What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2020-11-10 compared with 2020-08-12 · 490 added, 446 removed, 907 unchanged (51% of the section changed)

RISK FACTORS SUMMARY

We face many risks and uncertainties, as more fully described in this section under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below.

The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”

We have a very limited operating history and have never generated any revenues;

We expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability;

We will require substantial additional funding to complete the development and any commercialization of itolizumab (EQ001).

If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our research and development programs or other operations;

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates;

We are highly dependent on the success of our product candidate, itolizumab (EQ001), which is in early stage clinical development, and we may not be able to successfully obtain regulatory or marketing approval for, or successfully commercialize, this product candidate in any of the indications for which we plan to develop it;

Any delays in the commencement or completion, or termination or suspension, of our ongoing, planned or future clinical trials could result in increased costs to us, delay or limit our ability to raise capital or generate revenue and adversely affect our commercial prospects;

Interim, topline or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data;

We have licensed itolizumab from Biocon pursuant to an exclusive license agreement, which license is conditioned upon us meeting certain diligence obligations with respect to the development, regulatory approval and commercialization of itolizumab, and making significant milestone payments in connection with regulatory approval and commercial milestones as well as royalty payments;

We have licensed the rights to itolizumab in the United States, Canada, Australia, and New Zealand.

Any adverse developments that occur during any clinical trials conducted by Biocon or third parties in other jurisdictions may affect our ability to obtain regulatory approval or commercialize itolizumab;

The manufacture of biologics is complex and Biocon, our third-party manufacturer, may encounter difficulties in production, distribution and delivery of such biologics.

If Biocon encounters such difficulties, our ability to provide supply of itolizumab (EQ001) for clinical trials, our ability to obtain marketing approval, or our ability to obtain commercial supply of our products, if approved, could be delayed or stopped;

We rely, and intend to continue to rely, on third parties to conduct our clinical trials and perform some of our research and preclinical studies.

If these third parties do not satisfactorily carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, our development programs may be delayed or subject to increased costs or we may be unable to obtain regulatory approval, each of which may have an adverse effect on our business, financial condition, results of operations and prospects;

We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities.

If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell itolizumab (EQ001), we may not be able to generate product revenue;

Even if itolizumab (EQ001) receives marketing approval in any indication, it may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, healthcare payors and others in the medical community necessary for commercial success;

If we are unable to obtain or protect intellectual property rights covering our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and we may not be able to compete effectively in our market;

We depend on intellectual property licensed from Biocon and termination of our license could result in the loss of significant rights, which would harm our business;

The novel coronavirus global pandemic has adversely impacted our business, including our clinical trials, and could further impact other aspects of our business including our supply chain, personnel, and our business development activities, the magnitude and extent of which are uncertain.

You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock.

5 unchanged sentences

Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Business and to the Development and Regulatory Approval of Itolizumab (EQ001)

In December 2019, a novel strain of coronavirus, designated COVID-19, was first reported in Wuhan, China and has since become a global pandemic.

T he President of the United States declared the coronavirus pandemic a national emergency and many states and municipalities in the United States, including California, have announced aggressive actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders which direct individuals to shelter at their places of residence (subject to limited exceptions).

As a result , we have implemented work-from-home policies for employees and have moved to a “virtual” model with respect to our partner support activiti es.

The effects of government actions and our policies and those of third parties to reduce the spread of the coronavirus may negatively impact productivity, cause disruptions to our supply chain and ongoing and future clinical trials and impair our ability to execute our business development strategy.

These and other disruptions in our operations and the global economy could negatively impact our bu siness, operating results and financial condition.

Quarantines , shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to the coronavirus or other infectious diseases could impact personnel at third-party manufacturing facilities upon which we rely, or the availability or cost of materials, which could disrupt the supply chain for our clinical trials.

In particular, certain of our service providers involved in clinical trials are located in regions that have been subject to coronavirus-related actions and policies that limit the conduct of normal business operations.

To the extent our suppliers and service providers are unable to comply with their obligations under our agreements with them or they are otherwise unable to deliver or are delayed in delivering goods and services to us due to the coronavirus, our ability to continue advancing development of our product candidates may become impaired.

In addition, our clinical trials have been and may continue to be affected by the coronavirus.

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 current global 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.

Clinical site initiation and patient enrollment for our ongoing aGVHD trial may be delayed due to prioritization of hospital resources toward the coronavirus.

Current or future patients in our ongoing or planned clinical trials may also choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a precaution against contracting the coronavirus.

Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to the

coronavirus, may be a dversely impacted.

These events could delay our clinical trials, increase the cost of completing our clinical trials and negatively impact the integrity, reliability or robustness of the data from our clinical trials.

The spread of the coronavirus and actions taken to reduce its spread may also materially affect us economically.

While the potential economic impact brought by, and the duration of, the coronavirus may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position.

The coronavirus continues to rapidly evolve.

The extent to which the coronavirus may impact our clinical trials, our supply chain, our access to capital and our business development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the pandemic, the duration of the pandemic and the efforts by governments and business to contain it, business closures or business disruptions and the impact on the economy and capital markets .

Risks Related to Our Financial Position and Need for Additional Capital

We have a very limited operating history and have never generated any revenues.*

We are an early-stage biotechnology company with a very limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability.

We were incorporated in March 2017 and our operations, to date, have consisted of 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), conducting business development activities, and the general and administrative activities associated with being a public company.

We were incorporated in March 2017 and our operations, to date, have consisted of organizing and staffing our company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting preclinical research, filing three INDs, commencing clinical development of itolizumab (EQ001), conducting business development activities, and the general and administrative activities associated with being a public company.

We have not yet demonstrated an ability to successfully complete any clinical trials and have never completed the development of any product candidate, and we have never generated any revenue from product sales or otherwise.

3 unchanged sentences

We have never generated any revenues, and we cannot estimate with precision the extent of our future losses.

For the six months ended June 30, 2020 and the year ended December 31, 2019, our net losses were $14.3 million and $25.6 million, respectively.

As of June 30, 2020, we had an accumulated deficit of $55.4 million.

For the nine months ended September 30, 2020 and the year ended December 31, 2019, our net losses were $20.9 million and $25.6 million, respectively.

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

We expect to incur increasing levels of operating losses for the foreseeable future as we execute our plan to continue our research and development activities, including the ongoing and future clinical development of itolizumab (EQ001), potentially expand the indications for which we conduct clinical development of itolizumab (EQ001), potentially acquire new products and/or product candidates, seek regulatory approvals of and potentially commercialize any approved product candidates, hire additional personnel and protect our intellectual property.

In addition, if we obtain regulatory approval for itolizumab (EQ001), we expect to incur increased sales and marketing expenses.

As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future.

In addition, if we obtain regulatory approval for itolizumab (EQ001), we expect to incur increased sales and marketing expenses, with certain of such investments potentially being made in advance of an approval.

As a result, we expect to continue to incur significant and increasing operating losses and negative

cash flows fo r the foreseeable future.

These losses have had and will continue to have an adverse effect on our financial position and working capital.

7 unchanged sentences

A decline in the value of our company could also cause you to lose all or part of your investment.

We will require substantial additional funding to complete the development and any commercialization of itolizumab (EQ001).

If we are unable to raise this capital when needed, we may be forced to delay, reduce or elim inate our research and development programs or other operations.*

We expect our expenses to increase substantially during the next few years.

The development of biotechnology product candidates is capital intensive.

As itolizumab (EQ001) enters and advances through preclinical studies and clinical trials, we will need substantial additional funds to expand our clinical, regulatory and quality capabilities.

In addition, if we obtain marketing approval for itolizumab (EQ001), we expect to incur significant commercialization expenses for marketing, sales, manufacturing and distribution, some of those investments may be made at-risk in advance of receiving an approval.

As of September 30, 2020, we had $90.5 million in cash, cash equivalents and short-term investments.

Based on our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of September 30, 2020 will enable us to fund our operations for at least the next 12 months.

However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.

For example, our ongoing and future clinical trials for itolizumab (EQ001) may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect.

We do not have sufficient funds to complete the clinical development of itolizumab (EQ001) through regulatory approval for all of our current indications, and we will need to raise substantial additional capital to complete the development and commercialization of itolizumab (EQ001).

Future capital requirements will depend on many factors, including:

the initiation, progress, timing, costs and results of our ongoing and future clinical trials for 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;

the cost, timing and outcome of regulatory review of any 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;

the cost associated with commercializing itolizumab (EQ001), if approved for commercial sale.

In September 2019, we entered into a loan and security agreement, or Loan Agreement, with Oxford Finance LLC and Si licon Valley Bank, or together the Lenders, providing for up to $20.0 million in term loans.

We borrowed $10.0 million upon execution of the Loan Agreement.

We may borrow the remaining $10.0 million upon the achievement of certain aforementioned time-boun ded clinical milestones.

Missing those milestones either due to unsuccessful trial results and/or delays in our clinical trials, including as a result of the COVID-19 pandemic, would result in us being unable to advance those remaining amounts of the debt facility, which could adversely impact our financial position and business operations.

In November 2019, we entered into an ATM facility with Jefferies, or the 2019 ATM Facility, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $8.45 million from time to time through Jefferies acting as our sales agent.

As of September 30, 2020, we sold an aggregate of 943,739 shares of our common stock under the 2019 ATM Facility for gross proceeds of $8.45 million.

In July 2020, we entered into a new ATM facility with Jefferies, or the 2020 ATM Facility, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $150 million from time to time through Jefferies acting as our sales agent.

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

There have been no sales of shares of our common stock under the 2020 ATM Facility since September 30, 2020 and through the date of the filing of this Quarterly Report on Form 10-Q.

In March 2020, we entered into the Purchase Agreement, with 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.

As of September 30, 2020 and through the date of the filing of this Quarterly Report on Form 10-Q, we have not sold any shares of our common stock to Lincoln Park under the Purchase Agreement.

Our commercial revenues, if any, will be derived from sales of products, which is unlikely to happen within the next 12 months, if ever .

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

Adequate additional financing may not be available to us on acceptable terms, or at all.

In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic.

If the disruption persists and deepens, we could experience an inability to access additional capital.

Subject to limited exceptions, our Loan Agreement also prohibits us from incurring indebtedness without the prior written consent of the lenders.

In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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.

The terms of our Loan Agreement place restrictions on our operating and financial flexibility.

In September 2019, we entered into the Loan Agreement with Oxford Finance LLC and Silicon Valley Bank providing for up to $20.0 million in term loans , which is secured by a first priority perfected security interest in substantially all of our current and future assets, other than our intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property).

We borrowed $10.0 million upon execution of the Loan Agreement.

The Loan Agreement includes affirmative and restrictive covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates, among other customary covenants.

We are also restricted from paying dividends or making other distributions or payments on our capital stock, subject to limited exceptions.

The Loan Agreement also includes events of default, the occurrence and continuation of which provide Oxford Finance LLC, as collateral agent, with the right to exercise remedies against us and the collateral securing the loans under the Loan Agreement, including foreclosure against our properties securing the Loan Agreement, including our cash, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations.

These events of default include, among other things, our failure to satisfy our payment obligations under the Loan Agreement, the breach of certain of our other covenants under the Loan Agreement, or the occurrence of a material adverse change, cross defaults to other indebtedness or material agreements, judgment defaults and defaults related to failure to maintain governmental approvals failure of which to maintain could result in a material adverse effect.

Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation.

The lenders could declare a default upon the occurrence of any event that they interpret as a material adverse change as defined under the Loan Agreement, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation.

Any declaration by the lenders of an event of default could significantly harm our business and prospects and could ca use the price of our common stock to decline.

Risks Related to Our Business and to the Development and Regulatory Approval of Itolizumab (EQ001)

9 unchanged sentences

If itolizumab (EQ001) is approved and we fail to successfully commercialize it, we may be unable to generate sufficient revenues to sustain and grow our business, and our business, prospects, financial condition and results of operations will be adversely affected.

The positive preliminary data as reported by Biocon from its clinical trial of itolizumab in COVID-19 patients may be incomplete or inappropriately analyzed, and results of earlier studies may not be predictive of future clinical trial results.*

Our partner Biocon recently announced positive preliminary data from a clinical trial of itolizumab in patients hospitalized with COVID-19 in India.

We own the rights to develop and commercialize itolizumab (EQ001) in the United States, Canada, Australia and New Zealand through an exclusive collaboration and license agreement with Biocon.

We are still in the process of obtaining and reviewing data from the clinical trial conducted by Biocon.

Data reported by Biocon may not be complete.

Further, we do not control and are unable to validate study results reported by Biocon or third parties.

Any errors or omissions in the data and public disclosures reported by Biocon or third parties could have a material adverse effect on our stock price and business plans.

While we are currently planning to conduct a global randomized, controlled clinical trial of itolizumab (EQ001) in COVID-19 patients under a U.S.

IND we plan to file, we may decide against initiating clinical development of itolizumab (EQ001) in COVID-19 patients in the United States or internationally after we complete our review and analysis of the Biocon data.

The results of Biocon’s COVID-19 clinical trial may not be predictive of the results of subsequent clinical trials that we may undertake of itolizumab (EQ001) in patients with COVID-19.

The design of any future clinical trials will be based on many assumptions, including, but not limited to, the expected effects of itolizumab (EQ001), and if those assumptions are incorrect, the trials may not produce results to support regulatory approval.

Clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in early-stage clinical trials have nonetheless failed to replicate results in later-stage clinical trials and subsequently failed to obtain regulatory approval.

Additionally, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials.

It is also possible that patients enrolled in clinical trials will experience adverse events or unpleasant side effects that are not currently part of the product candidate’s profile.

We have not yet commenced development of itolizumab (EQ001) for COVID-19 patients.

We may be unable to successfully develop and obtain regulatory approval of itolizumab (EQ001) for COVID-19 patients in a timely manner, if at all.*

Based on the initial topline data from the Biocon study and the subsequent restricted emergency use approval of itolizumab granted by the Drugs Controller General of India for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India, we are planning to conduct our own clinical trial of itolizumab (EQ001) in COVID-19 patients.

Based on the encouraging results observed in Biocon’s COVID-19 study and the subsequent restricted emergency use approval of itolizumab granted by the DCGI for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India, we have filed an IND to conduct our own clinical trial of itolizumab (EQ001) in COVID-19 patients.

Because we have not yet commenced development of itolizumab (EQ001) as a potential treatment for COVID-19 patients, such development will likely require extensive pre-clinical and clinical testing.

In addition, we will need to submit an IND for acceptance by the FDA prior to initiating any clinical trials in the United States for COVID-19 patients.

The FDA may require us to conduct additional preclinical studies for itolizumab (EQ001) before it allows us to initiate clinical trials, which would be costly and time consuming, and could delay, or even prevent, our development plans.

We may be unable to successfully develop and obtain regulatory approval of itolizumab (EQ001) for COVID-19 patients and establish a competitive market share for our treatment before a competitor or before the COVID-19 outbreak is effectively contained, a vaccine or other effective competitive therapies are successfully developed, or the risk of coronavirus infection is significantly diminished, any of which could materially and adversely impact the commercial potential of itolizumab (EQ001) as a treatment for COVID-19 patients.

A large number of companies, academic institutions and other org anizations currently have programs to develop COVID-19 vaccines and therapeutic candidates.

Many of our competitors pursuing vaccines and treatments for COVID-19 have significantly greater financial, product development, manufacturing and marketing resourc es than we have.

Larger pharmaceutical and biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for their products, and may have the resources to heavily invest to accelerate discovery and development of t heir products.

A large number of companies, academic institutions and other organizations currently have programs to develop COVID-19 vaccines and therapeutic candidates.

Many of our competitors pursuing vaccines and treatments for COVID-19 have significantly greater financial, product development, manufacturing and marketing resources than we have.

In addition, many of our competitors are further along in the clinical testing development, with more than 10 Phase 3 studies currently ongoing.

Our business could be materially and adversely affected if competitors develop and commercialize one or more COVID-19 vaccines or treatments before we can complete development and obtain approval of itolizumab (EQ001) for COVID-19 patients, or if they develop and commercialize one or more COVID-19 vaccines or treatments that are safer, more effective, have fewer or less severe side effects, have broader market acceptance, are more convenient or are less expensive than itolizumab (EQ001).

We will need significant funding to support the development and commercialization of itolizumab (EQ001) for COVID-19 patients.

Various government entities and private foundations are offering incentives, grants and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against COVID-19, but such grants may have the effect of increasing the number of competitors and/or providing advantages to competitors working on COVID-19 vaccines and treatments.

Accordingly, there can be no assurance that we will be able to successfully obtain the necessary funding to support our development and potential commercialization efforts.

on COVID-19 vaccines and treatments.

A ccordingly, there can be no assurance that we will be able to successfully obtain the necessary funding to support our development and potential commercialization efforts.

Biocon’s grant of restricted emergency use approval of itolizumab in India by the Drugs Controller General of India does not mean that we will be successful in obtaining regulatory approval of itolizumab (EQ001) from other regulatory authorities, including the FDA.*

Although Biocon was granted restricted emergency use approval of itolizumab by the Drugs Controller General of India for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India, that does not guarantee that we will be able to obtain regulatory approval for itolizumab (EQ001) for COVID-19 patients in any other jurisdiction, including in the United States from the FDA.

Although Biocon was granted restricted emergency use approval of itolizumab by the DCGI for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India, that does not guarantee that we will be able to obtain regulatory approval for itolizumab (EQ001) for COVID-19 patients in any other jurisdiction, including in the United States from the FDA.

Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in other jurisdictions, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions.

2 unchanged sentences

We may not be able to submit for marketing approvals and may not receive necessary approvals to commercialize itolizumab (EQ001) for COVID-19 in any market.

If we fail to comply with U.S.

export control and economic sanctions, our business, financial condition and prospects may be materially and adversely affected.*

Our business and our products are subject to U.S.

export control laws and regulations, including the U.S.

Export Administration Regulations and economic and trade sanctions regulations administered by the U.S.

Treasury Department’s Office of Foreign Assets Control, or OFAC.

Our company must comply with these laws and regulations.

The antibody sequence for both itolizumab (EQ001) and ALZUMAb is derived from Cuban-origin intellectual property and thus we believe this to be a pharmaceutical of Cuban origin, which would make the import, development and commercialization of itolizumab (EQ001) subject to these laws, sanctions and regulations.

We currently rely on a general license issued by OFAC under the Cuban Assets Control Regulations, or CACR, relating to Cuban-origin pharmaceuticals to import and conduct clinical trials relating to itolizumab (EQ001).

In the absence of the OFAC general license, all of our development and potential commercialization activities for itolizumab (EQ001) would be prohibited under the CACR, and we would be required to request a specific license from OFAC authorizing such activities, which OFAC could deny.

We submitted to OFAC, and subsequently amended and supplemented, a request for interpretive guidance confirming the applicability of the general license to itolizumab (EQ001), or in its absence, a specific license authorization from OFAC authorizing activities relating to the commercialization of itolizumab (EQ001), or the Submission.

We simultaneously requested that OFAC treat the Submission as a voluntary disclosure if OFAC concluded that our determination that the general license applies to itolizumab (EQ001) was in error.

In November 2019, OFAC notified us that after careful consideration, which included consultation with the FDA, OFAC determined that itolizumab (EQ001) falls within the definition of “Cuban-origin pharmaceutical” and, as such, the general licenses at section 515.547(b) and (c) of the CACR authorize the conduct of clinical trials for itolizumab (EQ001) for the purpose of seeking approval for the drug from the FDA.

Thus, no further authorization is required from OFAC at this time for our ongoing and future clinical trials of itolizumab (EQ001).

Even though OFAC has concluded that the general l icense for Cuban-origin pharmaceuticals applies to itolizumab (EQ001), there can be no assurance that the general license will not be revoked or modified by OFAC in the future, or that we will remain in compliance with the general license or other export l aws and regulations.

If OFAC revokes or modifies the general license, or otherwise determines that the general license does not apply to itolizumab (EQ001), and OFAC then denies our request for a specific license or delays issuance of a specific license, w e will be unable to deal in, or otherwise commercialize, itolizumab (EQ001).

In that case, we would be required to cease operations related to itolizumab (EQ001), which would materially and adversely affect our financial condition and business prospects.

I n addition, in the absence of the general or specific license, the transfer, sale and/or purchase of our securities could be prohibited, and the ownership or possession of our securities could be subject to an affirmative OFAC reporting requirement relatin g to blocked property.

Any violations of the CACR or other applicable export control and sanctions laws could subject us and certain of our employees to substantial civil or criminal penalties.

The positive preliminary data as reported by Biocon from its clinical trial of itolizumab in COVID-19 patients may be inappropriately analyzed, and results of earlier studies may not be predictive of future clinical trial results.*

In July 2020, our partner Biocon announced positive preliminary data from a clinical trial of itolizumab in patients hospitalized with COVID-19 in India.

We own the rights to develop and commercialize itolizumab (EQ001) in the United States, Canada, Australia and New Zealand through an exclusive collaboration and license agreement with Biocon.

We do not control and are unable to validate study results reported by Biocon or third parties.

Any errors or omissions in the data and public disclosures reported by Biocon or third parties could have a material adverse effect on our stock price and business plans.

The results of Biocon’s COVID-19 clinical trial may not be predictive of the results of subsequent clinical trials that we may undertake of itolizumab (EQ001) in patients with COVID-19.

Additionally, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials.

It is also possible that patients enrolled in clinical trials will experience adverse events or unpleasant side effects that are not currently part of the product candidate’s profile.

Itolizumab (EQ001) is a monoclonal antibody that selectively targets CD6, a target for which there are no FDA-approved therapies.

8 unchanged sentences

Our inability to collaborate with a companion diagnostics developer could have a material and adverse effect on our business, financial condition, results of operations and prospects.

We will require substantial additional funding to complete the development and any commerc ialization of itolizumab (EQ001).

If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our research and development programs or other operations.*

We expect our expenses to increase substantially during the next few years.

The development of biotechnology product candidates is capital intensive.

As itolizumab (EQ001) enters and advances through preclinical studies and clinical trials, we will need substantial additional funds to expand our clinical, regulatory and quality capabilities.

In addition, if we obtain marketing approval for itolizumab (EQ001), we expect to incur significant commercialization expenses for marketing, sales, manufacturing and distribution.

As of June 30, 2020, we had $42.6 million in cash, cash equivalents and short-term investments.

Based on our current operating plan, we believe 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 operations for at least the next 12 months.

For example, our ongoing and future clinical trials for itolizumab (EQ001) may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect.

We do not have sufficient funds to complete the clinical development of itolizumab (EQ001) through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of itolizumab (EQ001).

Future capital requirements will depend on many factors, including:

the initiation, progress, timing, costs and results of our ongoing and future clinical trials for 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;

the cost, timing and outcome of regulatory review of any 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;

the cost associated with commercializing itolizumab (EQ001), if approved for commercial sale.

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, providing for up to $20.0 million in term loans.

We borrowed $10.0 million upon execution of the Loan Agreement.

We may borrow the remaining $10.0 million upon the achievement of certain aforementioned time-bounded clinical milestones.

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.

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 our common stock, which includes shares sold pursuant to the 2020 ATM Facility, but not yet delivered to Jefferies, for total gross proceeds of approximately $17.9 million under those ATM offerings.

As of June 30, 2020 and through the date of the filing of this Quarterly Report on Form 10-Q, we have not sold any shares of our common stock to Lincoln Park under the Purchase Agreement.

Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for sale for at least the next several years, if ever.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

Adequate additional financing may not be available to us on acceptable terms, or at all.

In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

If the disruption persists and deepens, we could experience an inability to access additional capital.

Subject to limited exceptions, our Loan Agreement also prohibits us from incurring indebtedness without the prior written consent of the lenders.

In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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.

We are very early in our development efforts.

3 unchanged sentences

In July 2020, we announced that patient enrollment in both of these trials had resumed.

We have two active INDs with the FDA for the use of itolizumab (EQ001) in the treatment of aGVHD and lupus nephritis and we have not yet filed an IND with the FDA for the use of itolizumab (EQ001) for the treatment of uncontrolled moderate to severe asthma or for treatment of COVID-19 patients.

We have three active INDs with the FDA for the use of itolizumab (EQ001) in the treatment of aGVHD, lupus nephritis, and COVID-19 patients, and we have not yet filed an IND with the FDA for the use of itolizumab (EQ001) for the treatment of uncontrolled moderate to severe asthma.

Because of our limited interaction with the FDA, we may not learn of certain information or data that the FDA may request until future interactions.

planned clinical trials will be initiated on time, if at all, or that our planned development programs would be acceptable to the FDA.

In part because of our limited infrastructure, experience conducting clinical trials as a company and regulatory interactions, we also cannot be certain that our ongoing and future clinical trials will be completed on time, if at all, that our planned clinical trials will be initiated on time, if at all, or that our planned development programs would be acceptable to the FDA.

Adverse safety and toxicology findings may emerge as we conduct clinical trials.

22 unchanged sentences

We are party to an exclusive license agreement with Biocon, pursuant to which we initially acquired an exclusive license to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit itolizumab and any pharmaceutical composition or preparation containing or comprising itolizumab in the United States and Canada and which was later amended to grant us the same exclusive license in Australia and New Zealand as well, or, collectively, the Equillium Territory.

We are obligated, under this agreement, to achieve certain development milestones within specified

timeframes in order to retain all of the licensed rights.

We are obligated, under this agreement, to achieve certain development milestones within specified timeframes in order to retain all of the licensed rights.

Certain of such milestones are largely outside of our control.

We are also obligated to use commercially reasonable efforts to develop and seek re gulatory approval for, and if regulatory approval is obtained, to commercialize, itolizumab in the Equillium Territory and to secure funding for the development of itolizumab in two or more indications.

Further, we are obligated to make certain cash miles tone payments to Biocon upon completion of certain regulatory approval and commercial milestones and are required to pay royalties to Biocon on net sales of itolizumab, if approved.

Though we believe that the royalty rates and milestone payments are reason able in light of our business plan, we will require large amounts of capital to satisfy these obligations.

We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our cl inical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

In addition, if we are unable to make any payment when due or, if we fail to achieve the devel opment milestones within the timeframes required by the license agreement, or to satisfy our general diligence obligation to use commercially reasonable efforts to develop, register and commercialize itolizumab and to secure funding for the development of itolizumab in two or more indications, Biocon may have the right to limit the scope of our license or terminate the agreement and all of our rights to develop and commercialize itolizumab.

We are also obligated to use commercially reasonable efforts to develop and seek regulatory approval for, and if regulatory approval is obtained, to commercialize, itolizumab in the Equillium Territory and to secure funding for the development of itolizumab in two or more indications.

Further, we are obligated to make certain cash milestone payments to Biocon upon completion of certain regulatory approval and commercial milestones and are required to pay royalties to Biocon on net sales of itolizumab, if approved.

Though we believe that the royalty rates and milestone payments are reasonable in light of our business plan, we will require large amounts of capital to satisfy these obligations.

We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

In addition, if we are unable to make any payment when due or, if we fail to achieve the development milestones within the timeframes required by the license agreement, or to satisfy our general diligence obligation to use commercially reasonable efforts to develop, register and commercialize itolizumab and to secure funding for the development of itolizumab in two or more indications, Biocon may have the right to limit the scope of our license or terminate the agreement and all of our rights to develop and commercialize itolizumab.

We have licensed the rights to itolizumab in the United States, Canada, Australia, and New Zealand.

2 unchanged sentences

Itolizumab is approved in India for the treatment of moderate to severe plaque psoriasis, and is marketed by Biocon as ALZUMAb.

Biocon was also granted restricted emergency use approval of itolizumab by the Drugs Controller General of India for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India.

Biocon was also granted restricted emergency use approval of itolizumab by the DCGI for the treatment of CRS in COVID-19 patients with moderate to severe ARDS in India.

We are also aware of ALZUMAb being utilized in India on a compassionate use basis for the treatment of aGVHD.

16 unchanged sentences

The results of preclinical and early clinical trials of itolizumab (EQ001) or any future product candidates may not be predictive of the results of our later-stage clinical trials.

Clinical trial failure may result from a multitude of factors including flaws in trial design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy tra its, and failure in clinical trials can occur at any stage.

Companies in the biopharmaceutical industry frequently suffer setbacks in the advancement of clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results i n earlier trials.

Clinical trial failure may result from a multitude of factors including flaws in trial design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits, and failure in clinical trials can occur at any stage.

Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies.

In addition, data obtained from clinical trials are susceptible to varying interpretat ions, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval.

In addition, data obtained from clinical trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval.

The FDA could delay, limit or deny approval of a product candidate for many reasons, including because they:

12 unchanged sentences

If we experience delays in obtaining approval or if we fail to obtain approval of itolizumab, our commercial prospects will be harmed and our ability to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and results of operations.

Any delays in the commencement or co mpletion, or termination or suspension, of our ongoing, planned or future clinical trials could result in increased costs to us, delay or limit our ability to raise capital or generate revenue and adversely affect our commercial prospects.

Any delays in the commencement or completion, or termination or suspension, of our ongoing, planned or future clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.

6 unchanged sentences

In either case, our development costs would increase.

To date, we have only submitted INDs for clinical trials of itolizumab (EQ001) for the treatment of aGVHD and lupus nephritis, and we will need to submit an IND for acceptance by the FDA prior to initiating any clinical trials in the United States in other indications, including for the treatment of COVID-19 patients.

To date, we have only submitted INDs for clinical trials of itolizumab (EQ001) for the treatment of aGVHD, lupus nephritis, and COVID-19.

The FDA may require us to conduct additional preclinical studies for itolizumab (EQ001) or any future product candidate before it allows us to initiate clinical trials under any IND, which may lead to additional delays and increase the costs of our preclinical development programs.

13 unchanged sentences

subjects failing to enroll or remain in our trial at the rate we expect, or failing to return for post-treatment follow-up.

As a result of impacts associated with the COVID-19 pandemic, we have observed slower-than-expected enrollment rates in our ongoing clinical trials, especially in our Phase 1b clinical trial in uncontrolled asthma being conducted at sites in Australia and New Zealand;

subjects choosing an alternative treatment, or participating in competing clinical trials;

8 unchanged sentences

third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or by other regulato ry agencies or health authorities that have jurisdiction in countries in which the trial is being conducted.

Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accorda nce with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a pharmaceutical, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or by other regulatory agencies or health authorities that have jurisdiction in countries in which the trial is being conducted.

Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a pharmaceutical, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes.

8 unchanged sentences

If we experience delays or difficulties in enrolling patients in our ongoing or planned clinical trials, our receipt of necessary regulatory approval could be delayed or prevented.*

We may not be able to continue our ongoing or initiate our future clinical trials for itolizumab (EQ001) if we are unable to identify and enroll a sufficient number of eligible patients to p articipate in these trials as required by the FDA.

Multiple factors could contribute to such challenges of enrolling our clinical trials, including impacts related to the COVID-19 pandemic, which have already adversely impacted enrollment across all three of our current clinical trials.

One of the indications that we are pursuing, aGVHD, is an acute and life-threatening condition which may make it difficult to enroll patients in clinical trials.

Enrollment in the Phase 1b portion of our aGVHD clinical trial has been progressing slower than expected due to longer site activation timelines at academic centers, a smaller number of available severe aGVHD patients as defined by Grade III-IV aGVHD, which constitutes a smaller portion of the overall aGVHD population, and higher screen failure rates due to comorbid conditions in this severe aGVHD population.

In particular, enrollment in our Phase 1b clinical trial in uncontrolled asthma has been progressing slower-than-expected due to disruptions to operations at clinical trial sites in Australia related to the COVID-19 pandemic.

In addition, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as itolizumab (EQ001), and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

This is acutely relevant for our development of itolizumab (EQ001) for the treatment of patients with uncontrolled moderate to severe asthma and lupus nephritis, and for our future potential development of itolizumab (EQ001) for the treatment of patients with COVID-19, each diseases for which there is significant competition for clinical trial subjects.

This is acutely relevant for our development of itolizumab (EQ001) for the treatment of patients with uncontrolled moderate to severe asthma, lupus nephritis, and COVID-19, each diseases for which there is significant competition for clinical trial subjects.

Patient enrollment is also affected by other factors, including:

28 unchanged sentences

The preliminary efficacy results from the Biocon trial conducted in India suggest a mortality benefit and improvement in clinical status in patients receiving itolizumab.

Based on this trial, Biocon received approval from the Drugs Controller General of India to market ALZUMAb for emergency use in India for the treatment of CRS in moderate to severe ARDS patients due to COVID-19.

Based on this trial, Biocon received approval from the DCGI to market ALZUMAb for emergency use in India for the treatment of CRS in moderate to severe ARDS patients due to COVID-19.

The Cuban COVID-19 study with itolizumab was an uncontrolled study and so interpretation of the efficacy results are limited.

The preliminary safety findings of both studies indicate that there has been no change in the benefit risk profile of itolizumab, which remains favorable.

The preliminary safety findings of both studies indicate that there has been no change in the

benefit risk profile of itolizumab, which remains favorab le.

We are further aware that Biocon is supporting compassionate use of ALZUMAb in treatment refractory patients with aGVHD in India.

9 unchanged sentences

Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.

Moreover, if itolizumab (EQ001) is associated with undesirable side effects in clinical trials or has characteristics that are unexpected, we may elect to abandon or limit its development to more narrow uses or subpopulations in which the undesirab le side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for itolizumab (EQ001), if approved.

Moreover, if itolizumab (EQ001) is associated with undesirable side effects in clinical trials or has characteristics that are unexpected, we may elect to abandon or limit its development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for itolizumab (EQ001), if approved.

We may also be required to modify our study plans based on findings in our clinical trials.

23 unchanged sentences

Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or a nalyses, or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general.

In addition, th e information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular biopharmaceutical product, biopharmaceutic al product candidate or our business.

If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, itolizumab (E Q001) or any future product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

A Phase 1 single ascending dose clinical trial of itolizumab (EQ001) in normally healthy volunteers was conducted by Biocon in Australia, we have initiated a Phase 1b proof-of-concept clinical trial of itolizumab (EQ001) in uncontrolled moderate to severe asthma patients in Australia and New Zealand, and we may conduct additional clinical trials of itolizumab (EQ001) outside of the United States.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses, or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general.

In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular biopharmaceutical product, biopharmaceutical product candidate or our business.

If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, itolizumab (EQ001) or any future product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

A Phase 1 single ascending dose clinical trial of itolizumab (EQ001) in normally healthy volunteers was conducted by Biocon in Australia, we are conducting a Phase 1b proof-of-concept clinical trial of itolizumab (EQ001) in uncontrolled moderate to severe asthma patients in Australia and New Zealand, and we plan to utilize sites outside of the United States for other clinical trials of itolizumab (EQ001), including our trial in COVID-19 patients.

However, the FDA may not accept data from such trials conducted outside the United States, in which case our development plans will be delayed, which could materially harm our business.*

1 unchanged sentence

The trial also included a separate stage to compare the pharmacokinetics of the intravenous administration of itolizumab (EQ001) to ALZUMAb and determine the absolute bioavailability of subcutaneous itolizumab (EQ001), but this stage was terminated early due to the occurrence of an initial decrease in lymphocyte counts and the occurrence of transient lymphopenia in the healthy subjects.

We submitted this data to the FDA as part of our IND submissions for the conduct of clinical trials for the treatment of aGVHD and lupus nephritis.

However, it is possible that the FDA will not authorize us to proceed with clinical studies in connection with any future IND submissions in other indications that have different patient populations, including for the treatment of COVID-19 patients, and we may be required to conduct additional Phase 1 clinical trials, which would be costly and time consuming, and delay aspects of our development plan, which could harm our business.

We submitted this data to the FDA as part of our IND submissions for the conduct of clinical trials for the treatment of aGVHD, lupus nephritis and COVID-19.

However, it is possible that the FDA will not authorize us to proceed with clinical studies in connection with any future IND submissions in other indications that have different patient populations and we may be required to conduct additional Phase 1 clinical trials, which would be costly and time consuming, and delay aspects of our development plan, which could harm our business.

In June 2019, we initiated a Phase 1b, multiple ascending dose escalation, proof-of-concept clinical trial of itolizumab (EQ001) in uncontrolled moderate to severe asthma in Australia and have initiated sites in Australia and New Zealand.

11 unchanged sentences

diminished protection of intellectual property in some countries.

We conduct significant operations through our Australian wholly-owned subsidiary.

If we lose our ability to operate in Australi a, or if our subsidiary is unable to receive the research and development tax credit allowed by Australian regulations, our business and results of operations will suffer.

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

Due to the geographical distance and lack of employees currently in Australia, as well as our lack of experience operating in Australia, we may not be able to efficiently or successfully monitor, develop or commercialize itolizumab (EQ001) in Australia and New Zealand, including conducting clinical trials.

Furthermore, we have no assurance that the results of any clinical trials that we conduct for our product candidate in Australia and New Zealand will be accepted by the FDA or other foreign regulatory authorities for development and commercialization approvals.

In addition, current Australian tax regulations provide for a refundable research and development tax credit.

If we lose our ability to operate Equillium Australia Pty Ltd in Australia, or if we are ineligible or unable to receive the research and development tax credit, or the Australian government significantly reduces or eliminates the tax credit, our business and results of operations would be adversely affected.

We may not be successful in our efforts to expand our pipeline by identifying additional indications for which to test itolizumab (EQ001) in the future.

17 unchanged sentences

withdrawal of the product from the market;

voluntar y or mandatory product recalls;

voluntary or mandatory product recalls;

requirements to change the way the product is administered or for us to conduct additional clinical trials;

fines, warning letters or holds on clinical trials;

refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;

refusal by the FDA to approve p ending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;

product seizure or detention, or refusal to permit the import or export of products;

49 unchanged sentences

Our competitors also may obtain marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Other products in the same class as itolizumab have already been approved or are further along in development.

Other products addressing similar indications as itolizumab have already been approved or are further along in development.

We are aware of both private and public companies with development programs in aGVHD, including Alpine Immune Sciences, Inc., Bristol-Myers Squibb Company, CSL Behring LLC, Fate Therapeutics, Inc., Incyte Corporation, Takeda Pharmaceutical Company Limited, Jazz Pharmaceuticals plc, Kalytera Therapeutics, Inc., Kamada Ltd., Mesoblast Limited, and Xenikos B.V.

3 unchanged sentences

LLC have received approval for dupilimab, an anti-IL-4 receptor antibody, as an add-on maintenance treatment in patients with moderate to severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid dependent asthma.

We are aware of several companies with

development programs in moderate to severe asthma, including Amgen Inc., AnaptysBio, Inc., AstraZeneca plc, Boehringe r Ingelheim GmbH, GlaxoSmithKline plc, Gossamer Bio, Inc., Regeneron Pharmaceuticals, Inc., Roche Holding AG, Sanofi-Aventis U.S.

We are aware of several companies with development programs in moderate to severe asthma, including Amgen Inc., AnaptysBio, Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, GlaxoSmithKline plc, Gossamer Bio, Inc., Regeneron Pharmaceuticals, Inc., Roche Holding AG, Sanofi-Aventis U.S.

and Theravance Biopharma, Inc.

We are also aware of several companies with development programs targeting lupus nephritis including Alexion Pharmaceuticals, Inc, Apellis Pharmaceuticals, Inc., AstraZeneca plc, Aurinia Pharmaceuticals Inc., Boehringer Ingelheim GmbH, Genentech Inc., Novartis AG, GlaxoSmithKline plc, Kezar Life Sciences, Inc., and Omeros Corporation.

Sciences, Inc., and Omeros Corporation.

There are numerous companies currently engaged in development programs at various stages aimed at addressing the COVID-19 pandemic through vaccines, anti-virals, and therapies, all of whom could be considered potential competition as they could impact the size of the COVID-19 commercial opportunity for itolizumab.

Immunomodulators, in p articular, would represent the most direct competition.

We are aware of numerous companies, too many to comprehensively list, with clinical development programs with immunomodulators targeting the treatment of patients with COVID-19 , including, but not lim ited to , Eli Lilly and Company, Incyte Corporation, Novartis, Swedish Orphan Biovitrum AB, Immunic Inc., CytoDyn Inc., Humanigen Inc., Covis Pharma BV, and OncoImmune Inc.

Other companies with approved or late-stage development programs with vaccines, anti -virals, or therapies for COVID-19 that we are aware of include Gilead Sciences, Inc., Regeneron Pharmaceuticals, Inc., Sanofi S.A., GlaxoSmithKline plc, Moderna, Inc., Sinovac Biotech Ltd., Pfizer Inc., AstraZeneca plc, Johnson & Johnson, and Novavax, Inc .

Many of our competitors, such as large pharmaceutical and biotechnology companies like Amgen Inc.

and Bristol-Myers Squibb Company have longer operating histories and significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.

and Bristol-Myers Squibb Company, have longer operating histories and significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we have.

In addition, these larger companies may be able to use their greater market power to obtain more favorable distribution and sales-related agreements with third parties, which could give them a competitive advantage over us.

19 unchanged sentences

Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation.

Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

market opportunities for itolizumab (EQ001) are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.

We o nly have the rights to itolizumab (EQ001) for the Equillium Territory, and we are focused on the development of itolizumab (EQ001) for immuno-inflammatory diseases, with an initial intention to develop it for the treatment of patients with uncontrolled moderate to severe asthma, aGVHD, lupus nephritis, and COVID-19.

Moreover, the extent to

which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

market opportunities for itolizumab (EQ001) are smaller than we believe they are, our revenue may be adversely affected and our busines s may suffer.*

We only have the rights to itolizumab (EQ001) for the Equillium Territory, and we are focused on the development of itolizumab (EQ001) for immuno-inflammatory diseases, with an initial intention to develop it for the treatment of patients with uncontrolled moderate to severe asthma, aGVHD, lupus nephritis, and COVID-19.

Our projections of addressable patient populations in the Equillium Territory that have the potential to benefit from treatment with itolizumab (EQ001) are based on estimates and may prove to be incorrect.

15 unchanged sentences

The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

Even if we receive marketing approval, we may not be able to successfully commercialize itolizumab (EQ001) due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for us to sell itolizumab (EQ001) or any future product candidates profitably.*

Obtaining coverage and adequate reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of itolizumab (EQ001) or other future products to the payor.

There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA.

Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses.

Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services.

Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting pharmaceutical prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products.

Third-party payors often rely upon Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations.

regarding the extent of coverage and amount of reimbursement to be pr ovided for any product candidates that we develop will be made on a payor-by-payor basis.

One third-party payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage and adequate reimbursement for the d rug.

Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved.

Third-party payors are increasingly challenging the price, examining the medical necessity and reviewin g the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

a covered benefit under its health plan;

safe, effective and medically necessary;

appropriate for the specific patient;

cost-effective;

neither experimental nor investigational.

We cannot be sure that coverage or reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be.

Obtaining adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with branded therapeutics and therapeutics administered under the supervision of a physician.

Similarly, because our product candidates are physician-administered injectables, separate reimbursement for the product itself may or may not be available.

Instead, the administering physician may be reimbursed for providing the treatment or procedure in which our product is used.

Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Reimbursement may impact the demand for, and the price of, any product for which we obtain marketing approval.

Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high.

Each third-party payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy and on what tier of its list of covered drugs, or formulary, it will be placed.

The position on a third-party payor’s formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians.

Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications.

Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products.

Therefore, coverage and adequate reimbursement is critical to new product acceptance.

Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

Additionally, if we or our collaborators develop companion diagnostic tests for use with itolizumab (EQ001), such tests will be subject to the coverage and reimbursement process separate and apart from the coverage and reimbursement we seek for our itolizumab (EQ001).

We expect to experience pricing pressures in connection with the sale of itolizumab (EQ001) or any future product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.

The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense.

As a result, increasingly high barriers are being erected to the successful commercialization of new products.

Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product.

Risks Related to Manufacturing and Our Reliance on Third Parties

13 unchanged sentences

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timely availability and delivery of raw materials.

Even if we obtain regulatory approval for itolizumab (EQ001) or any future product candidates, there is no assurance that Biocon or other potential manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficie nt quantities to meet the requirements for the potential launch of the product or to meet potential future demand.

Further, our third-party manufacturers may experience manufacturing or shipping difficulties due to resource constraints or as a result of na tural disasters, labor disputes, unstable political environments, or public health epidemics such as the recent COVID-19 outbreak.

If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, commercializat ion efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Even if we obtain regulatory approval for itolizumab (EQ001) or any future product candidates, there is no assurance that Biocon or other potential manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand.

Further, our third-party manufacturers may experience manufacturing or shipping difficulties due to resource constraints or as a result of natural disasters, labor disputes, unstable political environments, or public health epidemics such as the recent COVID-19 outbreak.

If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Scaling up a biologic manufacturing process is a difficult and uncertain task, and Biocon may not have the necessary capabilities to complete the implementation and development process of further scaling up production, transferring production to other sites, or managing its production capacity to timely deliver our supplies of itolizumab (EQ001) (or other biologics) or meet product demand.

7 unchanged sentences

We rely, and intend to continue to rely, on third parties to conduct our clinical trials and perform some of our research and preclinical studies.

If these third parties do not satisfactorily carry out their contractual duties, fail to comply with appl icable regulatory requirements or meet expected deadlines, our development programs may be delayed or subject to increased costs or we may be unable to obtain regulatory approval, each of which may have an adverse effect on our business, financial conditio n, results of operations and prospects.*

We do not have the ability to independently conduct all aspects of our preclinical testing or clinical trials ourselves.

11 unchanged sentences

If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated.

If our clinical trial site terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical t rial unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible.

In addition, clinical trial investigators for our clinical trial may serve as scientific advisors or consultants to us from t ime to time and may receive cash or equity compensation in connection with such services.

If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any mark eting application we submit by the FDA.

If our clinical trial site terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trial unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible.

In addition, clinical trial investigators for our clinical trial may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services.

Any such delay or rejection could prevent us from commercializing itolizumab (EQ001) or any future product candidates.

1 unchanged sentence

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for itolizumab (EQ001) or any future product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products.

Decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis.

One third-party payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage and adequate reimbursement for the drug.

Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved.

Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.