What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-16 · 67 added, 59 removed, 93 unchanged (58% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q or this Report, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual 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 that involve risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.

Please see the sections “Forward-Looking Statements,” “Summary Risk Factors,” and Part I, Item 1A.

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Company Overview

We are a clinical-stage biopharmaceutical company engaged in the science of ribosome modulation, leveraging both its innovative TURBO-ZM™ chemistry technology platform in an effort to develop novel Ribosome Modulating Agents (RMAs) and its library of Eukaryotic Ribosome Selective Glycosides (ERSGs), for the treatment of rare and ultra-rare premature stop codon diseases.

We are a clinical-stage biopharmaceutical company engaged in the science of ribosome modulation, leveraging both our innovative TURBO-ZM™ chemistry technology platform in an effort to develop novel Ribosome Modulating Agents (“RMAs”) and its library of Eukaryotic Ribosome Selective Glycosides (“ERSGs”), for the treatment of rare and ultra-rare premature stop codon diseases.

Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (“mRNA”) and the protein synthesis from that mRNA.

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As of the end of June 2021, we believe that we have enrolled a sufficient number of patients to assess biological activity of ELX-02.

We expect to present data from the first four treatment arms of the study in the fourth quarter of 2021.

We expect to present data from the first four treatment arms of the study before the end of 2021.

The Cystic Fibrosis Foundation (“CFF”) is providing funding for a portion of this clinical trial program.

The FDA has granted orphan drug designation to ELX-02 for the treatment of nephropathic cystinosis, MPS I, Rett syndrome, and CF.

In September 2021 the FDA granted Fast Track designation for ELX-02.

Acquisition of Zikani Therapeutics, Inc.

On April 1, 2021, the Company acquired Zikani Therapeutics, Inc.

(“Zikani”), a company in preclinical development and engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZM TM chemistry technology platform to develop novel Ribosome Modulating Agents (RMAs) as potential therapeutics for people with limited treatment options.

(“Zikani”), a company in preclinical development and engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZM TM chemistry technology platform to develop novel RMAs as potential therapeutics for diseases with limited treatment options.

The TURBO-ZM TM platform is designed to enable rapid synthesis of novel compounds that can be optimized to modulate the ribosome in a disease specific manner.

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Macrolides are antibiotics that inhibit protein synthesis in bacteria.

We expect the combined company to emerge as a leader in the science of ribosome modulation through our complementary platforms and continued development of our library of RMAs and Eukaryotic Ribosome Selective Glycosides (ERSGs).

We expect the combined company to emerge as a leader in the science of ribosome modulation through our complementary platforms and continued development of our library of RMAs and ERSGs.

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

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Our preclinical programs are focused on select rare diseases including inherited diseases, cancer caused by nonsense mutations, kidney diseases, including autosomal dominant polycystic kidney disease, as well as rare ocular genetic disorders.

In addition, we plan to file an IND in 2022 for what could potentially become the first oral therapy for protein restoration for patients with nonsense mutations in Recessive Dystrophic Epidermolysis Bullosa (RDEB) and Junctional Epidermolysis Bullosa (JEB).

In addition, we plan to file an Investigational New Drug (“IND”) in 2022 for what could potentially become the first oral therapy for protein restoration for patients with nonsense mutations in Recessive Dystrophic Epidermolysis Bullosa (“RDEB”) and Junctional Epidermolysis Bullosa (“JEB”).

RDEB is an incurable, extremely painful and often fatal skin blistering condition caused by a lack of collagen type VII that is estimated to affect more than 3,000 people worldwide.

JEB is the most severe form of EB, with most patients dying in infancy.

By extending the application of ribosomal RNA modulation to the readthrough of nonsense mutations in tumor suppressor genes, we are also rapidly advancing preclinical research for familial adenomatous polyposis (FAP), an inherited pre-cancerous colorectal

disease frequently caused by nonsense mutations in the adenomatous polyposis coli (APC) gene.

JEB is the most severe form of Epidermolysis Bullosa, with most patients dying in infancy.

adenomatous polyposis coli (APC) gene.

We plan to target rare diseases including genetic diseases and cancers caused by nonsense mutations.

Nonsense mutations cause approximately 10-12 percent of rare inherited diseases.

Nonsense mutations cause approximately 10-12% of rare inherited diseases.

ELX-02 along with the TURBO-ZM TM library of compounds are anticipated to significantly expand to include the treatment of many other rare diseases and certain cancers.

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However, given the significant uncertainty regarding the ongoing impact of the COVID-19 pandemic, there remains a risk that we or our employees, contractors, suppliers, and other partners may be prevented or prohibited from conducting business activities for indefinite periods of time, for example due to a substantial percentage of personnel contracting the virus or due to government-mandated restrictions.

While the pandemic has not to date had a material adverse impact on our financial condition, and we have not had to furlough any employees, our clinical trials were temporarily paused.

Both Phase 2 clinical trials have resumed, and we believe that we have enrolled a sufficient number of patients to assess biological activity of ELX-02.

While the pandemic has not to date had a material adverse impact on our financial condition, and we have not had to furlough any employees, our clinical trials were temporarily paused in March 021.

As of August 2021, both Phase 2 clinical trials have resumed, and we believe that we have enrolled a sufficient number of patients to assess biological activity of ELX-02.

We continue to monitor our operations, states of affairs in the regions in which we and our business partners operate and conduct research and clinical trial activities, and applicable government recommendations.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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Loss from operations

Other expense, net

Other income (expense), net

Research and development expense

Research and development expenses were $5.7 million for the three months ended June 30, 2021, compared to $3.7 million for the same period in 2020, an increase of $2.0 million.

The increase was primarily related to a $1.8 million increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, an increase in salaries and other personnel related costs of $0.3 million partially offset by a $0.1 million decrease in stock-based compensation expense.

Research and development expenses were $9.8 million for the six months ended June 30, 2021 compared to $8.5 million for the same period in 2020 , a n increase of $1.3 million.

The increase was primarily related to a $1.

5 0 million increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, partially offset by a decrease in salaries and other personnel related costs of $0.1 million, and a $0.1 million decrease in stock-based compensation expense.

Research and development expenses were $5.2 million for the three months ended September 30, 2021, compared to $3.4 million for the same period in 2020, an increase of $1.8 million.

The increase was primarily related to a $0.8 million increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, an increase in salaries and other personnel related costs of $0.5 million, and an increase in operational facilities of $0.5 million.

Research and development expenses were $15.0 million for the nine months ended September 30, 2021 compared to $12.0 million for the same period in 2020, an increase of $3.0 million.

The increase was primarily related to a $2.2 million

increase in expenses related to subcontractors, consultants and advisors in connection with continued development of ELX-02 due to the impact of the COVID-19 pandemic on the corresponding prior year period expense, an increase of $0.7 million related to operational facilities acquired with Zikani , and a $0.1 million increase in salaries and benefits .

General and administrative expenses

General and administrative expenses were $7.4 million for the three months ended June 30, 2021, compared to $3.8 million for the same period in 2020, an increase of $3.5 million.

The increase was primarily related to a $2.2 million increase in stock-based compensation expense, a $1.2 million increase in in salaries and other personnel related costs related to the merger with Zikani, as well as an increase of $0.1 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

General and administrative expenses were $11.7 million for the six months ended June 30, 2021, compared to $8.9 million for the same period in 2020, an increase of $2.8 million.

The increase was primarily related to a $1.6 million increase in stock-based compensation expense, a $1.0 million increase in in salaries and other personnel related costs related to the merger with Zikani, as well as an increase of $0.2 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

General and administrative expenses were $5.0 million for the three months ended September 30, 2021, compared to $2.9 million for the same period in 2020, an increase of $2.2 million.

The increase was primarily related to a $0.7 million increase in stock-based compensation expense, a $0.5 million increase in in salaries and other personnel related costs related to the merger with Zikani, as well as an increase of $1.0 million in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees.

General and administrative expenses were $16.7 million for the nine months ended September 30, 2021, compared to $11.7 million for the same period in 2020, an increase of $5.0 million.

The increase was primarily related to $0.8 million increase in expenses attributable principally to infrastructure related costs including legal, accounting and other professional fees, $0.2 million related to office facilities acquired from Zikani and insurance, and, as further described below, $4.0 million related to restructuring charges in 2020 that were not incurred in 2021.

Acquired in-process research and development

Acquired in-process research and development (“IPR&D”) expense of $22.7 million for the six months ended June 30, 2021 consists of the estimated fair value of the assets acquired and consideration given in connection with the acquisition of the Zikani’s IPR&D.

As the assets acquired were in the research and development phase and were determined to not have any alternative future use, it was expensed as acquired IPR&D.

There was no such expense for the six months ended June 30, 2020.

Acquired in-process research and development (“IPR&D”) expense of $22.7 million for the nine months ended September 30, 2021 consists of the estimated fair value of the assets acquired and consideration given in connection with the acquisition of the Zikani’s IPR&D.

As the assets acquired were in the research and development phase and were determined to not have any alternative future use, such assets were expensed as acquired IPR&D.

There was no such expense for the nine months ended September 30, 2020.

Restructuring charges

Restructuring charges of $4.0 million for the six months ended June 30, 2020 resulted from the leadership and organizational realignment during the first quarter of 2020.

Restructuring charges of $4.0 million for the nine months ended September 30, 2020 resulted from the leadership and organizational realignment during the first quarter of 2020.

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

There were no similar charges during the six months ended June 30, 2021.

There were no similar charges during the nine months ended September 30, 2021.

Other expense, net

We recorded $0.3 million in other expense, net for each of the three months ended June 30, 2021, and 2020.

We recorded $0.6 million in other expense, net for the six months ended June 30, 2021, compared to $0.5 million for the same period in 2020.

The increase in other expense, net was primarily due to lower interest income.

We recorded $0.4 million in other income, net for the three months ended September 30, 2021 compared to a $0.3 million other expense, net during the same period in 2020.

We recorded $0.2 million in other expense, net for the nine months ended September 30, 2021, compared to $0.8 million for the same period in 2020.

The increase in the 2021 periods as comparted to the same periods in 2020 was primarily due to the Company recognizing a $0.8 million gain on extinguishment of debt related to the forgiveness of the PPP loan (defined below), offset by a $0.3 million loss on extinguishment of debt related to the repayment of the amounts outstanding under our existing term loan from SVB in September 2021.

Liquidity and Capital Resources

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We have incurred significant operating losses to date and have not generated revenue from sales of any products or services.

Our net losses were $44.8 million and $7.9 million for the six months ended June 30, 2021, and 2020.

As of June 30, 2021, we had an accumulated deficit of $216.3 million.

Further, we expect to incur additional costs related to our acquisition of Zikani .

Our net losses were $54.6 million and $28.5 million for the nine months ended September 30, 2021, and 2020.

As of September 30, 2021, we had an accumulated deficit of $226.2 million.

We have financed our operations primarily through the issuance of equity instruments, and to a lesser extent, from loans and grants.

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

A successful transition to profitable operations is dependent upon achieving a level of revenue

adequate to support our cost structure.

A successful transition to profitable operations 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.

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Our cash and cash equivalents 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 money market funds .

We believe that our cash and cash equivalents of $56.7 million at June 30, 2021, will enable us to meet anticipated cash needs required to maintain our current and planned operations through at least the next 12 months from the issuance of this Report.

We believe that our cash and cash equivalents of $52.4 million at September 30, 2021, will enable us to meet anticipated cash needs required to maintain our current and planned operations through at least the next 12 months from the issuance of this Report.

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.

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Principal Financing Activities

In April 2020, we entered into a loan agreement with Silicon Valley Bank (“SVB”) under the U.S.

In April 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 Economic Security Act of 2020 (the “CARES Act”) and received loan proceeds of $0.8 million (the “PPP Loan”).

We used the loan proceeds for payroll and other covered costs in accordance with the relevant terms and conditions of the CARES Act.

The PPP Loan has a maturity date of April 21, 2022 and an interest rate of 1.0% per annum.

Monthly payments of principal and interest are due beginning on September 21, 2021, although interest accrues from the issuance date.

A PPP loan may be partially or entirely forgiven based on employee retention for the 24-week period starting on the loan date through October 2020, and the use of loan proceeds for payroll or other specified costs 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 subject to SVB approval in accordance with SBA requirements.

The PPP Loan has an interest rate of 1.0% per annum.

Under the terms of the PPP, on September 3, 2021, the PPP Loan was forgiven in full and the Company recognized a gain on extinguishment of debt of $0.8 million during the three and nine months ended September 30, 2021.

On May 13, 2021, we completed an underwritten public offering of 38,333,334 shares of common stock at a price of $1.35 per share and received gross proceeds of approximately $51.8 million, before deducting underwriting discounts and commissions of $3.1 million and offering expenses of $0.8 million.

On September 30, 2021, we entered into a Loan and Security Agreement with Hercules Capital, Inc., (“Hercules” or the “Lender”), Hercules agreed to extend term loans (the “Hercules Term Loan”) to the Company in an aggregate principal amount of up to $30.0 million, comprised of three tranches.

The Company drew on the first tranche of $12.5 million on September 30, 2021 and used $7.7 million of the proceeds to repay the SVB loan principal, final payment, and early termination fees, resulting in net proceeds to us of $4.2 million, net of issuance related costs of $0.6 million.

The remaining tranches totaling $17.5 million will be available to the Company based on achieving certain clinical and equity milestones during defined time periods.

We will pay interest only on the outstanding principal on a monthly basis for the first 18 months of the agreement, which may be extended for an additional 12 months upon the achievement of certain milestones.

Any amounts outstanding under the term loan advances, if not repaid sooner, are due and payable on April 1, 2025.

that we partially repay the outstanding obligations, the Company shall pay the Lenders a charge equal to 6.55% of the original principal amount.

On September 30, 2021, the Company entered into a Sales Agreement with SVB Leerink, LLC (“SVB Leerink”) pursuant to which the Company may offer and sell up to $50.0 million of shares of its common stock (the “ATM Shares”) from time to time, through an “at the market offering” program (the “ATM Program”) , under which SVB Leerink will act as sales agent.

Pursuant to the Sales Agreement, the Company will set the parameters for the sale of ATM Shares, including the number of ATM Shares to be issued, the time period during which sales are requested to be made, limitations on the number of ATM Shares that may be sold in any one trading day and any minimum price below which sales may not be made.

The Company is not obligated to make any sales of Shares under the ATM Program.

This ATM Program was not active as of September 30, 2021, and the Company had not sold any shares under the ATM Program as of such date.

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

Six Months Ended

Nine Months Ended

September 30,

Net cash used in operating activities

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Net cash provided by (used in) financing activities

Our operating activities used cash of $17.5 million and $18.2 million during the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021, net cash used in operating activities resulted primarily from our net loss of $44.8 million and changes in working capital of $0.3 million, partially offset by total non-cash charges of $28.5 million.

Our operating activities used cash of $25.1 million and $23.5 million during the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, net cash used in operating activities resulted primarily from our net loss of $54.6 million, partially offset by total non-cash charges of $31.5 million.

Non-cash charges primarily related to $22.7 million of acquired in-process research and development, $7.6 million of stock-based compensation, $0.7 million of amortization of lease assets, and $0.3 million of debt discount amortization.

Changes in working capital were primarily related to decreases of $0.1 million in prepaid expenses, $0.2 million in operating lease liabilities, and $1.0 million of merger related costs.

For the six months ended June 30, 2020, net cash used in operating activities resulted primarily from our net loss of $(21.8) million and total changes in working capital of $(3.0) million partially offset by total non-cash charges of $6.6 million.

Changes in working capital were primarily related to decreases of $0.6 million in prepaid expenses, $0.7 million in operating lease liabilities, $0.2 million net of accounts payable and accrued expenses, and $1.0 million of merger related costs.

For the nine months ended September 30, 2020, net cash used in operating activities resulted primarily from our net loss of $28.5 million and total changes in working capital of $3.4 million partially offset by total non-cash charges of $8.3 million.

Non-cash charges primarily related to $7.4 million of stock-based compensation, $0.5 million of amortization of lease assets, and $0.4 million of debt discount amortization.

Changes in working capital were primarily related to decreases of $1.2 million in accrued expenses, $1.1 million in accounts payable and $0.3 million in operating lease liabilities, and in increase of $0.4 million in prepaid expenses and other current assets.

Our investing activities provided cash of $2.1 million and $27.0 million during the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021, cash provided in investing activities was primarily related to $2.1 million of cash acquired as part of the merger.

For the six months ended June 30, 2020, cash provided in investing activities was primarily related to $27.0 million of proceeds from the maturity of marketable securities .

Our financing activities provided cash of $47.6 million during the six months ended June 30, 2021 and used cash of $0.9 million during the six months ended June 30, 2020.

For the six months ended June 30, 2021, net cash provided by financing activities consisted primarily of net proceeds of $47.7 million from our public offering of common stock in May 2021, $2.6 million in advances received from collaboration partners, offset by $2.5 million in term loan principal repayments and $0.2 million related to the settlement of taxes upon vesting of restricted stock units.

For the six months ended June 30, 2020, net cash used in financing activities consisted primarily of $2.1 million in term loan principal repayments, offset by $0.8 million received from the PPP Loan and $0.4 million in advances received from collaboration partners.

Off-balance Sheet Arrangements

Changes in working capital were primarily related to increases of $1.7 million in accrued expenses, $1.2 million in accounts payable, $0.4 million in operating lease liabilities, and in increase of $0.1 million in prepaid expenses and other current assets.

Our investing activities provided cash of $2.1 million and $33.8 million during the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, cash provided in investing activities was primarily related to $2.1 million of cash acquired as part of the merger.

For the nine months ended September 30, 2020, cash provided in investing activities was primarily related to $33.8 million of proceeds from the maturity of marketable securities .

Our financing activities provided cash of $50.9 million during the nine months ended September 30, 2021 and used cash of $2.2 million during the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, net cash provided by financing activities consisted primarily of net proceeds of $47.7 million from our public offering of common stock in May 2021, $2.9 million in advances received from collaboration partners, $11.9 million of net cash received from the Hercules term loan, offset by $11.3 million in SVB term loan principal and repayments and final loan payment, and $0.2 million related to the settlement of taxes upon vesting of restricted stock units.

For the nine months ended September 30, 2020, net cash used in financing activities consisted primarily of $3.3 million in term loan principal repayments, offset by $0.8 million received from the PPP Loan and $0.4 million in advances received from collaboration partners.

Off- b alance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

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

There have been no material changes to our critical accounting policies through June 30, 2021 from those discussed in our Annual Report filed with the SEC on March 12, 2021.

There have been no material changes to our critical accounting policies through September 30, 2021 from those discussed in our Annual Report filed with the SEC on March 12, 2021.

Quantitative and Qualitative Disclosures about Market Risk

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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