What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-12 · 111 added, 75 removed, 159 unchanged (54% of the section changed)

Management’s Discussion an d Analy sis of Financial Condition and Results of Operations

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, 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.

17 unchanged sentences

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 March 2019, we initiated a Phase 1b/2 clinical trial of itolizumab (EQ001) for the treatment of aGVHD, and reported positive top-line data from the first two cohorts of the Phase 1b part of this trial in August 2020 and positive interim data through the third dosing cohort in November 2020.

In August 2020, the study was amended to expand the eligibility criteria to include patients with Grade II aGVHD who have more severe disease as indicated by elevations in Magic Algorithm Probability biomarkers, which predict a greater severity of aGVHD.

Further, this amendment also allows patients who have aGVHD to be enrolled within seven days of receiving initial treatment with steroids.

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.

In July 2019, our IND for lupus nephritis was accepted by the FDA, 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 September 2020, our Phase 1b lupus nephritis study was amended to test doses up to 3.2 mg/kg, allow for a longer duration of treatment up to 26 weeks, and to change the design to an open-label study.

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.

1 unchanged sentence

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.

We did not pause enrollment of patients in the Phase 1b/2 clinical trial

of itolizumab (EQ001) for the treatment of aGVHD given the acute life-threat ening 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 recently announced tria l to evaluate itolizumab in hospitalized COVID-19 patients suffering from acute respiratory distress syndrome and the recently resumed Phase 1b trials in uncontrolled asthma and lupus nephritis, in addition to the timing of topline data from all four of th ose trials may also be adversely impacted by the COVID-19 pandemic.

In August 2020, we announced positive data from the ongoing Phase 1b/2 EQUATE clinical trial of itolizumab in the treatment of frontline aGVHD.

Across the first two dose cohorts of the Phase 1b open-label portion of the study, itolizumab has been well tolerated, and 71% of patients achieved complete response, or CR, by Day 29.

In the first cohort at the 0.4 mg/kg dose, two of four patients achieved a CR, resulting in a CR and overall response, or OR, rate of 50%.

In the second cohort at the 0.8 mg/kg dose, all three patients achieved a CR, resulting in a CR and OR rate of 100%.

Additionally, these CRs occurred early during itolizumab treatment course, with all patients achieving a CR within the first 15 days of treatment.

In November 2020, we reported interim results from the ongoing Phase 1b portion of the EQUATE trial.

In the EQUATE trial, the overall response rate across the first three dose cohorts was 80%, and seven of eight patients responding achieved a CR and one patient achieved a very good partial response, or VGPR, by Day 29 (VGPR approximates the clinical benefit of CR).

Responses observed have been rapid, with most patients achieving a CR within the first 15 days, and durable as patients in the first two cohorts have maintained responses through Day 57.

To date, adverse events reported with the EQUATE trial have been consistent with the safety profile previously reported for itolizumab and those common in the aGVHD patient population.

In review of the totality of safety, efficacy and pharmacodynamic data, the independent data monitoring committee has recommended to expand cohort 3 (1.6 mg/kg dose) and proceed forward with enrollment.

We plan on reporting topline data across all cohorts from the Phase 1b portion of the EQUATE trial during the first half of 2021 and working with FDA to accelerate further development of itolizumab in graft-versus-host disease.

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.

1 unchanged sentence

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).

2 unchanged sentences

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.

Following completion of a Phase 3 clinical trial conducted by Biocon outside of North America, itolizumab was approved in 2013 in India for the treatment of moderate to severe plaque psoriasis and has since been marketed by Biocon in India as ALZUMAb.

More recently, following a randomized, controlled study of itolizumab in hospitalized patients with COVID-19 conducted by Biocon, in July 2020 the Drugs Controller General of India (DCGI) granted restricted emergency use approval of itolizumab for the treatment of cytokine release syndrome (CRS) in COVID-19 patients with moderate to severe acute respiratory distress syndrome (ARDS).

In addition, regulatory approval in Cuba was granted to Centro de Immunologia Molecular for itolizumab to be used in patients with rheumatoid arthritis and psoriasis as well as emergency use approval in patients with COVID-19.

Today, India and Cuba are the only jurisdictions where itolizumab is approved or marketed.

Based on the encouraging results observed in Biocon’s COVID-19 study, the novel and differentiated T cell modulating mechanism of action of itolizumab, and the fact that no targeted immuno-modulating therapies are currently approved to treat COVID-19 patients, we advanced our plan to develop itolizumab to treat hospitalized patients with COVID-19.

In September 2020, we completed our Pre-IND meeting with the FDA and in October 2020, we filed an IND with the FDA to conduct a global Phase 3, randomized, double-blind, placebo-controlled clinical trial of itolizumab (EQ001) in COVID-19 patients.

In October 2020, we received a Study May Proceed letter from the FDA and anticipate that the first patient will be enrolled during the fourth quarter of 2020 and that initial clinical data would be available mid-year 2021.

We and Biocon intend to work closely together in the further development of itolizumab in COVID-19 patients and, importantly, planning scale-up of manufacturing to support access to treatment for the greatest possible number of patients worldwide.

Since our inception, s ubstantially 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 t hree 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.

Since inception, we have primarily financed our operations through our initia l public offering, or IPO, a follow-on public offering, 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 incur red losses since our inception.

Our net losses were $ 2 0 .9 million for the nine months ended September 30, 2020 and $25.6 million for the year ended December 31, 2019.

As of September 30, 2020, we had an accumulated deficit of $ 62.0 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.

1 unchanged sentence

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.

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.

We expect that our existing cash, cash equivalents and short-term investments as of September 30, 2020, will enable us to fund our currently planned operations for at least the next 12 months.

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 is unlikely to happen within the next 12 months, if ever.

Accordingly, 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 a ll.

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.

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.

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.

In addition, subject to limited exceptions, our loan and security agreement 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 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

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.

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 itolizumab (EQ001) and any future product candidates.

6 unchanged sentences

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;

costs related to preparing and filing three INDs with the FDA and other regulatory interactions and submissions;

costs related to general overhead expenses such as travel, insurance and rent expenses associated with our research and development activities.

2 unchanged sentences

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 recognize the Australian Research and Development Tax Incentive, or the Tax Incentive, as a reduction of research and development expense.

The amounts are determined based on our eligible research and development expenditures and are non-refundable, provided that in order to qualify for the Tax Incentive the filing entity must have revenue of less than AUD $20.0 million during the tax year for which a reimbursement claim is made and cannot be controlled by an income tax exempt entity.

The Tax Incentive is recognized when there is reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured or reliably estimated.

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).

2 unchanged sentences

Clinical development timelines, the probability of success, and development costs can differ materially from expectations.

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.

Completion of clinical trials 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.

Regulatory reviews associated with clinical development programs in COVID-19 may be expedited, but there can be no assurance that itolizumab will be granted or benefit from any accelerated regulatory reviews.

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:

21 unchanged sentences

Interest Expense

Interest expense consists of interest on our term loans payable.

Interest expense consists of interest and amortization of discounts on our outstanding 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.

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 of net foreign currency transaction gains or losses related to our Australian subsidiary.

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,

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

The following table sets forth our results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

4 unchanged sentences

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;

Research and development expenses were $4.2 million and $12.8 million for three and nine months ended September 30, 2020, respectively, compared to $4.2 million and $12.2 million for the three and nine months ended September 30, 2019, respectively.

In January 2019, we formed a wholly-owned Australian subsidiary, Equillium Australia Pty Ltd, to conduct clinical development of itolizumab (EQ001) for the treatment of uncontrolled asthma.

The Tax Incentive under current Australian tax regulations provides for a 43.5% refundable research and development tax credit associated with qualified research and development activities performed in Australia.

In August 2020, we received cash totaling $0.7 million related to our initial Tax Incentive claim for the fiscal year ended December 31, 2019.

We recorded the cash received as a reduction to research and development expenses during the three months ended September 30, 2020.

In addition, since we have established history in filing and receiving the Tax Incentive for our fiscal year ended December 31, 2019 with the Australian Taxation Office (ATO), we recorded an estimated tax benefit totaling $0.3 million for qualified research and development activities for the nine months ended September 30, 2020, and recorded it as a reduction to research and development expenses in the third

quarter of 2020 .

The estimated tax benefit is recognized when there is reasona ble assurance that the tax benefit will be received, the relevant expenditure has been incurred, and the amount can be reliably measured or reasonably estimated .

Research and development expenses for the three months ended September 30, 2020 compared to the same period in 2019, remained flat, and included the following changes:

$1.0 million decrease in research and development expenses associated with the recording of a Tax Incentive benefit from the ATO as a reduction to research and development expenses;

$0.6 million increase in employee compensation and benefits, primarily related to increased headcount;

$0.5 million increase in clinical development activities, primarily related to start-up costs associated with our COVID-19 clinical trial;

$0.2 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:

$0.1 million increase in consulting expenses.

The increase of $0.6 million in research and development expenses for the nine months ended September 30, 2020, compared to the same period in 2019, primarily included the following changes:

$1.6 million increase in employee compensation and benefits, primarily related to increased headcount;

$1.0 million decrease in research and development expenses associated with the recording of a Tax Incentive benefit from the ATO as a reduction to research and development expenses;

$0.4 million increase in clinical development activities, primarily driven by an increase in expenses related to our lupus nephritis clinical trial as well as start-up costs associated with our COVID-19 clinical trial, offset by a reduction in expenses related to our asthma clinical trial;

$0.2 million decrease in preclinical research activities;

$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.

$0.2 million decrease in overhead expenses primarily driven by decreased spending on travel resulting from impacts 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.

General and administrative expenses were $2.3 million and $7.8 million for the three and nine months ended September 30, 2020 and 2019, respectively, compared to $2.1 million and $6.9 million for the three and nine months ended September 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.

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 nine-months ended September 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.

1 unchanged sentence

We expect that the voluntary reductions in salary and retainers will save us approximately $0.4 million in cash expenditures in calendar year 2020.

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;

$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;

There was no similar non-cash stock-based compensation charge in the three months ended September 30, 2020.

The increase of $0.2 million in general and administrative expenses for the three months ended September 30, 2020, compared to the same period in 2019 was primarily due to a $0.2 million increase in corporate consulting expenses.

The increase of $ 0.9 million in general and administrative expenses for the nine months ended September 30, 2020, compared to the same period in 2019, primarily include d the following changes:

$0.7 million increase in employee compensation and benefits, primarily due to increased non-cash stock-based compensation driven by $0.4 million of expense 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;

$0.3 million increase in corporate consulting expenses;

$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.

Interest expense was $0.3 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, compared to approximately $2,000 of 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.

Interest income was $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively, compared to $0.3 million and $1.1 million for the three and nine months ended September 30, 2019, respectively.

The decrease in interest income was primarily due to 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.

There was $0.1 million of other income, net for both the three and nine months ended September 30, 2020, compared to $12,000 and $17,000 of other expense, net in the three and nine months ended September 30, 2019, respectively.

The increase in other income, net for the three and nine months ended September 30, 2020 compared to the same periods in 2019 relates primarily to net foreign currency transaction unrealized gains.

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.

From inception through September 30, 2020, we have raised an aggregate of approximately $148.1 million in gross proceeds pursuant to our IPO, a follow-on public offering, private placements of convertible promissory notes, proceeds from term loans and proceeds from equity issuances under our ATM facility.

As of September 30, 2020, we had $49.2 million in cash and cash equivalents and $41.3 million in short-term investments.

Sources of Liquidity

2 unchanged sentences

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

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.

3 unchanged sentences

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.

As of September 30, 2020, the 2019 ATM Facility has been fully utilized.

We sold an aggregate of 943,739 shares of our common stock under the 2019 ATM Facility for gross proceeds of $8.45 million.

On July 14, 2020, we entered into another Open Market Sales Agreement 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.

As of September 30, 2020, we sold an aggregate of 788,685 shares of common stock under the 2020 ATM Facility, for gross proceeds of $10.4 million.

We paid cash commissions on the gross proceeds, plus reimbursement expenses to Jefferies, legal fees and other issuance costs in the aggregate amount of $0.4 million, resulting in net proceeds of $10.0 million.

There have been no further sales of shares under the 2020 ATM Facility through the date of the filing of this Quarterly Report on Form 10-Q.

2020 Purchase Agreement

2 unchanged sentences

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.

Follow-On Public Offering

In August 2020, we completed an underwritten public offering of 5,461,169 shares of common stock at $7.00 per share, which included 461,169 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares.

We received gross proceeds from this offering totaling $38.2 million.

Net proceeds from this offering, net of underwriting discounts and related issuance costs, were $35.7 million.

Funding Requirements

1 unchanged sentence

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 September 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.

5 unchanged sentences

the number and scope of indications we decide to pursue for itolizumab (EQ001) development;

the cost, timing and outcome of regulatory review of any Biologics Licens e Application, or BLA, we may submit for itolizumab (EQ001);

the cost, timing and outcome of regulatory review of any Biologics License Application, or BLA, we may submit for itolizumab (EQ001);

the costs and timing of manufacturing for itolizumab (EQ001), if approved;

15 unchanged sentences

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 had an accumulated deficit of $62.0 million as of September 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).

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,

Nine Months Ended September 30,

Net cash provided by (used in):

5 unchanged sentences

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.

Net cash used in operating activities during the nine months ended September 30, 2020 of $16.4 million was primarily due to our net loss of $20.9 million, adjusted for addbacks of non-cash items of $3.2 million, which primarily consisted of non-cash stock-based compensation and increases in working capital of $1.3 million.

Net cash used in operating activities during the nine months ended September 30, 2019 of $13.9 million was primarily due to our net loss of $18.0 million, adjusted for addbacks of non-cash items of $1.4 million, which primarily consisted of non-cash stock-based compensation, and increases in working capital of $2.7 million.

Investing Activities

Net cash provided by investing activities was $21.5 million during the six months ended June 30, 2020.

Net cash used in investing activities was $1.6 million during the nine months ended September 30, 2020.

We purchased $30.3 million of short-term investments and $28.9 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.

Purchases of property and equipment for the nine months ended September 30, 2020 totaled $0.2 million.

Net cash provided by investing activities was $3.2 million during the nine months ended September 30, 2019.

We purchased $36.1 million of short-term investments and $39.3 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.

Purchases of property and equipment for the nine months ended September 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.

Net cash provided by financing activities totaled $53.9 million during the nine months ended September 30, 2020.

We received net proceeds from the sale of shares related to our follow-on public offering totaling $35.8 million, net proceeds from the sale of shares under our ATM facilities totaling $18.1 million and proceeds from the issuance of shares under our employee stock purchase plan totaling $0.1 million.

Net cash provided by financing activities totaled $9.9 million during the nine months ended September 30, 2019.

We received net proceeds of $9.9 million from the initial advancement under our term loan during the period.

Off-Balance Sheet Arrangements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis