Equillium, Inc. 10-Q

Item 2. Management’s Discussion an d 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, 2019 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 26, 2020. 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 clinical-stage biotechnology company leveraging deep understanding of immunobiology to develop products to treat severe autoimmune and inflammatory, or immuno-inflammatory, disorders with high unmet medical need. Our initial product candidate, itolizumab (EQ001), is a clinical-stage, first-in-class monoclonal antibody that selectively targets the novel immune checkpoint receptor CD6. CD6 plays a central role in the modulation of effector T cell, or T eff cell, activity and trafficking. Activated T eff cells drive a number of immuno-inflammatory diseases across therapeutic areas including transplant science, systemic autoimmunity, pulmonary, neurologic, gastrointestinal, renal, vascular, ophthalmic and dermatologic disorders. Therefore, we believe itolizumab (EQ001) may have broad therapeutic utility in treating a large and diverse set of severe immuno-inflammatory diseases. Our pipeline is focused on developing itolizumab (EQ001) as a potential best-in-class, disease modifying treatment for multiple severe immuno-inflammatory disorders. Our Investigational New Drug application, or IND, with the U.S. Food and Drug Administration, or FDA, for acute graft-versus-host disease, or aGVHD, was accepted in July 2018. The FDA granted itolizumab (EQ001) Fast Track designation for the treatment of aGVHD in December 2018 and Orphan Drug designations for both the prevention and treatment of aGVHD in February 2019. In March 2019, we initiated a Phase 1b/2 clinical trial of itolizumab (EQ001) for the treatment of aGVHD and expect top-line data from the Phase 1b part of this trial in the second half of 2020. In June 2019, we initiated a Phase 1b proof-of-concept clinical trial in Australia for the treatment of uncontrolled asthma. Our IND for lupus nephritis was accepted by the FDA in July 2019, and we initiated a Phase 1b proof-of-concept clinical trial for the treatment of lupus nephritis in September 2019. The FDA granted itolizumab (EQ001) Fast Track designation for the treatment of lupus nephritis in December 2019. In March 2020, as a result of impacts and risks associated with the COVID-19 pandemic, we decided to pause enrollment in our Phase 1b clinical trials of itolizumab (EQ001) in uncontrolled asthma and lupus nephritis. This decision was not based on any observed safety issues associated with itolizumab (EQ001) but rather out of an abundance of caution related to the COVID-19 pandemic and our concern for the well-being of patients and their caregivers. In July 2020, we announced that patient enrollment in both of those trials had resumed. We are continuing efforts to enroll patients in the Phase 1b/2 clinical trial of itolizumab (EQ001) for the treatment of aGVHD given the acute life-threatening severity of the disease as we believe itolizumab (EQ001) represents a potentially life-saving treatment for these severely ill patients. However, there remains a risk that enrollment of that trial as well as enrollment in our Phase 1b trials in uncontrolled asthma and lupus nephritis, and the timing of topline data may also be adversely impacted by the COVID-19 pandemic. In August 2020, we announced positive data from the ongoing Phase 1b/2 clinical trial of itolizumab in aGVHD. Across the first two dose cohorts, itolizumab has been generally well tolerated, and five of seven patients achieved a complete response at the Day 29 endpoint. 15 We have ongoing translational biology programs to assess the therapeutic utility of itolizumab (EQ001) in additional indications where CD6 and its ligand, activated leukocyte cell adhesion molecule (ALCAM), play an important role in the pathogenesis of T cell mediated diseases. Our selection of current and future indications is driven by our analysis of the scientific, translational, clinical and commercial rationale for advancing itolizumab (EQ001) into further development. We acquired rights to itolizumab (EQ001) for the territories of the United States and Canada in May 2017 pursuant to a collaboration and license agreement with Biocon SA (subsequently assigned to Biocon Limited, or together, Biocon), and the territories of Australia and New Zealand in December 2019, pursuant to an amendment to that agreement. Following completion of a Phase 3 clinical trial conducted by Biocon outside of North America, itolizumab was approved in India for the treatment of moderate to severe plaque psoriasis and is marketed by Biocon in India as ALZUMAb. In July 2020, Biocon reported that a clinical trial conducted in India by Biocon demonstrated that itolizumab (ALZUMAb) significantly reduced mortality in patients hospitalized with COVID-19, and that the Drugs Controller General of India, or DCGI, has granted restricted emergency use approval of itolizumab in India for the treatment of cytokine release syndrome (CRS) in COVID-19 patients with moderate to severe acute respiratory distress syndrome (ARDS). In July 2020, based on the encouraging topline data reported by Biocon and subsequent DCGI approval of itolizumab for the treatment of COVID-19 patients, we announced that we are planning to conduct a global randomized, controlled clinical trial of itolizumab (EQ001) in COVID-19 patients for which we plan to file an IND after we complete our review of the Biocon data. Our collaboration with Biocon includes an exclusive supply agreement for clinical and commercial drug product of itolizumab (EQ001). Biocon currently manufactures itolizumab (EQ001) at commercial scale in a facility in India regulated by the FDA. In August 2019, we entered into a letter agreement with Biocon that grants us exclusive rights to negotiate licensing rights with third parties to develop and commercialize itolizumab (EQ001) in select major markets outside of North America. This letter agreement allows us to represent itolizumab (EQ001) more broadly commercially and participate in value that may be created with strategic partners across geographies. Since our inception, substantially all of our efforts have been focused on organizing and staffing our company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting preclinical research, filing two initial INDs, commencing clinical development of itolizumab (EQ001) and the general and administrative activities associated with operating as a public company. We have not generated any revenue from product sales or otherwise. Since inception, we have primarily financed our operations through our initial public offering, or IPO, private placements of convertible promissory notes, term loans and sales of our common stock through “at-the-market” sales agreements, or ATM offerings, with Jefferies LLC, or Jefferies. We have incurred losses since our inception. Our net losses were $14.3 million for the six months ended June 30, 2020 and $25.6 million for the year ended December 31, 2019. As of June 30, 2020, we had an accumulated deficit of $55.4 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development activities, preclinical and clinical activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing losses into the foreseeable future. We anticipate our expenses will increase substantially as we continue our research and development activities, including the ongoing and future clinical development of itolizumab (EQ001), potentially expand the indications in which we conduct clinical development of itolizumab (EQ001), potentially acquire additional products and/or product candidates, seek regulatory approval for and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual property, incur increasing expense associated with our outstanding debt, and incur general corporate costs. We expect that our existing cash, cash equivalents and short-term investments as of June 30, 2020, together with capital raised subsequent to June 30, 2020, will enable us to fund our currently planned operations for at least the next 12 months. 16 We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for itolizumab (EQ001) or any future product candidate, which will not be for at least the next several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of ou r 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 arr angements in a timely manner or on favorable terms, if at all. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in ec onomic conditions will not occur. 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. In addition, subject to limited exceptions, our loan and security agr eement with Oxford Finance LLC and Silicon Valley Bank also prohibits us from incurring indebtedness without the prior written consent of the lenders, which consent may be withheld at their sole and absolute discretion. Our failure to raise capital or ente r 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 can didates that we would otherwise prefer to develop and market ourselves. Financial Overview Revenue We currently have no products approved for sale, and we have not generated any revenues to date. 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 we do not expect to occur for at least the next several years, if ever. Our ability to generate product revenues will depend on the successful development and eventual commercialization of itolizumab (EQ001) and any future product candidates. If we fail to complete the development of itolizumab (EQ001) 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. Research and Development Expenses Research and development expenses primarily consist of costs associated with our research and development activities, preclinical activities, and clinical development of itolizumab (EQ001). Our research and development expenses include: • salaries and other related costs, including stock-based compensation and benefits, for personnel in research and development functions; • external research and development expenses incurred under arrangements with third parties, such as consultants and advisors for research and development; • costs of services performed by third parties, such as contract research organizations, or CROs, that conduct research and development and preclinical activities on our behalf; • costs related to preparing and filing two INDs with the FDA and other regulatory interactions and submissions; and • costs related to general overhead expenses such as travel, insurance and rent expenses 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 preclinical and clinical development. We plan to substantially increase our research and development expenses for the foreseeable future as we continue to advance the development of itolizumab (EQ001) and potentially expand the number of indications for which we are developing itolizumab (EQ001). The successful development of itolizumab (EQ001) is highly uncertain. At this time, due to the inherently unpredictable nature of preclinical and clinical development, which has been further exacerbated by the uncertain magnitude, extent and duration of impacts associated with the COVID-19 pandemic, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of itolizumab (EQ001) or the period, if any, in which material net cash inflows from itolizumab (EQ001) may commence. Clinical development timelines, the probability of success, and development costs can differ materially from expectations. 17 Completion of clinical trials may take several years or more, and the length of time generally varies according to the type, complexity, novelty, an d intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others: • managing the impact of COVID-19 pandemic and related precautions on the operation of our clinical trials; • per patient clinical trial costs; • the number of clinical trials required for approval; • the number of sites and the number of countries included in our clinical trials; • the length of time required to enroll suitable patients; • the inefficiencies and additional costs related to any delays and potential restarts of clinical trials; • the number of doses that patients receive; • the number of patients that participate in our clinical trials; • the drop-out or discontinuation rates of patients in our clinical trials; • 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 clinical trials; • the costs of procuring drug product for our clinical trials; • 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 Expense Interest expense consists of interest on our term loans payable. Interest Income Interest income consists primarily of interest income earned on cash, cash equivalents and short-term investments. Other Expense, net Other expense, net consists of net foreign currency transaction losses related to our Australian subsidiary. 18 Results of Operations Comparison of the Three and Six Months Ended June 30, 2020 and 2019 The following table sets forth our results of operations for the three and six months ended June 30, 2020 and 2019 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development $ 3,893 $ 4,250 $ 8,599 $ 8,009 General and administrative 2,717 2,189 5,463 4,778 Interest expense (274 ) - (547 ) - Interest income 122 375 342 773 Other income (expense), net 301 (5 ) (31 ) (5 ) Research and Development Expenses Research and development expenses were $3.9 million and $8.6 million for three and six months ended June 30, 2020, respectively, compared to $4.3 million and $8.0 million for the three and six months ended June 30, 2019, respectively. The decrease of $0.4 million in research and development expenses for the three months ended June 30, 2020 compared to the same period in 2019 primarily includes the following changes: • $0.7 million decrease in clinical development activities, primarily related to higher start-up costs of clinical trials in the prior year; • $0.4 million increase in employee compensation and benefits, primarily related to increased headcount partially offset by lower consulting expenses; and • $0.1 million decrease in overhead expenses primarily related to decreased travel expenses associated with our research and development activities, much of which resulted from the impact associated with the COVID-19 pandemic. The increase of $0.6 million in research and development expenses for the six months ended June 30, 2020, compared to the same period in 2019 primarily includes the following changes: • $1.0 million increase in employee compensation and benefits, primarily related to increased headcount; • $0.2 million decrease in preclinical research activities; and • $0.2 million decrease in overhead expenses primarily related to decreased spending on travel and recruiting associated with our research and development activities, much of which resulted from the impact associated with the COVID-19 pandemic. General and Administrative Expenses General and administrative expenses were $2.7 million and $5.5 million for the three and six months ended June 30, 2020 and 2019, respectively, compared to $2.2 million and $4.8 million for the three and six months ended June 30, 2019, respectively. On May 28, 2020, our board of directors issued retention stock options to purchase an aggregate of 169,368 shares of our common stock to our Executive Chairman, Chief Executive Officer and two non-management directors. These stock options immediately vested at the grant date and resulted in a $0.4 million charge to non-cash stock-based compensation in the three and six-months ended June 30, 2020. At the time, the Executive Chairman and Chief Executive Officer voluntarily agreed to a 65% and an 85% reduction, respectively, in their base salaries otherwise payable for the remainder of 2020. The two non-management directors voluntarily agreed to forego 100% of their annual cash retainers otherwise payable to such directors for the remainder of 2020. We expect that the voluntary reductions in salary and retainers will save us approximately $0.4 million in cash expenditures in calendar year 2020. 19 The increase of $0.5 million in general and administrative expenses for the three months ended June 30, 2020, compared to the same period in 2019, primarily includes the following changes: • $0.6 million increase in employee compensation and benefits, primarily due to increased non-cash stock-based compensation totaling $0.4 million for fully-vested retention option grants issued to our Chief Executive Officer, our Executive Chairman and two non-management directors partially offset by lower salary expense; • $0.1 million decrease in overhead expenses primarily related to decreased spending on travel associated with our general and administrative activities, much of which resulted from the impact associated with the COVID-19 pandemic; and • $0.1 million decrease related to legal fees. The increase of $0.7 million in general and administrative expenses for the six months ended June 30, 2020, compared to the same period in 2019, primarily includes the following changes: • $0.8 million increase in employee compensation and benefits, primarily due to increased non-cash stock-based compensation expense totaling $0.4 million for fully-vested retention option grants issued to our Chief Executive Officer, our Executive Chairman and two non-management directors as well as higher consulting expenses; and • $0.1 million decrease related to legal fees. Interest Expense Interest expense was $0.3 million and $0.5 million for the three and six months ended June 30, 2020, respectively, compared to no interest expense in the same periods in 2019. The increase consists of interest on our term notes payable. Interest Income Interest income was $0.1 million and $0.3 million for the three and six months ended June 30, 2020, respectively, compared to $0.4 million and $0.8 million for the three and six months ended June 30, 2019, respectively. The decrease in interest income was primarily due to both lower average cash, cash equivalents and short-term investment balances and lower interest rates during 2020 compared to 2019. Other Income (Expense), Net Other income (expense), net was $0.3 million of other income, net and $31,000 of other expense, net for the three and six months ended June 30, 2020, respectively, compared to $5,000 of other expense, net in both the three and six months ended June 30, 2019. The increase in other income (expense), net for the three months ended June 30, 2020 compared to the same period in 2019 relates primarily to net foreign currency transaction unrealized gains. For the six months ended June 30, 2020, compared to the same period in 2019, net foreign currency transaction losses increased approximately $39,000. Liquidity and Capital Resources From inception through June 30, 2020, we have raised an aggregate of approximately $92.0 million in gross proceeds pursuant to our IPO, private placements of convertible promissory notes, proceeds from term loans and proceeds from equity issuances under our ATM facility. As of June 30, 2020, we had $24.1 million in cash and cash equivalents and $18.5 million in short-term investments. Sources of Liquidity September 2019 Loan Agreement In September 2019, we entered into a loan and security agreement, or Loan Agreement, with Oxford Finance LLC and Silicon Valley Bank, or together, the Lenders, pursuant to which we can borrow up to $20.0 million in a series of term loans. Upon entering into the Loan Agreement, we borrowed $10.0 million, or Term A Loan. Under the terms of the Loan Agreement, we may, at our sole discretion, borrow from the Lenders (i) up to an additional $5.0 million, or Term B Loan, upon our achievement of positive topline data in either our (a) itolizumab (EQ001) Phase 1b aGVHD trial or (b) itolizumab (EQ001) Phase 1b asthma trial, supporting a formal decision to advance into Phase 2 development, and as confirmed by our Board of Directors, or the Term B Milestone, and (ii) up to an additional $5.0 million, or Term C Loan and together with Term A Loan and Term B Loan, the Term Loans, upon our achievement of positive topline data in both our EQ001 Phase 1b aGVHD trial and our itolizumab (EQ001) Phase 1b asthma trial, supporting a formal decision to advance into Phase 2 20 development, and as confirmed by our Board of Directors, or the Term C Milestone. We may draw the Term B Loan during the period commencing on the date of the occurrence of the Term B Milestone and ending on the earliest of (i) December 31, 2020, (ii) 60 days after achieving the Term B Milestone, and (iii) the occurrence of an event of default and may draw the Term C Loan during the period commencing on the date of the occurrence of the Term C Milestone and ending on the earliest of (i) December 31, 2020, (ii) 60 days after achieving the Term C Milestone, and (iii) the occurrence of an event of default. At-the-Market Offering Program In November 2019, we entered into an Open Market Sales Agreement SM with Jefferies to sell shares of our common stock having aggregate sales proceeds of up to $8.45 million, from time to time, through an ATM equity offering program under which Jefferies acts as sales agent, or the 2019 ATM Facility. Under the 2019 ATM Facility, we set certain parameters for the sale of shares, which may include but are not limited to the number of shares to be issued, the time period during which sales are requested to be made, and any minimum price below which sales may not be made. Jefferies is entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of June 30, 2020, we sold an aggregate of 192,899 shares of our common stock under the 2019 ATM Facility for gross proceeds of $0.9 million. On July 14, 2020, we entered into another Open Market Sales Agreement SM with Jefferies for a new ATM equity offering to sell shares of our common stock, from time to time, having aggregate sales proceeds of up to $150 million under which Jefferies would act as sales agent, or the 2020 ATM Facility. The 2020 ATM Facility provides that Jefferies will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold. We are not obligated to make any sales under the 2020 ATM Facility. Subsequent to June 30, 2020 and through the date of the filing of this Quarterly Report on Form 10-Q, we sold an aggregate of 1,539,525 shares of common stock under both of the 2019 ATM Facility and the 2020 ATM Facility, which includes shares sold pursuant to the 2020 ATM Facility, but not yet delivered to Jefferies, for gross proceeds of approximately $17.9 million. We paid cash commissions on the gross proceeds, plus reimbursement expenses to Jefferies and legal fees in the aggregate amount of approximately $0.6 million resulting in net proceeds of $17.3 million. 2020 Purchase Agreement In March 2020, we entered into a purchase agreement, or the Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $15.0 million of shares of our common stock from time to time over the 36-month term of the Purchase Agreement. Upon execution of the Purchase Agreement, we issued 65,374 shares of our common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement. We have not sold any shares of our common stock to Lincoln Park under the Purchase Agreement through the date of the filing of this Quarterly Report on Form 10-Q. Funding Requirements We expect our expenses to increase substantially in connection with our ongoing and future activities, particularly as we advance and expand our clinical development of itolizumab (EQ001), including potential new indications. We expect that our primary uses of capital will be for clinical research and development services, preclinical research, manufacturing, legal and other regulatory compliance expenses, compensation and related expenses, risk management, and general overhead costs. We expect that our existing cash, cash equivalents and short-term investments as of June 30, 2020, together with capital raised subsequent to June 30, 2020, will enable us to fund our currently planned operations for at least the next 12 months. We have based this estimate 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 trials is costly, and the timing of progress in these trials 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 itolizumab (EQ001) 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 ongoing and future clinical trials of itolizumab (EQ001), including as such activities may be adversely impacted by the COVID-19 pandemic; • the number and scope of indications we decide to pursue for itolizumab (EQ001) development; 21 • the cost, timing and outcome of regulatory review of any Biologics Licens e Application, or BLA, we may submit for itolizumab (EQ001); • the costs and timing of manufacturing for itolizumab (EQ001), if approved; • 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 itolizumab (EQ001); • the costs associated with being a public company; • 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; and • the cost associated with commercializing itolizumab (EQ001), if approved for commercial sale. Until such time as we can generate substantial 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 COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates 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 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 $55.4 million as of June 30, 2020. We expect operating losses and negative cash flows to continue for at least the next several years as we continue to incur costs related to the development of itolizumab (EQ001). 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, 2020 2019 Net cash provided by (used in): Operating activities $ (11,450 ) $ (9,220 ) Investing activities 21,460 3,389 Financing activities 871 - Effect of exchange rate changes on cash (17 ) (16 ) Net increase (decrease) in cash and cash equivalents $ 10,864 $ (5,847 ) Operating Activities Net cash used in operating activities was $11.5 million during the six months ended June 30, 2020, as compared to $9.2 million during the six months ended June 30, 2019. The increase is primarily due to an increase of $2.3 million in net loss for the six months ended June 30, 2020, as compared to the same period in 2019, offset by an increase in non-cash adjustments to net loss totaling $1.6 million primarily associated with an increase in non-cash stock-based compensation of $1.1 million. Furthermore, there were net unfavorable working capital changes due to a decrease of $2.1 million in accounts payable and accrued expenses offset by a decrease of $0.6 million in prepaid expenses and other current assets for the six months ended June 30, 2020 as compared to the same period in 2019. 22 Investing Activities Net cash provided by investing activities was $21.5 million during the six months ended June 30, 2020. We purchased $2.2 million of short-term investments and $23.7 million of our short-term investments matured during the period. Purchases of property and equipment for the six months ended June 30, 2020 totaled $15,000. Net cash provided by investing activities was $3.4 million during the six months ended June 30, 2019. We purchased $25.6 million of short-term investments and $29.1 million of our short-term investments matured during the period. Purchases of property and equipment for the six months ended June 30, 2019 totaled $0.1 million. Financing Activities Net cash provided by financing activities totaled $0.9 million during the six months ended June 30, 2020. We received net proceeds from the sale of shares under the 2019 ATM facility totaling $0.8 million and from the issuance of shares under our employee stock purchase plan totaling $0.1 million. There were no financing activities during the six months ended June 30, 2019. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.