What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-25 compared with 2022-08-03 · 144 added, 74 removed, 186 unchanged (54% of the section changed)

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In connection with these events, our Board of Directors approved a reduction in workforce designed to substantially reduce our operating expenses while we undertake a comprehensive assessment of our strategic options to maximize stockholder value.

See “Item 1A.

Risk Factors – Risks Related to Strategic Process and Potential Strategic Transaction” for a discussion regarding risks related to our business, financial condition, future operations and prospects in connection with our decision to discontinue our current research and development programs and pursue one or more strategic alternatives for our company.

Following an extensive process of evaluating strategic alternatives, including identifying and reviewing potential candidates for a strategic acquisition or other transaction, on September 6, 2022, we entered into an Asset Purchase Agreement, or the Asset Purchase Agreement, with Cardurion Pharmaceuticals, Inc., or Cardurion, providing for the sale of tovinontrine (IMR-687) and all of our other assets related to our PDE9 program, or the Asset Sale.

On October 13, 2022, we, Iguana Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary, or the Merger Sub, and Enliven Therapeutics, Inc., a Delaware corporation, or Enliven, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Enliven, with Enliven continuing as our wholly owned subsidiary and the surviving corporation of the merger, or Merger.

If the Merger is completed, the business of Enliven will continue as the business of the combined organization.

One of the conditions to the closing of the transactions contemplated by the Merger Agreement is the closing of the transactions contemplated by the Asset Purchase Agreement between us and Cardurion.

We expect to devote significant time and resources to the completion of the Asset Sale and the Merger.

However, there can be no assurances that such activities will result in the completion of the Asset Sale or the Merger.

Further, the completion of the Merger may ultimately not deliver the anticipated benefits or enhance shareholder value.

If either the Asset Sale or the Merger is not completed, we will reconsider our strategic alternatives.

As noted above, the closing of the transactions contemplated by the Asset Purchase Agreement between us and Cardurion is a condition to the closing of the transactions contemplated by the Merger Agreement and thus failure to close the Asset Sale would cause us not to be able to satisfy its obligations under the Merger Agreement.

We consider one of the following courses of action to be the most likely alternatives if the Asset Sale or the Merger is not completed:

Dissolve and liquidate our assets .

If, for any reason, the Asset Sale or the Merger does not close, our Board may conclude that it is in the best interest of stockholders to dissolve the Company and liquidate our assets.

In that event, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims.

There would be no assurances as to the amount or timing of available cash remaining to distribute to stockholders after paying our obligations and setting aside funds for reserves.

Pursue another strategic transaction .

We may resume the process of evaluating a potential strategic transaction in order to attempt another strategic transaction like the Asset Sale or the Merger.

Operate our business .

Although less likely than the alternatives above, our Board may elect to seek new product candidates for development.

Asset Purchase Agreement

Pursuant to the terms of the Asset Purchase Agreement, in addition to $250,000 previously paid by Cardurion to us upon execution of a non-binding term sheet, the aggregate purchase price consists of an upfront cash payment of $34,750,000 upon closing of the transaction and a $10,000,000 potential future payment that may become payable if Cardurion achieves a proof of concept milestone or other specified clinical milestones and a $50,000,000 potential future payment that may become payable if Cardurion achieves specified regulatory and/or commercial milestone events, in each case as described in the Asset Purchase Agreement and subject to the terms of the Asset Purchase Agreement.

The Asset Purchase Agreement contains certain customary representations, warranties and covenants.

The Asset Purchase Agreement also contains customary indemnification provisions pursuant to which the parties agree to indemnify each other for certain matters, including, among other things, breaches of certain representations, warranties and covenants in connection with the Asset Sale.

Completion of the Asset Sale is subject to approval by our stockholders and the satisfaction or waiver of other customary conditions.

The Asset Purchase Agreement contains certain termination rights of each of us and Cardurion.

In certain circumstances, we would be obligated to pay a termination fee of $1,500,000 to Cardurion.

We are obligated to hold a meeting of its stockholders in connection with the Asset Sale notwithstanding any change by the Board in its recommendation with respect to the Asset Sale.

Merger Agreement

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, or the Effective Time, (a) each then-outstanding share of Enliven common stock (including shares of Enliven common stock issued upon conversion of Enliven preferred stock, which conversion will occur immediately prior to the Effective Time and shares of Enliven common stock issued in the Financing Transaction (as defined below)) will be converted into the right to receive a number of shares of our common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to the Reverse Stock Split (as defined below)) calculated in accordance with the Merger Agreement (the ratio of such conversion, the Exchange Ratio);

and (b) each then-outstanding Enliven stock option to purchase Enliven common stock will be assumed by us, subject to adjustment as set forth in the Merger Agreement.

Subject to the terms and conditions of, and the calculation of the Exchange Ratio pursuant to, the Merger Agreement, it is currently anticipated that upon the closing of the Merger, our pre-Merger stockholders will own approximately 16% of the combined company and pre-Merger Enliven stockholders (including those purchasing Enliven shares in the Financing Transaction) will own approximately 84% of the combined company on a pro forma basis, based on the number of shares of our common stock expected to be issued in connection with the Merger.

The provisions for calculating the Exchange Ratio are set forth in the Merger Agreement, and assume a valuation for Enliven equal to $324.6 million, plus the proceeds of the Financing Transaction, and a valuation for us equal to our net cash as of the business day immediately prior to the closing date of the Merger, plus $10 million, in each case as further described in the Merger Agreement.

The Exchange Ratio is also based on the relative capitalizations of the companies.

For purposes of calculating the Exchange Ratio, shares of our common stock underlying our stock options outstanding immediately prior to the Effective Time with an exercise price per share of less than or equal to $10.00 (as adjusted for the Reverse Stock Split) will be deemed to be outstanding, and all shares of Enliven common stock underlying outstanding Enliven stock options, warrants and other derivative securities will be deemed to be outstanding.

In connection with the Merger, we will seek the approval of our stockholders to, among other things, (a) issue the shares of our common stock issuable in connection with the Merger under the rules of The Nasdaq Stock Market LLC, or Nasdaq, pursuant to the terms of the Merger Agreement, or the Required Voting Proposal, (b) amend our certificate of incorporation to effect a reverse split of our common stock, at a ratio to be determined prior to the Effective Time in accordance with the Merger Agreement, or the Reverse Stock Split, which is intended to ensure that Nasdaq listing requirements are satisfied and (c) amend certain terms of our equity incentive plans as described in the Merger Agreement.

Each of us and Enliven have agreed to customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants relating to (1) using reasonable best efforts to obtain the requisite approvals of our respective stockholders, (2) non-solicitation of alternative acquisition proposals, (3) the conduct of our respective businesses during the period between the date of signing the Merger Agreement and the closing of the Merger, (4) us using reasonable best efforts to maintain the existing listing of the our common stock on Nasdaq and causing the shares of our common stock to be issued in connection with the Merger to be approved for listing on Nasdaq prior to the closing of the Merger, (5) us filing with the U.S.

Securities and Exchange Commission,

or the SEC, and causing to become effective a registration statement to register the shares of our common stock to be issued in connection with the Merger, or the Registration Statement, and (6) each of us and Enliven filing a pre-merger notification requirement under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act.

Consummation of the Merger is subject to certain closing conditions, including, among other things, (1) approval by our stockholders of the Required Voting Proposal, (2) approval by the Enliven stockholders of the adoption of the Merger Agreement, (3) Nasdaq’s approval of the listing of the shares of our common stock to be issued in connection with the Merger, (4) the effectiveness of the Registration Statement, (5) our net cash as determined in accordance with the Merger Agreement being between $75 million and $95 million, (6) the waiting period under the HSR Act having expired or been terminated and (7) our closing of the previously announced Asset Sale.

Each party’s obligation to consummate the Merger is also subject to other specified customary conditions, including the representations and warranties of the other party being true and correct as of the date of the Merger Agreement and as of the closing date of the Merger, generally subject to an overall material adverse effect qualification, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the date of the closing of the Merger.

Enliven’s obligation to consummate the Merger is also subject to the completion of the Financing Transaction such that Enliven receives gross proceeds of at least $131.6 million and our obligation to consummate the Merger is subject to the completion of the Financing Transaction such that Enliven receives gross proceeds of at least $75.0 million.

The Merger Agreement contains certain termination rights of each of us and Enliven, including, subject to compliance with the applicable terms of the Merger Agreement, the right of each party to terminate the Merger Agreement to enter into a definitive agreement for a superior proposal.

Upon termination of the Merger Agreement under specified circumstances, we may be required to pay Enliven a termination fee of $3.0 million and Enliven may be required to pay us a termination fee of $9.75 million.

In addition, Enliven will be required to pay us a termination fee of $3.0 million if Enliven or we terminate the Merger Agreement at specified times with all conditions to closing of the Merger satisfied other than completion of the Financing Transaction such that Enliven receives gross proceeds of at least $131.6 million or $75 million, respectively.

At the Effective Time, the board of directors of the combined company is expected to consist of nine members, eight of whom will be designated by Enliven and one of whom will be designated by us.

Enliven’s designees are expected to be the current members of the board of directors of Enliven.

Our designee is expected to be Rahul Ballal, our President and Chief Executive Officer.

Concurrently with the execution and delivery of the Merger Agreement, Enliven entered into a common stock purchase agreement, or the Purchase Agreement with certain new and existing Enliven investors, pursuant to which Enliven agreed to issue and sell to such investors, and such investors agreed to purchase from Enliven, shares of Enliven common stock for an aggregate purchase price of approximately $164.5 million, or the Financing Transaction.

The closing of the Financing Transaction is conditioned on the satisfaction or waiver of the closing conditions to the Merger as set forth in the Merger Agreement and other customary closing conditions, and is expected to occur immediately prior to the closing of the Merger, in accordance with the terms of the Purchase Agreement.

The shares of Enliven common stock to be issued in connection with the Financing Transaction will be converted into the right to receive a number of shares of our common stock in the Merger in accordance with the Exchange Ratio, or the Converted Financing Stock (subject to the payment of cash in lieu of fractional shares and after giving effect to the Reverse Stock Split).

At or prior to the Effective Time, we will enter into a Contingent Value Rights Agreement, or the CVR Agreement, with a rights agent, or the Rights Agent, pursuant to which our pre-Merger common stockholders will receive one contingent value right (each, a CVR) for each outstanding share of our common stock held by such stockholder on such date.

Each CVR will represent the contractual right to receive payments upon the occurrence of certain events related to the Asset Sale or a potential sale or license involving IMR-261, in each case as set forth in, and subject to and in accordance with the terms and conditions of, the CVR Agreement.

The contingent payments under the CVR Agreement, if they become payable, will become payable to the Rights Agent for subsequent distribution to the holders of the CVRs.

In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement.

There can be no assurance that holders of CVRs will receive any amounts with respect thereto.

The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.

The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC.

The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in us or any of our affiliates.

No interest will accrue on any amounts payable in respect of the CVRs.

Financial Overview

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We also simultaneously entered into a sales agreement, or Sales Agreement, with Cantor Fitzgerald & Co, LLC, or Cantor, as sales agent, providing for the offering, issuance and sale by us of up to an aggregate $75.0 million of our common stock from time to time in “at-the-market” offerings under the Shelf.

As of June 30, 2022, we have issued and sold 231,291 shares of common stock under the Sales Agreement , resulting in net proceeds of $1.4 million after deducting commissions and offering expenses.

As of September 30, 2022, we have issued and sold 231,291 shares of common stock under the Sales Agreement , resulting in net proceeds of $1.4 million after deducting commissions and offering expenses.

On July 16, 2021, we completed a public offering of shares of our common stock and issued and sold 8,333,333 shares of common stock at a public offering price of $6.00 per share, resulting in net proceeds of $46.8 million after deducting underwriting discounts and commissions and estimated offering expenses.

We have incurred significant operating losses since inception.

Our losses from operations were $11.5 million and $26.2 million for the three and six months ended June 30, 2022, respectively, and $13.2 million and $23.4 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, we had an accumulated deficit of approximately $173.6 million.

Our losses from operations were $4.8 million and $31.0 million for the three and nine months ended September 30, 2022, respectively, and $13.7 million and $37.1 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, we had an accumulated deficit of approximately $178.2 million.

In April 2022, we discontinued development of tovinontrine and implemented reduction in workforce, each of which was designed to substantially reduce our operating expenses while we undertake a comprehensive assessment of our strategic options.

Notwithstanding these events, w e expect to continue to incur operating losses for the foreseeable future.

In September 2022, we entered into the Asset Purchase Agreement and in October 2022 we entered into the Merger Agreement.

Notwithstanding these events, and subject to the closing of the Asset Sale and Merger, w e expect to continue to incur operating losses for the foreseeable future.

In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the outcome of our strategic process and depending on whether we decide to pursue any future product development efforts.

We are not currently developing any product candidates and we do not have any products approved for sale.

If we decide to pursue any future product development efforts, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for any future product candidate.

In addition, if we obtain regulatory approval for any product candidate and to the extent that we engage in commercialization activities on our own, we expect we will

incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities.

If we decide to pursue any future product development efforts, we will need substantial additional funding to support our continuing operations and develop a growth strategy.

Until such time as 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, strategic alliances and licensing arrangements.

If the Asset Sale or Merger does not close, although less likely than pursuing a dissolution and liquidation or other potential strategic alternatives, if we decide to pursue any future product development efforts, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for any future product candidate.

In addition, if we obtain regulatory approval for any product candidate and to the extent that we engage in commercialization activities on our own, we expect we will incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities.

Moreover, if we decide to pursue any future product development efforts, we will need substantial additional funding to support our continuing operations and develop a growth strategy.

Until such time as we can generate significant revenue from product sales, if ever, we would expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

We may be unable to raise additional funds or enter into other arrangements when needed on acceptable terms, or at all.

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We will need to generate significant revenue to achieve profitability, and we may never do so.

As of June 30, 2022 we had $60.3 million in cash, cash equivalents and investments.

We believe that our cash, cash equivalents and investments as of June 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q.

As of September 30, 2022 we had $56.3 million in cash, cash equivalents and investments.

We believe that our cash, cash equivalents and investments as of September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q.

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.

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In December 2019, a novel strain of coronavirus, called COVID-19, emerged and has now spread globally.

The COVID-19 pandemic is ongoing and its impact continues to evolve as of the date of this Quarterly Report on Form 10-Q .

The impact of the COVID-19 pandemic is ongoing and continues to evolve as of the date of this Quarterly Report on Form 10-Q .

We continue to actively monitor the impact of the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry and workforce.

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The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which remain uncertain and cannot be predicted, including new information that may emerge concerning the continued severity of COVID-19 and variants of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

As the COVID-19 pandemic continues, it may have an adverse effect on our results of future operations, financial position and liquidity, and on our ability to access capital.

Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of an economic recession or depression that may occur in the future .

As the impact of the COVID-19 pandemic continues, it may have an adverse effect on our results of future operations, financial position and liquidity, and on our ability to access capital.

Even after the impact of the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of an economic recession or depression that may occur in the future .

Lundbeck License Agreement

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We are obligated to pay tiered royalties of low-to-mid single-digit percentages to Lundbeck based on our, and any of our affiliates’ and sublicensees’, net sales of licensed products, and tiered royalties of low single-digit percentages to Lundbeck based on our, and any of our affiliates’ and sublicensees’, net sales of PDE9 products, if any.

In connection with the Asset Sale, our license agreement with Lundbeck will be assigned to Cardurion.

Financial Operations Overview

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Research and development expenses consist primarily of costs incurred in connection with the preclinical and clinical development and manufacture of our products.

We expect our research and development expenses to decrease significantly beginning in the third quarter of 2022 as a result of our April 2022 decision to discontinue development of tovinontrine and our related reduction in workforce.

For the periods presented in this Quarterly Report on Form 10-Q, research and development expenses include :

We expect our research and development expenses to continue to decrease significantly, as a result of our April 2022 decision to discontinue development of tovinontrine and our related reduction in workforce.

For the nine months ended September 30, 2022, research and development expenses include :

costs related to the impact of the COVID-19 pandemic;

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milestone fees incurred in connection with our current license agreement with Lundbeck;

facilities and other allocated expenses, which include direct and allocated expenses for rent, insurance and other operating costs.

We expense research and development costs as incurred.

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.

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 unaudited condensed consolidated financial statements as prepaid expenses or accrued research and development expenses.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development.

The capitalized amounts are expensed as the related goods are delivered or the services are performed .

A significant portion of our research and development costs have been external costs, which we track after a clinical product candidate has been identified.

Research and development expense for the three months ended September 30, 2022 is comprised of costs incurred in connection with the Workforce Reduction, costs related to drug storage and compliance with regulatory requirements, and consulting expense

Historically, we expensed research and development costs as incurred.

We recognized external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.

Payments for these activities were based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our unaudited condensed consolidated financial statements as prepaid expenses or accrued research and development expenses.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities were deferred and capitalized, even when there was no alternative future use for the research and development.

The capitalized amounts were expensed as the related goods are delivered or the services are performed.

A significant portion of our research and development costs have been external costs, which we tracked after a clinical product candidate had been identified.

Our internal research and development costs are primarily personnel-related costs and other indirect costs.

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We did not track our internal research and development expenses on a program-by-program basis as our personnel were deployed across multiple projects under development .

The following table summarizes our research and development expenses for the three and six months ended June 30, 2022 and 2021:

The following table summarizes our research and development expenses for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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Total research and development expenses

If we decide to pursue any future product development efforts, the successful development of any product candidates is highly uncertain.

If we were to decide to pursue any future product development efforts, the successful development of any product candidates is highly uncertain.

Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that would be necessary to complete the potential development and commercialization of any future product candidates.

We are also unable to predict when, if ever, material net cash inflows will commence from the sale of potential future product candidates, if approved.

We are also unable to predict when, if ever, material net cash inflows would commence from the sale of potential future product candidates, if approved.

This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

the impact of the ongoing COVID-19 pandemic and our response to it;

the impact of the COVID-19 pandemic and our response to it;

the timing and progress of preclinical and clinical development activities;

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Any changes in the outcome of any of these variables with respect to the potential development of any future product candidates could mean a significant change in the costs and timing associated with the development of these product candidates.

If we decide to pursue any future product development efforts, we may never obtain regulatory approval for any product candidates.

If we were to decide to pursue any future product development efforts, we may never obtain regulatory approval for any product candidates.

Drug commercialization takes several years and millions of dollars in development costs and the potential success of such programs is difficult to predict and are often not successful.

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Other significant general and administrative expenses include the cost of director and officer insurance premiums, legal fees relating to patent, intellectual property and corporate matters, and fees paid for accounting, consulting and other professional services.

We anticipate that our general and administrative expenses will decrease beginning in the third quarter of 2022 following our April 2022 decision to discontinue development of tovinontrine and the related reduction in workforce.

Our future general and administrative expenses will be significantly dependent on the outcome of our strategic process and on whether we decide to pursue any future product development efforts.

We anticipate that our general and administrative expenses will decrease following our April 2022 decision to discontinue development of tovinontrine and the related reduction in workforce.

Our future general and administrative expenses will be significantly dependent on the outcome of our strategic process, including whether or not we successfully consummate the Asset Sale and the Merger, and on whether we decide to pursue any future product development efforts.

Total Other Income, Net

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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:

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:

Three Months Ended

September 30,

(in thousands)

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Research and Development Expenses

Research and development expenses decreased by approximately $2.7 million from $10.1 million for the three months ended June 30, 2021, to $7.4 million for the three months ended June 30, 2022.

Research and development expenses decreased by approximately $10.2 million from $10.4 million for the three months ended September 30, 2021, to $0.2 million for the three months ended September 30, 2022.

The decrease in research and development expenses was primarily attributable to the following:

a $8.2 million decrease in costs related to the development and manufacturing of clinical materials, clinical research and oversight of our clinical trials and investigative fees for tovinontrine following discontinuation of clinical development;

a $0.5 million increase in personnel related increase in personnel-related costs, including approximately $1.6 million in costs related to our April 2022 workforce reduction partially offset by a decrease of $0.4 million in stock-based compensation expense;

a $1.8 million decrease in personnel-related costs;

a $0.2 million decrease in other research and development operational costs.

General and Administrative Expenses

General and administrative expenses increased by approximately $1.0 million from $3.1 million for the three months ended June 30, 2021, to $4.1 million for the three months ended June 30, 2022.

General and administrative expenses increased by approximately $1.4 million from $3.3 million for the three months ended September 30, 2021, to $4.6 million for the three months ended September 30, 2022.

The increase in general and administrative expenses was primarily attributable to the following:

a $0.4 million increase in personnel-related costs, including approximately $0.3 million in costs related to our April 2022 workforce reduction;

a $0.4 million increase in depreciation expense due to a revision of the useful lives of our leasehold improvements and furniture related to our lease termination, which becomes effective on August 7, 2022;

a $1.9 million increase in consulting and professional fees, including legal, business development, accounting and audit fees;

a $0.4 million decrease in personnel-related costs;

a $0.1 million decrease in other general and administrative operational costs.

Total Other Income, Net

Total other income, net for the three months ended June 30, 2022 was primarily comprised of interest earned on our cash, cash equivalents and investments.

Total other income, net was de minimis for the three months ended June 30, 2021.

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

Total other income, net for the three months ended September 30, 2022 was primarily comprised of interest earned on our cash, cash equivalents and investments.

Total other income, net was de minimis for the three months ended September 30, 2021.

Comparison of the Nine months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

(in thousands)

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Research and Development Expenses

Research and development expenses increased by approximately $1.4 million from $17.2 million for the six months ended June 30, 2021 to $18.6 million for the six months ended June 30, 2022.

The increase in research and development expenses prior to discontinuation of clinical development in April 2022 was primarily attributable to the following:

a $0.2 million increase in costs related to the development and manufacturing of clinical materials, clinical research and oversight of our clinical trials and investigative fees for tovinontrine;

a $0.9 million increase in personnel-related costs, including approximately $1.6 million in costs related to our April 2022 workforce reduction partially offset by a decrease of $0.4 million in stock-based compensation expense;

a $0.3 million increase in other research and development operational costs, including professional services, supplies, and travel.

Research and development expenses decreased by approximately $8.8 million from $27.6 million for the nine months ended September 30, 2021 to $18.8 million for the nine months ended September 30, 2022.

The decrease in research and development expenses was primarily attributable to the following:

a $7.9 million decrease in costs related to the development and manufacturing of clinical materials, clinical research and oversight of our clinical trials and investigative fees for tovinontrine;

a $0.9 million decrease in personnel-related costs.

General and Administrative Expenses

General and administrative expenses increased by approximately $1.3 million from $6.3 million for the six months ended June 30, 2021 to $7.6 million for the six months ended June 30, 2022.

General and administrative expenses increased by approximately $2.7 million from $9.5 million for the nine months ended September 30, 2021 to $12.3 million for the nine months ended September 30, 2022.

The increase in general and administrative expenses was primarily attributable the following:

a $0.7 million increase in personnel-related costs, including approximately $0.3 million in costs related to our April 2022 workforce reduction;

a $2.0 million increase in consulting and professional fees, including legal, business development, accounting and audit fees;

a $0.4 million increase in depreciation expense due to a revision of the useful lives of our leasehold improvements and furniture related to our lease termination, which became effective on August 7, 2022;

3 million increase in personnel-related costs .

Total Other Income, Net

Total other income, net for the six months ended June 30, 2022 and 2021 was primarily comprised of interest earned on our cash, cash equivalents and investments.

Total other income, net for the nine months ended September 30, 2022 and 2021 was primarily comprised of interest earned on our cash, cash equivalents and investments.

Liquidity and Capital Resources

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We have not yet commercialized or generated revenue from sales of any product candidate.

Through June 30, 2022, we have funded our operations primarily through the issuance of common stock and convertible preferred stock.

Through September 30, 2022, we have funded our operations primarily through the issuance of common stock and convertible preferred stock.

On April 1, 2021, we filed the Shelf with the SEC in relation to the registration and potential future issuance of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $200.0 million.

The Shelf was declared effective on April 8, 2021.We also simultaneously entered into the Sales Agreement with Cantor, as sales agent, providing for the offering, issuance and sale by us of up to an aggregate $75.0 million of our common stock from time to time in “at-the-market” offerings under the Shelf.

As of June 30 , 2022, we have issued and sold 231,291 shares of common stock under the Sales Agreement, resulting in net proceeds of $1.4 million after deducting commissions and offering expenses.

As of September 30, 2022, we have issued and sold 231,291 shares of common stock under the Sales Agreement, resulting in net proceeds of $1.4 million after deducting commissions and offering expenses.

The extent to which we utilize the Sales Agreement as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions, the extent to which we are able to secure funds from other sources, and restrictions on our ability to sell common stock pursuant to the Sales Agreement to the extent we are then subject to restrictions on our ability to utilize the Form S-3 shelf registration statement to sell more than one-third of the market value of our public float, meaning the aggregate market value of voting and non-voting common stock held by non-affiliates, in any trailing 12-month period.

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As of June 30, 2022, we had $60.3 million in cash, cash equivalents and investments.

As of September 30, 2022, we had $56.3 million in cash, cash equivalents and investments.

While we do not currently expect that the COVID-19 pandemic will have a material adverse impact on our short-term or long-term liquidity, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity.

See “Impact of COVID-19 Pandemic.”

The following table provides information regarding our cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended

The following table provides information regarding our cash flows for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

(in thousands)

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Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash

Net Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022 was $29.5 million primarily due to our net loss of $26.1 million and net cash outflow from a change in working capital of $5.4 million, partially offset by stock-based compensation expense of $1.4 million, depreciation expense of $0.5 million, and amortization of investments of $0.1 million.

Net cash used in operating activities for the six months ended June 30, 2021 was $23.4 million primarily due to our net loss of $23.4 million and net cash outflow from a change in working capital of $2.0 million, partially offset by stock-based compensation expense of $1.9 million and depreciation expense of $0.1 million.

Net cash used in operating activities for the nine months ended September 30, 2022 was $33.7 million primarily due to our net loss of $30.7 million and net cash outflow from a change in working capital of $5.6 million, partially offset by stock-based compensation expense of $1.9 million, depreciation expense of $0.6 million, and amortization of investments of $0.1 million.

Net cash used in operating activities for the nine months ended September 30, 2021 was $34.3 million primarily due to our net loss of $37.1 million and net cash outflow from a change in working capital of $0.2 million, partially offset by stock-based compensation expense of $2.9 million and depreciation expense of $0.1 million .

Net Cash Provided by Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2022 was $11.6 million due to proceeds from maturities of short-term investments of $11.9 million, partially offset by purchases of property and equipment of $0.3 million.

Net cash provided by investing activities for the six months ended June 30, 2021 was $21.7 million due to proceeds from maturities of short-term investments of $29.2 million, partially offset by purchases of short-term investments of $7.5 million .

Net cash provided by investing activities for the nine months ended September 30, 2022 was $34.7 million due to proceeds from maturities of short-term investments of $35.1 million, partially offset by purchases of property and equipment of $0.4 million.

Net cash provided by investing activities for the nine months ended September 30, 2021 was $12.9 million due to proceeds from maturities of short-term investments of $42.6 million, partially offset by purchases of short-term investments of $29.8 million .

Net Cash Provided by Financing Activities

We did not incur any financing cash outflow or inflow activities for the six months ended June 30, 2022.

Net cash provided by financing activities for the six months ended June 30, 2021 was $2.1 million, primarily due to $1.7 million of net proceeds received from the sale of common stock under our Sales Agreement with Cantor and $0.7 million of net proceeds received from the exercise of stock options, partially offset by payment of $0.3 million of issuance costs under the Sales Agreement .

We did not incur any financing cash outflow or inflow activities for the nine months ended September 30, 2022.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $49.1 million, primarily due to $47.0 million of net proceeds after deducting underwriting discounts and commissions from our July 2021 offering, $1.8 million of net proceeds after deducting underwriting discounts and commissions from the sale of common stock under our Sales Agreement with Cantor, and $0.9 million of proceeds received from the exercise of stock options.

The financing cash inflows were partially offset by payment of $0.6 million of issuance costs .

Funding Requirements

We expect our operating expenses to decrease significantly beginning in the third quarter of 2022 following our April 2022 decision to discontinue development of tovinontrine and implement a reduction in workforce.

We expect our operating expenses to continue to decrease significantly following our April 2022 decision to discontinue development of tovinontrine and implement a reduction in workforce.

However, we may not realize, in full or in part, the anticipated benefits and savings in operating expenses from these decisions due to unforeseen difficulties, delays or unexpected costs.

As a result, our future expenses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the outcome of our strategic process and depending on whether we decide to pursue any future product development efforts.

Based on our current operating plan, we expect our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q.

However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.

If we decide to pursue any future product development efforts, our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:

Our future capital requirements will depend on the results of our ongoing strategic evaluation, including whether we complete the Asset Sale or the Merger.

If the Asset Sale of the Merger is not completed, we will reconsider our strategic alternatives which may include a dissolution of the company, pursuit of another strategic transaction or the continued operation of product development.

If the Asset Sale or Merger does not close, although less likely than pursuing a dissolution and liquidation or other potential strategic alternatives, if we decide to pursue any future product development efforts, our future funding requirements would depend on, and could increase significantly as a result of, many factors, including:

whether we realize the anticipated cost savings in connection with our April 2022 workforce reduction;

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A change in the outcome of any of these or other variables with respect to the development of any product candidate we may develop in the future could significantly change the costs and timing associated with the development of that product candidate.

Further, our need for additional funds is heavily dependent on the outcome of our ongoing assessment of strategic options and our ability to consummate a strategic transaction.

Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of cash-on-hand, equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

Further, our need for additional funds is heavily dependent on the outcome of our ability to consummate a strategic transaction, including the Asset Sale and the Merger.

Moreover, if we decide to pursue future product development, until such time, if ever, as we can generate substantial revenues, we would expect to finance our cash needs through a combination of cash-on-hand, equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

We currently have no credit facility or committed sources of capital.

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Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research program or product candidates, or grant licenses on

terms that may not be favorable to us.

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 any product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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The exact amount of such costs are generally not fixed or estimable.

Further, on October 13, 2022, we entered into the Merger Agreement with Enliven.

The closing of the Merger is subject to approval by our stockholders and the stockholders of Enliven and other customary closing conditions.

If we are unable to satisfy certain closing conditions under the Merger Agreement, or if other mutual closing conditions are not satisfied, Enliven will not be obligated to complete the Merger.

The Merger Agreement contains certain termination rights of each of us and Enliven.

Under certain circumstances detailed in the Merger Agreement, we could be required to pay Enliven a termination fee of $3.0 million or Enliven could be required to pay us a termination fee of $9.75 million.

In addition, Enliven will be required to pay us a termination fee of $3.0 million if we or Enliven terminates the Merger Agreement at specified times with all conditions to closing of the Merger satisfied other than completion of the Financing Transaction such that Enliven receives gross proceeds of at least $131.6 million or $75 million, respectively.

Critical Accounting Policies and Estimates

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The effects of material revisions in estimates, if any, will be reflected in the unaudited condensed consolidated financial statements prospectively from the date of change in estimates.

During the three and six months ended June 30, 2022, there were no material changes to our critical accounting policies from those described in our audited consolidated financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on March 15, 2022.

During the three and nine months ended September 30, 2022, there were no material changes to our critical accounting policies from those described in our audited consolidated financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on March 15, 2022.

Recent Accounting Pronouncements

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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