Enliven Therapeutics, Inc. 10-Q

Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 15, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “Risk Factor Summary” in the forepart of this Quarterly Report on Form 10-Q and “Risk Factors” in Part II, Item 1A. of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. Business Overview We are a biopharmaceutical company that has been dedicated to developing and commercializing novel therapeutics to treat patients suffering from serious diseases. In April 2022, we announced the results from interim analyses of our Ardent Phase 2b clinical trial of tovinontrine (IMR-687) in patients with sickle cell disease, or SCD, and Forte Phase 2b clinical trial of tovinontrine in patients with ß-thalassemia. Based on the data generated by these interim analyses, we decided to discontinue the Ardent and Forte trials as well as the further development of tovinontrine in SCD and ß-thalassemia. We also decided to discontinue development of tovinontrine in heart failure with preserved ejection fraction, as well as our development plans with respect to IMR-261. 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. 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. 17 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, 18 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. 19 Financial Overview Since our inception in 2016, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of tovinontrine. To date, we have funded our operations primarily through the sale of common stock and the sale of convertible preferred stock. On April 1, 2021, we filed a shelf registration statement on Form S-3, or 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 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 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 $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. 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 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. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, results of operations, and financial condition. We will need to generate significant revenue to achieve profitability, and we may never do so. 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. See “—Liquidity and Capital Resources.” Impact of COVID-19 Pandemic In December 2019, a novel strain of coronavirus, called COVID-19, emerged and has now spread globally. 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. 20 Although we have not experienced any significant adverse impact from the COVID-19 pandemic on our financial condition, results of operations or liquidity as of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has resulted in disruptions to our prior clinical trial operations. In addition, our employees are currently working remotely . Our financial condition, results of operations and liquidity could be negatively impacted by the COVID-19 pandemic in future periods. 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 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 In April 2016, we entered into an agreement with H. Lundbeck A/S, or Lundbeck, for a worldwide license under certain patent rights and certain know-how owned or otherwise controlled by Lundbeck within the field of prevention, treatment or diagnosis of hemoglobinopathy disorders and/or other diseases or disorders, including those directly or indirectly related to hemoglobinopathies, which we refer to as the field. The agreement grants us an exclusive license under the licensed technology, including the right to grant sublicenses with certain restrictions, to research, develop, make, have made, use, sell, have sold, offer to sell, import, export and commercialize any product comprising or containing certain PDE9 inhibitors, in the field. The agreement also grants us a non-exclusive license under the licensed technology to research and develop, and make, have made, use, import and export for purposes of enabling such research and development, enhancements, improvements, modifications or derivatives to licensed products, until but not beyond a specified pre-commercialization developmental stage with respect to each such enhancement, improvement, modification or derivative. Under the agreement, we have made cash payments totaling $1.8 million to date, consisting of an upfront payment and ongoing milestone payments, and also issued shares of our common stock as described in Note 12, Related Party Transactions, to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q. We are obligated to make milestone payments to Lundbeck aggregating up to $23.5 million upon the achievement of specified clinical, regulatory and first commercial sale milestones by any licensed product, of which we have paid $1.8 million to date, and $11.8 million upon the achievement of specified clinical, regulatory and first commercial sale milestones by any IMARA product that is or comprises a PDE9 inhibitor but is not a licensed product, or a PDE9 product, if any, of which we have made no payments to date. 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 Revenue We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If we decide to pursue any future product development efforts and such efforts are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements . Operating Expenses Research and Development. 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 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; • personnel-related expenses, including salaries, benefits and stock-based compensation expenses, for individuals involved in research and development activities; • external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites, and consultants that conducted our preclinical studies and clinical trials and other scientific development services; 21 • costs incurred under agreements with contract manufacturing organizations, or CMOs, who developed and manufactured material for our preclinical studies and clinical trials; • costs related to compliance with regulatory requirements; and • milestone fees incurred in connection with our current license agreement with Lundbeck; 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. Our research and development expenses to-date have been incurred in connection with our development of tovinontrine in SCD and β-thalassemia. 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 nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) IMR-687 $ 99 $ 8,291 $ 13,450 $ 21,407 Personnel expenses (including stock-based compensation) 13 1,780 4,511 5,400 Other expenses 70 326 799 779 Total research and development expenses $ 182 $ 10,397 $ 18,760 $ 27,586 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 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 COVID-19 pandemic and our response to it; • the timing and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain research and development programs or to establish new ones; • establishing an appropriate safety profile with investigational new drug application, or IND, enabling studies; • successful patient enrollment in, and the initiation of, clinical trials; • the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration, or FDA, or any comparable foreign regulatory authority; • the timing, receipt and terms of any regulatory approvals from applicable regulatory authorities; • our ability to establish new licensing or collaboration arrangements; • the performance of our future collaborators, if any; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; 22 • obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; • launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and • maintaining a continued acceptable safety profile of the product candidates following approval. 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 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. General and Administrative. General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits, and stock-based compensation expenses for personnel in executive, finance, accounting, human resources, legal and other administrative functions. 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 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 Total other income, net primarily consisted of interest earned on our cash, cash equivalents and investments. Results of Operations 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, Change 2022 2021 $ (in thousands) Operating expenses: Research and development $ 182 $ 10,397 $ (10,215 ) General and administrative 4,649 3,262 1,387 Total operating expenses 4,831 13,659 (8,828 ) Loss from operations (4,831 ) (13,659 ) 8,828 Total other income, net 222 12 210 Net loss $ (4,609 ) $ (13,647 ) $ 9,038 Research and Development Expenses 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 $1.8 million decrease in personnel-related costs; and 23 • a $0.2 million decrease in other research and development operational costs. General and Administrative Expenses 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 $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; and • 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 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, Change 2022 2021 $ (in thousands) Operating expenses: Research and development $ 18,760 $ 27,586 $ (8,826 ) General and administrative 12,253 9,522 2,731 Total operating expenses 31,013 37,108 (6,095 ) Loss from operations (31,013 ) (37,108 ) 6,095 Total other income, net 316 43 273 Net loss $ (30,697 ) $ (37,065 ) $ 6,368 Research and Development Expenses 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; and • a $0.9 million decrease in personnel-related costs. General and Administrative Expenses 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 $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; and 24 • a $ 0. 3 million increase in personnel-related costs . Total Other Income, Net 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 Sources of Liquidity Since our inception, we have incurred significant losses in each period and on an aggregate basis. We have not yet commercialized or generated revenue from sales of any product candidate. 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 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. Accordingly, we may not be able to sell shares under the Sales Agreement at prices or amounts that we deem acceptable, and there can be no assurance that we will sell any further common stock pursuant to the Sales Agreement . 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. 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.” Cash Flows The following table provides information regarding our cash flows for the nine months ended September 30, 2022 and 2021: Nine Months Ended September 30, 2022 2021 (in thousands) Net cash used in operating activities $ (33,688 ) $ (34,286 ) Net cash provided by investing activities 34,695 12,859 Net cash provided by financing activities — 49,111 Net increase in cash, cash equivalents, and restricted cash $ 1,007 $ 27,684 Net Cash Used in Operating Activities 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. 25 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 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 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 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 without giving effect to the Asset Sale. 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. 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; • our ability to consummate a strategic transaction and the nature and type of such transaction; • our ability to bring any product candidates through preclinical and clinical development, and the timing and scope of these research and development activities; • the costs of obtaining clinical and commercial supplies of any product candidates we may seek to develop; • our ability to successfully commercialize any product candidates we may develop; • the manufacturing, selling and marketing costs associated with any product candidates we may develop, including the cost and timing of establishing our sales and marketing capabilities; • the amount and timing of sales and other revenues from any product candidates we may develop, including the sales price and the availability of adequate third-party reimbursement; • the time and cost necessary to respond to technological and market developments; • the extent to which we may acquire or in-license other product candidates and technologies; 26 • our ability to attract, hire and retain qualified personnel; • the impact of the COVID-19 pandemic and our response to it; • the costs of maintaining, expanding and protecting our intellectual property portfolio; and • the costs associated with operating as a public company and maintaining compliance with exchange listing and SEC requirements. 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 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of such stockholders. 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. Contractual Obligations In the normal course of business , we enter into agreements that contain contractual obligations, of which the most significant to date include our licensing agreement with Lundbeck. Our license agreement with Lundbeck, as well as certain other agreements, requires us to pay third parties upon achievement of certain development, regulatory or commercial milestones. Amounts related to contingent payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory and commercial milestones that may not be achieved. We have not included payments contingent upon the achievement of certain development, regulatory or commercial milestones on our consolidated balance sheets. For further information regarding certain of our license agreement with Lundbeck and amounts that could become payable in the future under that agreement, please see Note 6 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q . In addition, we are party to certain agreements with contract research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. Such contracts are generally cancellable by us for convenience with a specified amount of notice. We may be subject to certain termination fees or wind-down costs upon termination of these agreements. 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. 27 Critical Accounting Policies and Estimates This management’s discussion and analysis is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. 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 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 A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Emerging Growth Company Status We are an “emerging growth company,” or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities. As an EGC, we may take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC: • we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations within registration statements; • we may avail ourselves of the exemption from providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; • we may avail ourselves of the exemption from complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis; • we may provide reduced disclosure about our executive compensation arrangements; and • we may not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments. We will remain an EGC until the earliest of (i) December 31, 2025, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended. 28