Equillium, Inc. 10-Q

Item 2. Management’s Discussion and Analy sis 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 unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 27, 2025. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Equillium, Inc. Forward-Looking Statements The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a biotechnology innovator developing novel therapies to treat severe autoimmune and inflammatory disorders with the mission to develop life-changing therapeutics for patients. Our primary goal is to advance EQ504, our novel aryl hydrocarbon receptor modulator, into and through clinical development. As of June 30, 2025, we had $11.5 million in cash and cash equivalents. From inception through June 30, 2025, substantially all of our efforts have been focused on research, development and the advancement of our clinical and pre-clinical product candidates. During the second quarter of 2025, we paused our research and development activities for all programs pending our ability to raise capital in the immediate term. We have not yet generated product sales and as a result have incurred significant operating losses and negative cash flows from operations. As a result, we had an accumulated deficit of $208.2 million as of June 30, 2025. The Company expects to incur additional losses in the future to conduct research and development for which we will need to raise additional capital to implement. On August 10, 2025, we entered into a Securities Purchase Agreement, the Purchase Agreement, with certain institutional and accredited investors, the Investors, pursuant to which we agreed to sell and issue shares of our common stock, par value $0.0001, and pre-funded warrants to purchase shares of common stock, in up to two closings in a private placement transaction, the Private Placement. The initial closing of the Private Placement occurred on August 12, 2025. At the Initial Closing, we issued and sold 21,814,874 shares at a purchase price of $0.57 per share and pre-funded warrants to purchase up to 30,816,705 warrant shares at a purchase price of $0.5699 per warrant share, the Warrant Price, to the Investors for gross proceeds to us of approximately $30.0 million. The Purchase Agreement also provides for a potential second closing for up to approximately $20.0 million in gross proceeds in exchange for up to approximately 35,087,717 shares of common stock, subject to achieving certain specified milestones related to clinical study initiation and stock price conditions or waiver thereof. For additional information, see Note 11 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We intend to use the net proceeds from the Private Placement to fund the further development of EQ504, working capital and general corporate purposes. The Company has not initiated its recently announced cryptocurrency treasury reserve strategy and is instead prioritizing development of EQ504. We expect net proceeds from the Initial Closing of the Private Placement will extend our cash runway through 2027. We intend to commence a Phase 1 proof-of-mechanism study for EQ504, a novel aryl hydrocarbon receptor, or AhR, modulator, by mid-2026, with data expected to follow approximately six months thereafter. Modulation of AhR has been shown to have a beneficial impact on tissue barrier function, inflammation, cell development and tumor suppression. We initially intend to develop EQ504 for the treatment of ulcerative colitis, or UC, with potential indication expansion opportunities in pouchitis and in lung diseases. We acquired the exclusive worldwide rights to EQ504 through the acquisition of Ariagen, Inc., or Ariagen, in October 2024. Ariagen was majority owned by Decheng Capital, who is the largest stockholder of Equillium. 17 Itolizumab (EQ001), our most advanced clinical-stage product candidate, is a first-in-class anti-CD6 immune-modifying monoclonal antibody, or mAb, that selectively targets the CD6-ALCAM signaling pathway. We acquired our rights to itolizumab (EQ001) pursuant to a collaboration and license agreement with Biocon SA (subsequently assigned to Biocon Limited, or together, Biocon) in May 2017, which has been subsequently amended, or Biocon License. In March 2025, we announced topline results from our Phase 3 EQUATOR study of itolizumab (EQ001) in patients with acute graft-versus-host disease, or aGVHD, where itolizumab (EQ001) did not meet the Day 29 outcomes of complete response, or CR, a primary outcome, and overall response rate, or ORR, a key secondary outcome, but there was a clinically meaningful improvement in durable CR from Day 29 to 99, a key secondary outcome, and statistically significant evidence of clinical benefit was also observed on pre-specified secondary endpoints of duration of CR and failure free survival. Additionally, overall survival showed positive trends in favor of itolizumab (EQ001). Post-hoc analyses of CR at Day 99 and durable CR evaluating Day 29 complete responders also showed statistically significant benefit favoring itolizumab (EQ001). Itolizumab (EQ001) was observed to be generally well-tolerated with an adverse event profile consistent with prior clinical experience and consistent with this severe aGVHD patient population. In totality, we believe these outcomes, particularly longer-term maintenance of achieved response, may offer a meaningful benefit for patients suffering from aGVHD where high rates of mortality and disease recurrence persist with current treatments. In April 2025 we conducted a Type D meeting with the FDA, at which time the FDA declined to grant our request for Breakthrough Therapy Designation, or BTD, or support an accelerated approval pathway based on the EQUATOR study data. The FDA highlighted its attention to achieving response outcomes at Day 29, per existing FDA guidance; however, the FDA did indicate openness to evaluating other endpoints, including longer term outcomes, provided independent data supports the validity of such endpoints. Based on this feedback, we accelerated the closure of the EQUATOR study in the second quarter of 2025. We do not have any plans to conduct further clinical development with itolizumab at this time and may consider terminating our exclusive license agreement with Biocon or seeking alternative means to monetize our rights under the license agreement. We acquired the exclusive worldwide rights to EQ302 and a proprietary platform for discovering additional, novel multi-cytokine targeting product candidates, such as EQ302, through the acquisition of Bioniz Therapeutics, Inc., or Bioniz, in February 2022. That product discovery platform can be leveraged to design novel peptides to target and inhibit multiple cytokines that are involved in validated biological and disease pathways. EQ302 is a preclinical-stage, first-in-class, selective, bi-specific inhibitor of IL-15 and IL-21 formulated for oral delivery. Inhibiting IL-15 and IL-21 is believed to be an effective treatment approach for certain gastrointestinal indications, including celiac disease. Preclinical and translational data has shown that EQ302 is a potent inhibitor of those two cytokines and is stable and permeable in the gut. Based on the unique mechanism of action of EQ302 and its product profile, including the advantage of oral delivery, we believe that EQ302 has the potential to be an attractive therapeutic option for gastrointestinal diseases, such as celiac disease. Currently we are not expending internal resources to advance EQ302 and are exploring partnering opportunities that would support further development of the program. Since our inception, substantially all of our efforts have been focused on organizing and staffing our company, business planning, raising capital, in-licensing product rights, conducting preclinical development, filing Investigational New Drug applications, or INDs, conducting clinical development, conducting chemistry, manufacturing and controls, or CMC, and formulation development activities, conducting business development activities such as the acquisitions of Bioniz and Ariagen and the Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd., or Ono, and other transactions not completed, and the general and administrative activities associated with operating a public biotech company focused on advancing novel therapeutics. Furthermore, in connection with our acquisitions, we expanded our pipeline to multiple product candidates, all at various stages of development. This expansion may accelerate the rate at which our operating losses increase as we incur costs to further the development and seek regulatory approval for these product candidates. We have generated revenue from our Asset Purchase Agreement with Ono, related to a one-time, upfront payment from Ono in exchange for an exclusive option to acquire our rights to itolizumab (EQ001), or the Option, as well as from itolizumab (EQ001) development funding from Ono. Ono made a strategic business decision to allow its Option to expire on October 30, 2024 and, as a result, the Asset Purchase Agreement automatically terminated on that date pursuant to its terms. We have not generated any revenue from product sales, milestone payments or royalties. Since inception, we have primarily financed our operations through debt and equity financings and revenue generated from the Asset Purchase Agreement. We have incurred losses since our inception. For the six months ended June 30, 2025 and 2024, our net losses were $14.4 million and $2.3 million, respectively. As of June 30, 2025, we had an accumulated deficit of $208.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development activities, preclinical and clinical activities, acquired in-process research and development, and general and administrative costs associated with our operations. 18 We expect to continue to incur significant expenses and operating losses into the foreseeable future. We anticipate our expenses will increase substantially as we advance our research and development activities for EQ504, including any future development of EQ302, potentially expand the indications for which we conduct clinical development of our product candidates, potentially acquire or develop new product candidates, including preclinical drug candidates identified through our multi-cytokine targeting drug discovery platform, seek regulatory approval for and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual property, and incur general corporate costs. We expect that our existing cash and cash equivalents as of June 30, 2025, with the net proceeds from the Initial Closing of the Private Placement, will enable us to fund our operations through 2027. We do not expect to generate any revenues from product sales unless and until we successfully resume and complete development and obtain regulatory approval for EQ504 and EQ302, or any future product candidate, which is unlikely to happen within the next 12 months, if ever. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements. However, we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. As a result of the conflict between Russia and Ukraine, the conflict in the Middle East, bank failures, tariffs, inflationary pressures on the economy and monetary policy responses by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including from diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Financial Overview Revenue To date, we have not generated any revenues from therapeutic product sales, developmental milestones or royalties. In 2022, 2023 and 2024, our revenues were derived from an upfront payment under the Asset Purchase Agreement as well as from development funding from Ono. In the future, we may generate revenue from collaboration or license agreements we may enter into with respect to our product candidates, as well as product sales from any approved product, which approval is unlikely to happen within the next 12 months, if ever. Our ability to generate product revenues will depend on the successful development and eventual commercialization of EQ504 and any future product candidates. If we fail to complete the development of EQ504, or any future product candidates in a timely manner, or to obtain regulatory approval for our product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected. Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd. On December 5, 2022, we entered into the Asset Purchase Agreement pursuant to which we granted Ono the Option in exchange for a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million. These rights included all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand. We were responsible for conducting all research and development of itolizumab, which was funded by Ono on a quarterly basis from July 1, 2022, through October 30, 2024, the end of the option period. On October 30, 2024, the option period expired and the Asset Purchase Agreement automatically terminated pursuant to its terms. As of December 31, 2024, there was no further deferred revenue related to the Asset Purchase Agreement. Research and Development Expenses Research and development expenses primarily consist of costs associated with our non-clinical research and clinical development of our product candidates. Our research and development expenses include: • salaries and other related costs, including stock-based compensation and benefits, for personnel in research and development functions; • per patient clinical study costs; • external research and development expenses incurred under arrangements with third parties, such as consultants and advisors for research and development; 19 • costs of services performed by third parties, such as contract research organizations, or CROs, that conduct research and development activities on our behalf; • costs related to preparing and filing three INDs with the FDA and other regulatory interactions and submissions; • pharmacovigilance costs related to global drug safety monitoring and reporting; • external expenses related to CMC and supply of drug product; and • costs related to general overhead expenses such as travel, insurance, rent expenses, lab supplies and equipment associated with our research and development activities. We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our non-clinical research and clinical development. Equillium Australia Pty Ltd, or Equillium Australia, a wholly-owned subsidiary of Equillium, Inc., is eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office, or ATO, for eligible research and development expenditures. The cash refund is received by Equillium Australia, upon filing of a claim in connection with Equillium Australia’s annual income tax return. The Tax Incentive is a self-assess program whereby Equillium Australia must assess its eligibility each year to determine (i) if the entity is eligible, (ii) if the specific research and development activities are eligible and (iii) if the individual research and development expenditures have nexus to such research and development activities. Equillium Australia evaluates its eligibility under the Tax Incentive as of each balance sheet date based on the most current and relevant data available. Equillium Australia is able to continue to claim the Tax Incentive for as long as it remains eligible and continues to incur eligible research and development expenditures. The estimated Tax Incentive refund amounts are recognized as a reduction to research and development expense when there is reasonable assurance that the Tax Incentive refund amounts will be received, the relevant expenditure has been incurred, and the amount can be reliably measured. We plan to continue to incur substantial research and development expenses for the foreseeable future as we advance the development of EQ504, and potentially EQ302, potentially expand the number of indications for which we are developing those product candidates, and potentially acquire or develop new product candidates. The successful development of EQ504 and EQ302 is highly uncertain. At this time, due to the inherently unpredictable nature of preclinical and clinical development, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of our product candidates or the period, if any, in which material net cash inflows from the sales from our product candidates may commence. Clinical development timelines, the probability of success, and development costs can differ materially from expectations. Completion of planned or future clinical studies may take several years or more, and the length of time generally varies according to the type, complexity, novelty, and intended use of a product candidate. The cost of planned or future clinical studies may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others: • per patient clinical study costs; • the number of planned or future clinical studies required for approval; • the number of sites and the number of countries included in our planned or future clinical studies; • the length of time required to enroll suitable patients; • the inefficiencies and additional costs related to any delays and potential restarts of planned or future clinical studies; • the number of doses that patients receive; • the number of patients that participate in our planned or future clinical studies; • the drop-out or discontinuation rates of patients in our planned or future clinical studies; • the duration of patient follow-up; • potential additional safety monitoring or other studies requested by regulatory agencies; • the number and complexity of procedures, analyses and tests performed during our planned or future clinical studies; 20 • the costs of procuring drug product for our planned or future clinical studies; • the phase of development of the product candidate; and • the efficacy and safety profile of the product candidate. General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation and benefits, and consulting fees for executive, human resources, investor relations, finance, and accounting functions. Other significant costs include legal fees relating to patent and corporate matters, insurance, travel, board expenses, facility costs and taxes. We anticipate that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure, increased legal, audit, tax and other professional fees associated with being a public company and maintaining compliance with stock exchange listing and SEC requirements, director and officer insurance premiums associated with being a public company, and accounting and investor relations costs. In addition, if we obtain regulatory approval for any product candidate, we expect to incur expenses associated with building the infrastructure and capabilities to commercialize such product. However, the timing of any such approval is highly uncertain, and it may be several years, if ever, that we receive any such regulatory approval. Interest Income Interest income consists primarily of interest income earned on cash, cash equivalents and short-term investments, and is recognized when earned. Other Income (Expense), net Other income (expense), net consists primarily of net foreign currency transaction gains and losses related to our Australian subsidiary. Results of Operations Comparison of the Three Months Ended June 30, 2025 and 2024 The following table sets forth our results of operations for the three and six months ended June 30, 2025 and 2024 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Revenue $ - $ 13,853 $ - $ 24,542 Research and development 4,083 10,808 10,007 20,551 General and administrative 2,145 3,145 5,091 6,883 Interest income 122 371 295 811 Other income (expense), net 367 197 410 (185 ) Revenue During the three and six months ended June 30, 2025, there was no revenue recognized under our Asset Purchase Agreement with Ono. During the three and six months ended June 30, 2024, we recognized revenue of $13.9 million and $24.5 million, respectively, under our Asset Purchase Agreement with Ono. For the three months ended June 30, 2024, development funding represented $9.2 million and amortization of the upfront payment represented $4.7 million. For the six months ended June 30, 2024, development funding represented $17.2 million and amortization of the upfront payment represented $7.3 million. Ono made a strategic business decision to allow its Option to expire on October 30, 2024 and, as a result, the Asset Purchase Agreement automatically terminated on that date pursuant to its terms. Research and Development Expenses Research and development expenses were $4.1 million and $10.0 million for the three and six months ended June 30, 2025, respectively, compared to $10.8 million and $20.6 million for the three and six months ended June 30, 2024, respectively. The decrease of $6.7 million and $10.6 million in research and development expenses for the three and six months ended June 30, 2025, compared to the same periods in 2024, was primarily related to a decrease in clinical development expenses due to the wind down of our clinical studies and CMC activities as well as a decrease in employee compensation and benefits, consulting and non-clinical expenses. 21 General and Administrative Expenses General and administrative expenses were $2.1 million and $5.1 million for the three and six months ended June 30, 2025, respectively, compared to $3.1 million and $6.9 million for the three and six months ended June 30, 2024, respectively. The decrease of $1.0 million and $1.8 million in general and administrative expenses for the three and six months ended June 30, 2025, compared to the same periods in 2024, was primarily due to a decrease in employee compensation and benefits. Interest Income Interest income was $0.1 million and $0.3 million for the three and six months ended June 30, 2025, respectively, compared to $0.4 million and $0.8 million for the three and six months ended June 30, 2024, respectively. The decrease in interest income for the three and six months ended June 30, 2025 compared to the same periods in 2024, was primarily due to lower average cash, cash equivalents and short-term investment balances. Other Income (Expense), net Other income (expense), net was other income of $0.4 million for each of the three and six months ended June 30, 2025, respectively, compared to other income of $0.2 million and other expense of $0.2 million for the three and six months ended June 30, 2024, respectively. The change in other income (expense), net for the three and six months ended June 30, 2025, compared to the same periods in 2024, was primarily due to fluctuations in net foreign currency transaction unrealized gains and losses. Liquidity and Capital Resources From inception through June 30, 2025, we have financed our operations primarily through the sale of equity and debt securities and income generated from our Asset Purchase Agreement with Ono as described in more detail in the Sources of Liquidity section below. As of June 30, 2025, we had an accumulated deficit of $208.2 million and anticipate that we will continue to incur net losses for the foreseeable future. As of June 30, 2025, we had $11.5 million in cash and cash equivalents. Sources of Liquidity Securities Purchase Agreement On August 10, 2025, we entered into the Purchase Agreement with the Investors, pursuant to which we agreed to sell and issue shares of our common stock, par value $0.0001, and pre-funded warrants to purchase shares of common stock, in up to two closings in the Private Placement. The Initial Closing of the Private Placement occurred on August 12, 2025. At the Initial Closing, we issued and sold 21,814,874 shares at a purchase price of $0.57 per share and pre-funded warrants to purchase up to 30,816,705 warrant shares at a purchase price of $0.5699 per warrant share, the Warrant Price, to the Investors for gross proceeds to us of approximately $30.0 million. The Purchase Agreement also provides for a potential second closing for up to approximately $20.0 million in gross proceeds in exchange for up to approximately 35,087,717 shares of common stock, subject to achieving certain specified milestones related to clinical study initiation and stock price conditions or waiver thereof. There can be no assurance that the specified milestones will be met or that the investors will purchase additional shares of common stock or pre-funded warrants in a second closing. For additional information, see Note 11 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. 2023 ATM Facility In October 2023, we entered into an at-the-market facility with Jefferies LLC, or Jefferies, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $21.95 million from time to time through Jefferies acting as our sales agent, or the 2023 ATM Facility. There were no shares sold under the 2023 ATM Facility from October 2023 through December 31, 2024. During the three months ended June 30, 2025, there were no shares sold under the 2023 ATM Facility. During the six months ended June 30, 2025, there were 109,410 shares of common stock sold under the 2023 ATM Facility for gross proceeds of approximately $55,000. Issuance costs related to the 2023 ATM totaled $0.5 million. On August 3, 2025, we entered into Amendment No. 1 to the 2023 ATM Facility pursuant to which Jefferies was replaced by LifeSci Capital LLC as the sales agent under the 2023 ATM Facility. Since June 30, 2025 and through the date of the filing of this Quarterly Report on Form 10-Q, there were an additional 1,610,075 shares sold under the 2023 ATM Facility, as amended, for gross proceeds of approximately $0.9 million. For additional information, see Note 8 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. 22 Funding Requirements We expect our expenses to increase substantially as we advance our research and development activities, including resuming development of our preclinical asset, EQ504 and potentially resuming development of EQ302. We expect that our primary uses of capital will be for non-clinical research, clinical development, CMC activities, formulation development, product supply, potential acquisition of new products, legal and other regulatory compliance expenses, employee compensation and related expenses, insurance premiums, working capital and other general overhead costs. We believe that the net proceeds from the Initial Closing of the Private Placement with our cash and cash equivalents as of June 30, 2025 can fund operations through 2027. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Furthermore, our operating plans may change, and we may need additional funds sooner than planned. Additionally, the process of testing product candidates in clinical studies is costly, and the timing of progress in these studies is uncertain. Because the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of EQ504 and EQ302, or any of our other product candidates or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including: • the initiation, progress, timing, costs and results of our planned or future non-clinical and clinical studies of EQ504 and EQ302 and other future product candidates, including as such activities may be adversely impacted by public health epidemics or outbreaks, the evolving conflict between Russia and Ukraine, the conflict in the Middle East, bank failures, tariffs and inflationary pressures on the economy; • the advancement and cost of preclinical research of EQ504, EQ302 and other novel preclinical drug candidates; • the number and scope of indications we decide to pursue for the development of our product candidates; • the cost, timing and outcome of regulatory review of any Biologics License Application, or BLA, or New Drug Application, or NDA, we may submit for our product candidates; • the costs and timing of manufacturing EQ504 and other product candidates; • the costs of drug formulation research and device development; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates; • the costs associated with being a public company; • our ability to enter into partnerships or otherwise monetize our pipeline through strategic transactions on a timely basis, on terms that are favorable to us, or at all; • the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; • the extent to which we acquire or in-license other product candidates and technologies or engage in in-house discovery and preclinical research of new product candidates; • the legal and other transactional costs associated with our business development activities; and • the cost associated with commercializing EQ504 or any of our other product candidates, if approved for commercial sale. Until such time as we can generate product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements. The sale of additional equity or convertible debt could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations. As a result of the conflict between Russia and Ukraine, the conflict in the Middle East, bank failures, tariffs, inflationary pressures on the economy and monetary policy responses taken by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any 23 necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. If we raise additional funds through collaboration or license agreements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations. Any of these actions could have a material effect on our business, financial condition and results of operations. We have experienced net losses and negative cash flows from operating activities since our inception and expect to continue to incur net losses into the foreseeable future. We had an accumulated deficit of $208.2 million as of June 30, 2025. We expect operating losses and negative cash flows to continue for at least the next several years as we incur costs related to the development of EQ504 and EQ302 and any of our other product candidates. Material Cash Requirements Our expected material cash requirements are comprised of contractually obligated expenditures, including amounts due under our operating leases. For additional information relating to our leases, see Note 6 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We have no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis. Our expected material cash requirements do not include potential contingent payments upon the achievement by us of regulatory and commercial milestones that we may be required to make under the terms of the merger agreement pursuant to which we acquired Bioniz or potential contingent payments upon the achievement by us of regulatory milestones that we may be required to make under the terms of our stock purchase agreement with Ariagen, nor do they include potential contingent payments upon the achievement by us of regulatory and commercial milestones or royalty payments that we may be required to make under license agreements we have entered into or may enter into with various entities pursuant to which we have in-licensed certain intellectual property, including the Biocon License. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands): Six Months Ended June 30, 2025 2024 Net cash (used in) provided by: Operating activities $ (11,182 ) $ (8,070 ) Investing activities 4,496 (4,182 ) Financing activities 75 91 Effect of exchange rate changes on cash 21 2 Net decrease in cash and cash equivalents $ (6,590 ) $ (12,159 ) Operating Activities During the six months ended June 30, 2025, cash used in operating activities was $11.2 million compared to $8.1 million during the six months ended June 30, 2024. Cash used in operating activities during the six months ended June 30, 2025 primarily related to our net loss of $14.4 million, adjusted for non-cash items of $0.8 million, primarily consisting of non-cash stock-based compensation expenses, and net cash inflows from changes in other operating assets and liabilities of $2.4 million. Cash used in operating activities during six months ended June 30, 2024 primarily related to our net loss of $2.3 million, adjusted for non-cash items of $1.6 million, primarily consisting of non-cash stock-based compensation expenses, and net cash outflows from changes in deferred revenue and other operating assets and liabilities of $7.4 million. Investing Activities Net cash provided by investing activities was $4.5 million during the six months ended June 30, 2025 and primarily consisted of maturities of our short-term investments. Net cash used in investing activities was $4.2 million during the six months ended June 30, 2024. Purchases of our short-term investments totaled $17.6 million, which was offset by maturities of short-term investments totaling $13.5 million. Financing Activities Net cash provided by financing activities totaled $0.1 million during the six months ended June 30, 2025. We received net proceeds from the sale of shares under our 2023 ATM Facility totaling approximately $37,000. There were no sales of shares under the 2023 ATM Facility until March 2025. During the six months ended June 30, 2025, we received proceeds totaling $38,000 from the exercise of stock options. 24 Net cash provided by financing activities totaled $0.1 million during the six months ended June 30, 2024 and was attributed to cash received from employee stock purchases related to our Employee Stock Purchase Plan. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, and similarly did not and do not have any holdings in variable interest entities. We do have certain contingent consideration liabilities in the form of potential milestone payments that are included in our Biocon License, in our merger agreement with Bioniz and our stock purchase agreement with Ariagen which are not reflected in our balance sheet. However, based on our current operating plans and our assessment of the probability and potential timing of such payments, we believe those payments, if any, are remote and highly unlikely to come due within the next 12 months. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. There have been no changes to our critical accounting policies and estimates described in the Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 27, 2025, that have had a material impact on our condensed consolidated financial statements and related notes. Recently Issued Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Not required for smaller reporting companies. Item 4. Contr ols and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of June 30, 2025, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025. There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 25 PART II - OTHE R INFORMATION Item 1. Legal Proceedings None.