in connection with ongoing clinical trials and research and development activities and $ 2.9 million due to an in crease in headcount and related salaries, stock-based compensation, and other personnel related costs.

Research and development expenses for the nine months ended September 30, 2019 and 2018 included non-cash stock-based compensation expense totaling $ 2.0 million and $ 0.9 million, respectively.

Research and development expenses were $4.5 million for the three months ended March 31, 2020 compared to $6.0 million for the same period in 2019, a decrease of $1.5 million.

Research and development expenses decreased $1.6 million primarily related to reduced fees incurred for subcontractors, consultants and advisors in connection with ongoing clinical trials and research and development activities and $0.3 million of reduced stock based compensation, offset by an increase of $0.4 million due to an increase in headcount and related salaries for a portion of the 2020 period, and other personnel related costs.

Research and development expenses for the three months ended March 31, 2020 and 2019 included non-cash stock-based compensation expense totaling $0.2 million and $0.5 million, respectively.

General and administrative expenses

General and administrative expenses were $6.0 million for the three months ended September 30, 2019, compared to $5.9 million for the same in 2018, an increase of $0.1 million.

The increase in general and administrative expenses was primarily due to an increase in stock-based compensation and other infrastructure-related costs of $0.4 million offset by a decrease in other personnel related costs of $0.3 million, including legal, accounting and other professional fees following the reverse merger.

General and administrative expenses for the three months ended September 30, 2019 and 2018 included non-cash stock-based compensation expense totaling $2.2 million in each period.

General and administrative expenses were $18.9 million for the nine months ended September 30, 2019 and for the same period in 2018, with an insignificant increase in the current period.

This current year period had higher personnel costs and other infrastructure costs, including legal, accounting and other professional fees following the reverse merger, offset by lower non-cash stock-based compensation.

General and administrative expenses for the nine months ended September 30, 2019 and 2018 included non-cash stock-based compensation expense totaling $6.6 million and $8.7 million, respectively.

Reverse merger related expenses

During the nine months ended September 30, 2018, we recorded $0.6 million in professional service fees related to the reverse merger we completed on December 19, 2017.

There were no reverse merger related expenses recorded during the three and nine months ended September 30, 2019.

General and administrative expenses were $5.2 million for the three months ended March 31, 2020, compared to $6.0 million for the same period in 2019, a decrease of $0.7 million.

The decrease in general and administrative expenses was primarily due to a decrease in stock-based compensation of $0.5 million and other infrastructure-related costs of $0.2 million.

General and administrative expenses for the three months ended March 31, 2020 and 2019 included non-cash stock-based compensation expense totaling $1.7 million and $2.1 million, respectively.

Restructuring charges

Restructuring charges of $4.0 million for the three months ended March 31, 2020 resulted from the leadership and organizational realignment during the period.

The total included $1.9 million related to contract termination and employee separation costs (primarily severance and benefits) and $2.1 million of non-cash stock compensation, relating to accelerated vesting of executive stock awards.

There were no similar charges during the three months ended March 31, 2019.

Other expense (income), net

We recorded $0.1 million in other expense, net for the three months ended September 30, 2019, compared to $0.2 million in other income, net for the same period in 2018.

The change in other expense, net was primarily due to debt issuance costs and interest expense of $0.3 million associated with our bank debt issued in the first quarter of 2019 offset by interest income of $0.1 million.

Our interest income increased primarily due to higher cash balances as a result of $32.2 million received from our public offering of common stock in June 2019.

We recorded $0.2 million in other expense, net for the nine months ended September 30, 2019, compared to $0.3 million in other income, net for the same period in 2018.

The change in other expense, net was primarily due to an increase in debt issuance costs and interest expense of $0.9 million associated with our bank debt issued in the first quarter of 2019 offset by interest income $0.3 million, for the same reason described above, and foreign exchange changes of $0.1 million.

We recorded $0.2 million in other expense, net for the three months ended March 31, 2020, compared to $0.1 million in other income, net for the same period in 2019.

The change in other expense, net was primarily due to higher interest expense associated with our bank debt, which was issued in the first quarter of 2019.

Liquidity and Capital Resources

1 unchanged sentence

Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

Since our inception and through September 30, 2019, we have funded our operations primarily through equity and capital investments.

We have a history of net losses and negative cash flows from operating activities since inception, and as of September 30, 2019, had an accumulated deficit of $125.4 million.

We expect to continue to incur net losses and use cash in our operations in the foreseeable future.

To date, we have not generated revenue from the sale of any product or service and do not expect to generate significant revenue unless and until obtaining marketing approval and commercialization of our product candidates currently in development.

A successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support our cost structure.

We have financed our operations primarily from the sale of our equity securities and to a lesser extent, loans and grants .

Since our inception and through March 31, 2020, we have funded our operations primarily through equity capital investments, and to a lesser extent, from loans and grants.

Although the impact of the COVID-19 pandemic on clinical operations and enrollment cannot fully be determined, we believe that our cash, cash equivalents, and marketable securities of $44.0 million at March 31, 2020, will enable us to meet the anticipated cash needs required to reach top line Phase 2 data in cystic fibrosis and maintain our current and planned

operations through at least the next 12 months from the issuance of this Quarterly Report on Form 10-Q.

Since our inception, we have incurred significant op erating losses.

Our net losses were $(13.9) million for the three months ended March 31, 2020, and $(50.9) million for the year ended December 31, 2019.

As of March 31, 2020 , we had an accumulated deficit of $(151.0) million.

We have devoted substantially all of our financial resources a nd efforts to research and development.

We expect that it will be several years, if ever, before we receive regulatory approval and have a product candidate ready for commercialization.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

A successful transition to profitable oper ations is dependent upon achieving a level of revenue adequate to support our cost structure.

Our net losses may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses may increase if, and as, we:

advance ELX-02 further into clinical trials;

continue to experience delays in enrollment and completion of our clinical trials due to the COVID-19 pandemic or otherwise;

continue the preclinical development of our research programs and advance candidates into clinical trials;

identify additional product candidates and advance them into preclinical development;

pursue regulatory authorization to conduct clinical trials of additional product candidates;

seek marketing approvals for our product candidates that successfully complete clinical trials;

establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval;

maintain, expand and protect our intellectual property portfolio;

hire additional clinical, regulatory, management and scientific personnel;

add operational, financial and management information systems and personnel, including personnel to support product development;

acquire or in-license other product candidates and technologies;

operate as a public company.

We may never achieve profitability, and unless and until we do, we will continue to need to raise additional cash to fund our operations.

Our cash, cash equivalents and marketable securities are highly liquid investments with original maturities of 90 days or less at the date of purchase and consist of cash in operating accounts and secured investments, primarily in U.S.

On February 24, 2020, our Board of Directors approved a leadership and organizational re-alignment, which is expected to achieve annual cost savings of approximately $4.9 million primarily related to salaries and benefits, with anticipated fiscal year 2020 savings of approximately $2.4 million, net of severance costs.

We believe that our cash, cash equivalents, and marketable securities of $44.0 million at March 31, 2020 will enable us to meet the anticipated cash needs required to maintain our current and planned operations through at least the next 12 months from the issuance of this Quarterly Report on Form 10-Q.

Our cash, cash equivalents, and marketable securities are highly liquid investments with original maturities of one year or less at the date of purchase and consist of cash in operating accounts and secured investments, primarily U.S.

Management intends to fund future operations through private or public debt or equity financing transactions and may seek additional capital through arrangements with strategic partners or from other sources.

1 unchanged sentence

Principal Financing Activities

On April 30, 2018, we completed an underwritten public offering of 5,899,500 shares of common stock at the public offering price of $9.75 per share (the “2018 Offering”).

We received net proceeds of approximately $53.6 million after deducting underwriting discounts and commissions and estimated offering expenses.

On January 30, 2019, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”), in its capacity as administrative agent, collateral agent and lender, and WestRiver Innovation Lending Fund VIII, L.P.

( together with SVB, the “Lenders”) .

Pursuant to the terms and conditions of the Loan Agreement, the Lenders extended a term loan to us of $15.0 million on the Loan Agreement date.

On June 24, 2019, we completed an underwritten public offering of 3,833,334 shares of common stock at the public offering price of $9.00 per share and received gross proceeds of approximately $34.5 million, before deducting underwriting discounts and commissions of $2.1 million and estimated offering expenses of $0.2 million.

On April 21, 2020, we entered into a loan agreement with SVB under the U.S.

Small Business Administration (the “SBA”) Paycheck Protection Program (the “PPP”) pursuant to the Coronavirus Aid, Relief and Ec onomic Security Act of 2020 (the “CARES Act”) for a loan of $0.8 million (the “PPP Loan”).

On April 22, 2020, we received the PPP Loan proceeds, which we expect to use for payroll and other covered costs in accordance with the relevant terms and condition s of the CARES Act.

We issued a promissory note for the PPP Loan with a maturity date of April 21, 2022 and an interest rate of 1.0% per annum, subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act.

No paymen ts will be due during the six-month period beginning on April 21, 2020;

however, interest will accrue during this period.

Monthly payments of principal and interest will be due beginning on November 21, 2020.

We may prepay the PPP Loan without penalty or premium, and the promissory note provides for customary events of default.

A PPP loan may be partially forgiven based on employee retention for the eight-week period starting on the loan date and the use of loan proceeds for payroll or other specified co sts during the same period.

Forgiveness is also based on the employer maintaining or restoring headcount and maintaining salary levels.

Forgiveness is reduced if headcount declines or if salaries decrease.

Any loan forgiveness will be made in accordance with SBA requirements and subject to the approval of SVB.

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):

Three Months Ended

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Our operating activities used cash of $11.9 million and $9.2 million during the three months ended March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020, net cash used in operating activities resulted primarily from our net loss of $(13.9) million and total changes in working capital of $(2.2) million partially offset by total non-cash charges of $4.3 million.

Non-cash charges primarily related to $4.0 million of stock-based compensation, $0.1 million of amortization of lease assets, and $0.2 million of debt discount amortization.

Changes in working capital were primarily related to decreases in accrued expenses and accounts payable of $1.1 million and $0.5 million, respectively, and an increase in prepaid expenses and other current assets of $0.6 million.

For the three months ended March 31, 2019, net cash used in operating activities resulted primarily from our net loss of $(11.9) million partially offset by non-cash charges of $2.7 million related to stock-based compensation, $33 thousand of depreciation expense and $0.1 million of debt discount amortization.

Our investing activities provided cash of $15.8 million and used cash of $8.9 million during the three months ended March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020, cash provided in investing activities was primarily related to $15.8 million of proceeds from the maturity of marketable securities.

For the three months ended March 31, 2019, cash used in investing activities consisted primarily of $8.9 million in purchases of marketable securities .

Our financing activities used cash of $0.5 million during the three months ended March 31, 2020 and provided cash of $14.1 million during the three months ended March 31, 2019.

For the three months ended March 31, 2020, net cash used in financing activities consisted primarily of $0.8 million in term loan principal repayments, net of $0.4 million in advances received from collaboration partners.

Cash provided by financing activities for the three months ended March 31, 2019 resulted primarily from the issuance of debt of $15.0 million in January 2019 and proceeds of $0.5 million from the sale of common stock offset by the payment of taxes of $1.1 million associated with the vesting of restricted stock units.

Equity Sales Agreement

In November 2018, we entered into an Equity Distribution Agreement (the “Agreement”) with Citigroup Global Markets Inc.

1 unchanged sentence

(collectively, the “Sales Agents”), pursuant to which we may sell and issue shares of our common stock up to an aggregate of $50 million through the Sales Agents.

The shares were offered pursuant to the April 2018 shelf registration statement, which is more fully described below.

The shares were offered pursuant to a registered shelf offering.

We agreed to pay the Sales Agents a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the Agreement.

We incurred approximately $0.3 million related to legal, accounting and other fees in connection with the Agreement.

For the year ended December 31, 2018, under the Agreement, we sold 201,100 shares of common stock and received net proceeds of $2.2 million.

In January 2019, we sold 35,362 shares of common stock and received net proceeds of $0.7 million.

At September 30, 2019, there was approximately $47.0 million available for future sales pursuant to the Agreement.

On January 30, 2019, we entered into a Loan and Security Agreement (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”), in its capacity as administrative agent, collateral agent and lender, and WestRiver Innovation Lending Fund VIII, L.P.

(“WestRiver”, together with SVB, the “Lenders”).

Pursuant to the terms and conditions of the SVB Loan Agreement, the Lenders agreed to extend term loans to us in an aggregate principal amount of up to $25.0 million, comprised of (i) an initial loan advance of $15.0 million and (ii) a subsequent loan advance of $10.0 million, subject to first achieving certain conditions (collectively, the “Term Loan Advances”).

The initial term loan was funded on January 30, 2019.

The subsequent loan advance is available at our election prior to December 31, 2019 after the occurrence of certain milestone events relating to data from our clinical trials and receipt by us of certain minimum cash proceeds of at least $75.0 million from an additional equity offering through a private placement or a public offering.

On June 24, 2019, we completed an underwritten public offering of 3,833,334 shares of common stock at the public offering price of $9.00 per share (the “2019 Offering”).

We received net proceeds of approximately $32.2 million after deducting underwriting discounts and commissions and estimated offering expenses.

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):

Nine months ended

September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Our operating activities used cash of $30.1 million and $22.3 million during the nine months ended September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019, net cash used in operating activities resulted primarily from our net loss of $39.2 million partially offset by total non-cash charges of $9.2 million and total changes in working capital of $0.1 million.

Non-cash charges primarily related to $8.6 million of stock-based compensation, $0.3 million of amortization of our lease asset, $0.4 million of our amortization of debt discount and $0.1 million of depreciation expense offset by $0.2 million of amortization on our investments.

Changes in working capital were primarily related to higher prepaid and other current assets of $0.2 million and advances from collaboration partners of $0.4 million related to the achievement of a milestone in connection with the CF Foundation funding commitment for our cystic fibrosis development program in the U.S .

For the nine months ended September 30, 2018, net cash used in operating activities resulted primarily from our net loss of $33.2 million partially offset by non-cash charges of $9.6 million related to stock-based compensation, $0.1 million of depreciation expense and $1.2 million related to changes in working capital primarily for accounts payable and accrued expenses.

Our investing activities used cash of $42.6 million and $0.1 million during the nine months ended September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019, cash used in investing activities was primarily for the purchase of marketable securities of $56.0 million offset by proceeds of $13.5 million received upon the maturity of marketable securities.

For the nine months ended September 30, 2018, cash used in investing activities was primarily driven by the net purchase of property and equipment and long-term deposits.

Our financing activities provided cash of $46.3 million and $53.7 million during the nine months ended September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019, net cash provided by financing activities resulted primarily from net proceeds of $32.2 million from the 2019 Offering, issuance of debt of $15.0 million in January 2019 and proceeds of $0.4 million from the sale of common stock offset by the payment of taxes of $1.2 million associated with the vesting of restricted stock units and $0.3 million of debt issuance costs.

For the nine months ended September 30, 2018, net cash provided by financing activities resulted primarily from net proceeds from the 2018 Offering of $53.6 million and $0.1 million of proceeds from stock-based compensation arrangements.

Form S-3 and Equity Sales Agreement

On April 10, 2018, we filed a shelf registration statement (the “April 2018 Shelf”) on Form S-3 with the U.S.

Securities and Exchange Commission (the “SEC”).

The April 2018 Shelf (File No.

333-224207) was declared effective on April 20, 2018 and covers the offering, issuance and sale of up to $125.0 million of our common stock, preferred stock, debt securities or warrants and other securities, either individually or in combination.

On November 16, 2018, we filed a shelf registration statement (the “November 2018 Shelf”) on Form S-3 with the SEC.

The November 2018 Shelf (File No.

333-228430) was declared effective on November 21, 2018 and covers the offering, issuance and sale of up to $200.0 million of our common stock, preferred stock, debt securities or warrants and other securities, either individually or in combination.

Off-Balance Sheet Arrangements

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis