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Item 9A. Controls and Procedures

2021-03-24 compared with 2020-03-26 · 217 added, 893 removed, 575 unchanged (66% of the section changed)

18 unchanged sentences

Directors, Executive Officers and Corporate Governance.

Our Board of Directors

The Board is divided into three classes.

Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term.

Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors.

A director elected by the Board to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified.

The following is a brief biography of each member of our board of directors as of March 26, 2020, with each biography including information regarding experiences, qualification, attributes or skills that caused our board of directors to determine that each member of our board of directors should serve as a director.

Directors Continuing in Office Until the 2020 Annual Meeting

Charles McDermott , 48, has served as a member of our Board since September 2018.

McDermott has served as Chairman, President and Chief Executive Officer of Primmune Therapeutics, Inc., a privately-held biotechnology company, since March 2019.

From September 2017 to May 2018, Mr.

McDermott served as President and Chief Business Officer of Impact Biomedicines, Inc., a privately-held biotechnology company.

Prior to that, Mr.

McDermott served as President and Chief Business Officer of Kala Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, from June 2015 to August 2017.

Previously, he served as Interim President and Chief Business Officer of Kala from October 2014 to June 2015 and as Executive Vice President of Business Development of Kala from June 2013 to October 2014.

Prior to joining Kala, Mr.

McDermott served first as Director and then Vice President of Business Development, Eye Care and Drug Delivery at Allergan plc, a publicly-held global pharmaceutical company, where he worked from April 2005 to May 2013.

Prior to joining Allergan, Mr.

McDermott held a variety of business development positions at deCODE Genetics, Inc.

(now DGI Resolutions, Inc.), a privately-held biopharmaceutical company, from January 2001 to March 2005.

Prior to deCODE Genetics, Mr.

McDermott was a research scientist in the angiogenesis pharmacology group at Agouron Pharmaceuticals, Inc.

McDermott currently serves as an Advisor to Omega Funds, an investment firm that creates and invests in life sciences companies.

McDermott holds an M.B.A.

from the University of San Diego, an M.A.

in Molecular, Cellular and Developmental Biology from the University of California at Santa Barbara, a B.S.

in Biochemistry and Molecular Biology from the University of California Santa Cruz and a Certificate in Clinical Trial Design and Management from the University of California San Diego Extension.

Our Nominating and Corporate Governance Committee and Board believe that Mr.

McDermott is qualified to serve on our Board due to his biopharmaceutical and executive experience .

Steel , 53, has served as our President and Chief Executive Officer since January 2020 and as a member of our Board since March 2017.

He served as our President and Chief Business Officer from June 2018 through December 2019.

Steel is a co-founder of Equillium.

Steel is the founder and has served as the Managing Director of BioMed Ventures, an investment firm owned by BioMed Realty, LP, since 2010.

From 2008 to 2010, Mr.

Steel served as the Chief Business Officer at Anaphore, Inc., a privately-held pharmaceutical company.

Prior to that, Mr.

Steel was co-founder and Chief Executive Officer of Rincon Pharmaceuticals, Inc., a genetic engineering biotechnology company, from 2005 until its acquisition in 2008.

Steel also previously served as the Head of Corporate Development at Ambit Biosciences Corporation from 2002 to 2005.

Steel previously served on the board of directors of Zosano Pharma Corporation, a publicly-held biopharmaceutical company, from 2012 to 2017.

Steel received his B.A.

degree from Dartmouth College and M.B.A.

degree from the Marshall School of Business at the University of Southern California, and he holds the designation of Chartered Financial Analyst.

Our Nominating and Corporate Governance Committee and Board believe that Mr.

Steel is qualified to serve on our Board due to his experience in founding, managing and building companies and investment experience.

Directors Continuing in Office Until the 2021 Annual Meeting

Bradbury , 58, has served as our Executive Chairman of our Board since January 2020 and has been a member and the chairman of our Board since March 2017.

He served as our Chief Executive Officer from June 2018 through December 2019.

Bradbury is a co-founder of Equillium and served as our President from March 2017 until June 2018.

Bradbury is the founder and has served as the managing member of BioBrit, LLC, or BioBrit, a life science consulting and investment firm, since September 2012.

Bradbury served as President, Chief Executive Officer and a director of Amylin Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, from March 2007 until Amylin’s acquisition by Bristol-Myers Squibb Company in August 2012.

Prior to Amylin, Mr.

Bradbury worked in marketing and sales for 10 years at SmithKline Beecham

Pharmaceuticals, a privately-held pharmaceutical company.

Bradbury serves on the board of directors of numerous private companies and the following publicly-held companies:

Castle Biosciences, and Intercept Pharmaceuticals, Inc.

Bradbury previously served on the board of directors of BioMed Realty Trust, Inc., a publicly-held real estate investment trust company, from 2013 to 2016;

Corcept Therapeutics Incorporated, a publicly-held biotechnology company, from 2012 to 2019;

Geron Corporation, a publicly-held biotechnology company, from 2012 to 2019;

Illumina, Inc., a publicly-held biotechnology company, from 2004 to 2017;

and Syngene International Ltd., a publicly-held science research company, from 2015 to 2016.

Bradbury holds a Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education in the United Kingdom.

Our Nominating and Corporate Governance Committee and Board believe that Mr.

Bradbury’s experience as our former Chief Executive Officer and his other executive and board experience, qualifies him to serve as a member of our Board .

Demski , 67, has served as a member of our Board since September 2018.

From August 2011 to May 2017, Ms.

Demski served as Senior Vice President and Chief Financial Officer of Ajinomoto Althea, Inc., now known as Ajinmoto Bio-Pharma Services, a privately-held fully-integrated contract development and manufacturing organization.

From July 2008 to December 2010, Ms.

Demski served as the Interim Chief Operating Officer and Chief Financial Officer of the Sidney Kimmel Cancer Center, a non-profit corporation that was engaged in biomedical research.

Previously, Ms.

Demski served as Vice President and Chief Financial Officer of Vical Incorporated, a publicly-held biopharmaceutical company, from December 1989 to June 2004.

Demski currently serves as the chair of the board of directors of Chimerix, Inc., a publicly-held biopharmaceutical company, and on the board of directors, as the chair of the audit committee and as a member of the compensation committee, of Adamas Pharmaceuticals, Inc., a publicly-held biotechnology company.

Prior to 2018, Ms.

Demski was a member of the board of directors, chair of the audit committee and member of the compensation committee, nominating and governance committee, and operating committee of Neothetics, Inc., a publicly-held biotechnology company that merged with Evofem Biosciences, Inc.

Demski is a National Association of Corporate Directors Board Governance Fellow.

In 2017, she received the Director of the Year in Corporate Governance award by the Corporate Directors Forum.

Additionally, Ms.

Demski has over 13 years of banking experience with Bank of America.

Demski earned a B.A.

from Michigan State University and an M.B.A.

from The University of Chicago Booth School of Business with concentrations in accounting and finance.

Our Nominating and Corporate Governance Committee and Board believe that Ms.

Demski is qualified to serve on our Board due to her more than 30 years’ experience in the fields of finance and biotechnology as well as her experience as a member of various boards of directors.

Mark Pruzanski, M.D.

, 52, has served as a member of our Board since September 2018.

Pruzanski is a co-founder and has served as President and Chief Executive Officer and as a member of the board of directors of Intercept Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, since 2002.

Pruzanski has over 20 years of experience in life sciences company management, venture capital and strategic consulting.

Prior to co-founding Intercept, Dr.

Pruzanski was a venture partner at Apple Tree Partners, an early stage life sciences venture capital firm that he co-founded, and an entrepreneur-in-residence at Oak Investment Partners, a venture capital firm.

Pruzanski is a co-author of a number of scientific publications and is named as an inventor on several patents.

Pruzanski currently serves on the boards of the Emerging Companies Section of the Biotechnology Innovation Organization, a biotechnology-focused trade association, and the Foundation for Defense of Democracies, a non-profit policy institute focusing on foreign policy and national security.

Pruzanski received his M.D.

from McMaster University in Hamilton, Canada, a M.A.

degree in International Affairs from the Johns Hopkins University School of Advanced International Studies in Bologna, Italy and Washington, D.C., and a bachelor’s degree from McGill University in Montreal, Canada.

Our Nominating and Corporate Governance Committee and Board believe that Dr.

Pruzanski is qualified to serve on our Board due to his experience in founding, managing and building life sciences companies as well as his venture capital experience.

Directors Continuing in Office Until the 2022 Annual Meeting

Stephen Connelly, Ph.D.

, 38, has served as our Chief Scientific Officer since January 2018 and as a member of our Board since March 2017.

Connelly is a co-founder of Equillium and served as a consultant from March 2017 until January 2018.

Connelly has served as a principal at BioMed Ventures, an investment firm owned by BioMed Realty, LP, since March 2016.

From March 2014 to March 2016, Dr.

Connelly served as the Director of Business Development and Therapeutic Alliances at aTyr Pharma, Inc., a publicly-held biotechnology company.

Prior to that, Dr.

Connelly was a Senior Scientist at The Scripps Research Institute from March 2012 to March 2014, where he worked on multiple drug discovery projects spanning different therapeutic areas.

Connelly has broad experience in conducting novel and innovative research and has published over 30 original scientific papers and patents.

Connelly received a B.S.

in Medicinal Chemistry and a Ph.D.

in Biological Chemistry from the University of Exeter, United Kingdom, and an M.B.A.

from the Rady School at University of California, San Diego.

Our Nominating and Corporate Governance Committee and Board believe that Dr.

Connelly’s scientific and research expertise qualify him to serve on our Board.

Manian, Ph.D.

, 74, has served as a member of our Board since May 2017.

Manian has served on the board of directors of Syngene International Ltd., a publicly-held contract research and manufacturing organization based in India, since June 2015.

Manian has served as Chief Executive Officer and chairman of the board of directors of ReaMatrix, Inc., a privately-held biotechnology company, since 2004.

Manian has served as Executive Chairman of LeukoDx Inc., a privately-held biotechnology company, since May 2017.

Manian founded and served as chairman of the board of directors of Lumisys Incorporated, a publicly-held medical systems company, from 1987 to 1994, of Molecular Dynamics, Inc., a publicly-held genetic discovery and analysis company, from 1987 to 1994, and of Biometric Imaging, Inc., a privately-held biotechnology company, from 1993 to 1998.

Manian also co-founded Quantum Dot Corporation and SurroMed Inc.

Manian received a B.S.

in Physics from Loyola College, Chennai, a postgraduate level Diploma in Instrumentation from the Madras Institute of Technology, Chennai, an M.S.

in Applied Optics from the University of Rochester, and a Ph.D.

in Mechanical Engineering from Purdue University.

Our Nominating and Corporate Governance Committee and Board believe that Dr.

Manian’s experience in founding, managing, and building companies and scientific and research experience qualify him to serve on our Board.

BOARD LEADERSHIP STRUCTURE

Our Board is currently chaired by our Executive Chairman, Mr.

In January 2020, Mr.

Bradbury transitioned from his prior role of Chief Executive Officer to Executive Chairman of our Board of Directors.

Bradbury’s extensive history with and knowledge of our company, we believe his role as our Executive Chairman will facilitate a regular flow of information between the Board and management and ensure that they both act with a common purpose.

Our Board does not have a lead independent director.

ROLE OF THE BOARD IN RISK OVERSIGHT

One of the key functions of our Board is informed oversight of our risk management process.

Our Board does not have a standing risk management committee, but rather administers this oversight function directly through the Board as a whole, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight.

In particular, our Board is responsible for monitoring and assessing strategic risk exposure, including a determination of the nature and level of risk appropriate for us.

Our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken.

The Audit Committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function.

Our Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct.

Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

MEETINGS OF THE BOARD OF DIRECTORS

The Board met five times and acted by unanimous written consent two times during 2019.

All directors attended at least 75% of the aggregate number of meetings of the Board and of the committees on which they served during 2019.

INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS

The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

The following table provides membership and meeting information for fiscal year 2019 for each of these committees of the Board:

Nominating and

Manian, Ph.D.

Charles McDermott

Mark Pruzanski, M.D.

Total meetings in 2019

Committee Chairperson

Below is a description of each committee of the Board.

Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out its responsibilities.

The Board has determined that each member of each committee meets the applicable Nasdaq rules and regulations regarding “independence” and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to us.

Audit Committee

The Audit Committee of the Board was established by the Board in accordance with Section 3(a)(58)(A) of the Exchange Act, to oversee our corporate accounting and financial reporting processes and audits of its financial statements.

For this purpose, the Audit Committee performs several functions, including, among other things:

evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors;

reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;

monitoring the rotation of partners of our independent auditors on our engagement team as required by law;

prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of our independent auditor;

reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independent auditors and management;

reviewing, with our independent auditors and management, significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls;

reviewing with management and our independent auditors any earnings announcements and other public announcements regarding material developments;

establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters and other matters;

preparing the report that the SEC requires in our annual proxy statement;

reviewing and providing oversight of any related-person transactions in accordance with our related-person transaction policy and reviewing and monitoring compliance with legal and regulatory responsibilities, including our code of business conduct and ethics;

reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management are implemented;

reviewing, on a periodic basis, our investment policy;

reviewing and evaluating, on an annual basis, the performance of the Audit Committee and the Audit Committee charter.

The Audit Committee is composed of three directors:

Demski (chair), Dr.

Manian and Mr.

The Audit Committee met eight times during the 2019 fiscal year.

The Board has adopted a written Audit Committee charter that is available to stockholders on our website at www.equilliumbio.com .

The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

The Board reviews the Nasdaq listing standards definition of independence for Audit Committee members on an annual basis and has determined that all members of our Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the Nasdaq listing standards and Rule 10A-3 of the Exchange Act).

The Board has also determined that Ms.

Demski qualifies as an “audit committee financial expert,” as defined in applicable SEC rules.

The Board made a qualitative assessment of Ms.

Demski’s level of knowledge and experience based on a number of factors, including her formal education, prior experience, business acumen and independence.

Report of the Audit Committe e of the Board of Directors*

The Audit Committee has reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2019 with our management.

The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed under the applicable requirements of the Public Company Accounting Oversight Board, or PCAOB, and Securities and Exchange Commission.

The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence.

Based on the foregoing, the Audit Committee has recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Demski (Chair)

Manian, Ph.D.

Charles McDermott

* The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any of our filings under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Compensation Committee

The Compensation Committee of the Board is composed of two directors:

Manian (chair) and Ms.

Our Board has determined that each of the members of our Compensation Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and satisfies the Nasdaq independence requirements.

The Compensation Committee met five times during the 2019 fiscal year and acted by written consent two times during the 2019 fiscal year.

The Board has adopted a written Compensation Committee charter that is available to stockholders on our website at www.equilliumbio.com .

The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

The Compensation Committee acts on behalf of the Board to review, adopt or recommend to the Board for adoption, and oversee our compensation strategy, policies, plans and programs.

For this purpose, the Compensation Committee performs several functions, including, among other things:

reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full Board regarding) our overall compensation strategy and policies;

reviewing and making recommendations to the full Board regarding the compensation and other terms of employment of our executive officers;

reviewing and approving (or if it deems appropriate, making recommendations to the full Board regarding) performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;

reviewing and approving (or if it deems appropriate, making recommendations to the full Board regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;

evaluating risks associated with our compensation policies and practices and assessing whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us;

reviewing and making recommendations to the full Board regarding the type and amount of compensation to be paid or awarded to our non-employee board members;

establishing policies with respect to votes by our stockholders to approve executive compensation to the extent required by Section 14A of the Exchange Act and determining our recommendations regarding the frequency of advisory votes on executive compensation, to the extent required by law;

reviewing and assessing the independence of compensation consultants, legal counsel and other advisers as required by Section 10C of the Exchange Act;

administering our equity incentive plans;

establishing policies with respect to equity compensation arrangements;

reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us;

reviewing and making recommendations to the full Board regarding the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers;

reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC, to the extent such caption is included in any such report or proxy statement;

preparing the report that the SEC requires in our annual proxy statement;

reviewing and assessing, on an annual basis, the performance of the Compensation Committee and the Compensation Committee charter.

Compensation Committee Processes and Procedures

Typically, the Compensation Committee meets at least three times per year and with greater frequency, if necessary .

The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with management.

The Compensation Committee meets regularly in executive session.

However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings.

The Chief Executive Officer does not participate in, and is not present during, any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives.

The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and our personnel.

In addition, under its charter, the Compensation Committee has the authority to obtain, at our expense, advice and assistance from internal and external legal, accounting or other advisers and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.

The Compensation Committee has direct responsibility for the oversight of the work of any advisers engaged for the purpose of advising the Compensation Committee.

In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

Under its charter, to the extent required by SEC and Nasdaq rules, the Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the Compensation Committee, other than in-house legal counsel and certain other types of advisers, only after taking into consideration six factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence;

however, there is no requirement that any adviser be independent.

In January 2019, after taking into account the six factors prescribed by the SEC and Nasdaq described above, we engaged Radford, an Aon Hewitt Company, as its compensation consultant.

Radford was retained to provide an assessment of our executive and director compensation programs in comparison to executive and director compensation programs at selected publicly-traded peer companies.

As part of its engagement, Radford was requested by the Compensation Committee to develop the peer group of comparative companies and to perform analyses of compensation levels for that group.

Radford developed peer group and related recommendations that were presented to the Compensation Committee for its consideration in evaluating and approving salary, bonus and equity compensation decisions for our named executive officers during 2019.

The publicly-traded peer companies selected and used as part of Radford’s market compensation analysis were:

AVROBIO, Inc., Calithera Biosciences, Inc., Catalyst Biosciences, Inc., Conus Pharmaceuticals, Inc., Enochian Biosciences, Inc., Kezar Life Sciences, Inc., Mersana Therapeutics, Inc., Pfenex Inc., PhaseBio Pharmaceuticals, Inc., Pieris Pharmaceuticals, Inc., Protagonist Therapeutics, Inc., Spring Bank Pharmaceuticals.

Inc., Selecta Biosciences, Inc., Spero Therapeutics, Inc., Syros Pharmaceuticals, Inc., Synthoxx, Inc., Tocagen, Inc., Unum Therapeutics Inc., and Zafgen, Inc.

In August 2020, the Compensation Committee engaged Radford as its compensation consultant to undertake a market comparison analysis to assist with evaluating salary, bonus and equity compensation for our executives, including our named executive officers, for 2020.

The Compensation Committee holds one or more meetings at the end of the year and/or during the first quarter of the year to discuss and make recommendations to the Board for annual compensation adjustments, annual bonuses, annual equity awards, and new corporate performance objectives.

However, the Compensation Committee also considers matters related to individual compensation, such as compensation for new executive hires, as well as high-level strategic issues, such as the efficacy of our compensation strategy, potential modifications to that strategy and new trends, plans or approaches to compensation, at various meetings throughout the year.

Generally, the Compensation Committee’s process comprises two related elements:

the determination of compensation levels and the establishment of performance objectives for the current year.

For executives other than the Chief Executive Officer, the Compensation Committee solicits and considers evaluations and recommendations submitted to the Compensation Committee by the Chief Executive Officer.

In the case of the Chief Executive Officer, the evaluation of his performance is conducted by the Compensation Committee.

For all executives and directors as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and projections, operational data, tax and accounting information, tally sheets that set forth the total compensation that may become payable to executives in various hypothetical scenarios, executive and director stock ownership information, company stock performance data, analyses of historical executive compensation levels and current Company-wide compensation levels, compensation data from comparative companies, compensation surveys, and recommendations of any compensation consultant, if applicable.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee of the Board is responsible for identifying, reviewing and evaluating candidates to serve as our directors (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors, selecting or recommending to the Board for selection candidates for election to the Board, making recommendations to the Board regarding the membership of the committees of the Board, assessing the performance of the Board, and developing a set of corporate governance principles for us.

The Nominating and Corporate Governance Committee is composed of two directors:

McDermott (chair) and Dr.

Both members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards) .

The Nominating and Corporate Governance Committee met two times during the 2019 fiscal year.

The Board has adopted a written Nominating and Corporate Governance Committee charter that is available to stockholders on our website at www.equilliumbio.com .

The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

The functions of this committee include, among other things:

identifying, reviewing and evaluating candidates to serve on our Board, consistent with criteria approved by our Board;

determining the minimum qualifications for service on our Board;

evaluating director performance on the Board and applicable committees of the Board and determining whether continued service on our Board is appropriate;

evaluating, nominating and recommending individuals for membership on our Board;

evaluating nominations by stockholders of candidates for election to our Board;

considering and assessing the independence of members of our Board;

developing a set of corporate governance policies and principles, including a code of business conduct and ethics, periodically reviewing and assessing these policies and principles and their application and recommending to our Board any changes to such policies and principles;

considering questions of possible conflicts of interest of directors as such questions arise;

reviewing and assessing on an annual basis the performance of the Nominating and Corporate Governance Committee and the Nominating and Corporate Governance Committee charter.

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics.

The Nominating and Corporate Governance Committee also considers such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to our affairs, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our stockholders.

However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time.

Candidates for director nominees are reviewed in the context of the current composition of the Board, our operating requirements and the long-term interests of our stockholders.

In conducting this assessment, the Nominating and Corporate Governance Committee typically considers diversity (including gender, racial and ethnic diversity), age, skills and such other factors as it deems appropriate, given the current needs of the Board and us, to maintain a balance of knowledge, experience and capability.

The Nominating and Corporate Governance Committee appreciates the value of thoughtful Board refreshment, and regularly identifies and considers qualities, skills and other director attributes that would enhance the composition of the Board.

In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to us during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence.

In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for Nasdaq purposes, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.

The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm.

The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board.

The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects candidates for recommendation to the Board by majority vote.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders.

The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder.

Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address:

c/o Equillium, Inc., 2223 Avenida de la Playa, Suite 105, La Jolla, California 92037, Attn:

Secretary, no later than the close of business on the 90 th day nor earlier than the close of business on the 120 th day prior to the first anniversary of the preceding year’s annual meeting.

Submissions must include the name and address of our stockholder on whose behalf the submission is made;

the number of Company shares that are owned beneficially by such stockholder as of the date of the submission;

the full name of the proposed candidate;

a description of the proposed candidate’s business experience for at least the previous five years;

complete biographical information for the proposed candidate;

and a description of the proposed candidate’s qualifications as a director.

Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected .

STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

The Board has adopted a formal process by which stockholders may communicate with the Board or any of its directors.

Stockholders who wish to communicate with the Board may do so by sending written communications addressed to the Secretary of Equillium, Inc., 2223 Avenida de la Playa, Suite 105, La Jolla, California 92037.

These communications will be reviewed by the Secretary of Equillium who will determine whether the communication is appropriate for presentation to the Board or the relevant director.

The purpose of this screening is to allow the Board to avoid having to consider irrelevant or inappropriate communications (such as advertisements, solicitations and hostile communications).

CODE OF ETHICS

Except as set forth below, the information required by this item contained in our definitive proxy statement (the Proxy Statement), to be filed with the SEC in connection with the Annual Meeting of Stockholders within 120 days after the conclusion of our fiscal year ended December 31, 2020 and is incorporated in this Annual Report on Form10-K by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

1 unchanged sentence

The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

If we make any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a provision of the code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on its website or in a current report on Form 8-K.

Our Executive Officers

Steel , 53, has served as our President and as our Chief Executive Officer since January 2020 and as a member of our Board since March 2017 .

Steel served as our President and Chief Business Officer from June 2018 through December 2019.

For additional information regarding Mr.

Steel’s industry experience and education, see above under “Directors Continuing in Office Until the 2020 Annual Meeting.”

Stephen Connelly , Ph.D.

, 38, has served as our Chief Scientific Officer since January 2018 and as a member of our Board since March 2017.

For additional information regarding Dr.

Connelly’s industry experience and education, see above under “Nominees for Election for a Three-year Term Expiring at the 2022 Annual Meeting.”

Keyes , 49, has served as our Chief Financial Officer since March 2018.

From January 2013 to February 2018, Mr.

Keyes held positions of increasing responsibility at Orexigen Therapeutics, Inc., a publicly-held pharmaceutical company which filed a voluntary petition for Chapter 11 bankruptcy in March 2018, most recently as Executive Vice President and Chief Financial Officer.

Keyes held positions of increasing responsibility at Amylin Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, from August 2007 until January 2013, most recently as Senior Director of Finance.

Prior to joining Amylin, Mr.

Keyes held positions of increasing responsibility in finance and corporate strategy at Amgen Inc., a publicly-held biopharmaceutical company, and Baxter Healthcare Corporation, a publicly-held healthcare company.

Keyes has served as a director of Sesen Bio, Inc., a publicly-held biopharmaceutical company, since February 2020.

Keyes received his B.S.

degrees in Civil Engineering from Stanford University and an M.B.A.

from the Anderson School at the University of California, Los Angeles.

Polu, M.D., 47, has served as our Executive Vice President, Research and Development since January 2020.

Polu served as our Chief Medical Officer from August 2018 through December 2019.

From February 2018 to August 2018, Dr.

Polu served as Interim Chief Executive Officer of Scout Bio, Inc., a privately-held biotechnology company.

Polu founded Expedition Therapeutics, Inc., a privately-held search company, in June 2017 and served as its Chief Executive Officer from June 2017 until August 2018.

Polu also served as an Entrepreneur-in-Residence at Frazier Healthcare Partners, an investment firm, from February 2017 until August 2018.

Prior to that, Dr.

Polu served as the Chief Medical Officer of Raptor Pharmaceutical Corp., a publicly-held biopharmaceutical company, from January 2015 to December 2016.

Polu also previously served as the Chief Medical Officer of CytomX Therapeutics, Inc., a privately-held biotechnology company, from

March 2013 to June 2014.

From July 2009 to March 2013, Dr.

Polu served as Vice President of Clinical Development at Affymax, Inc., a publicly-held biopharmaceutical company.

Prior to Affymax, Inc., Dr.

Polu served as the Executive Director, Global Development of Amgen Inc., a publicly-held biotechnology company, from November 2007 to July 2009.

Polu holds a B.A.

in Human Biology from Stanford University and a M.D.

from University of Texas Health Science Center, San Antonio.

Polu also completed an internal medicine internship and residency at the University of Colorado as well as clinical and research fellowships in nephrology and transplant at Harvard Medical School in a joint program with Brigham and Women’s Hospital and Massachusetts General Hospital.

Christine Zedelmayer , 50, has served as Senior Vice President, Chief Operating Officer since January 2020.

Zedelmayer served as our Vice President of Operations from February 2018 through December 2019.

Prior to Equillium, Ms.

Zedelmayer was owner and principal consultant at Centerra Consulting, LLC, a project management and investor relations consulting firm focused on life sciences, from 2012 to February 2018, where she led strategic business development projects for clients and served as head of investor relations for a variety of medical device companies.

Prior to Centerra, from 2003 to 2012, Ms.

Zedelmayer held a variety of roles at Amylin Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, including Senior Director of Alliance Management, where she led the global collaboration with Eli Lilly and as Executive Director of Investor Relations.

Before joining Amylin, Ms.

Zedelmayer held various leadership positions within project management at Amgen Inc., a publicly-held biopharmaceutical company, Ligand Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, and Hybritech, Inc., a privately-held medical diagnostics company.

Zedelmayer received her B.S.

in Electrical Engineering at San Diego State University and a M.B.A.

with Finance emphasis at California Lutheran University.

Executive Compensation.

Our named executive officers for the year ended December 31, 2019, which consist of our principal executive officer and our two other most highly compensated executive officers, were:

Bradbury*, our Executive Chairman of the Board and former Chief Executive Officer;

Polu, M.D.**, our Executive Vice President, Research and Development and Chief Medical Officer;

Steel***, our President and Chief Executive Officer and former Chief Business Officer.

Bradbury transitioned from our Chief Executive Officer to our Executive Chairman of the Board as of January 1, 2020.

Polu was promoted from Chief Medical Officer to Executive Vice President, Research and Development and Chief Medical Officer as of January 1, 2020.

Steel transitioned from our Chief Business Officer to our Chief Executive Officer as of January 1, 2020.

Summary Compensation Table

The following table shows the compensation earned by our named executive officers for the fiscal years ended December 31, 2019 and December 31, 2018.

Name and principal position

Executive Chairman of the Board of Directors;

former Chief Executive Officer

Executive Vice President, Research and Development and Chief Medical Officer

President and Chief Executive Officer;

former Chief Business Offer

__________________________

In accordance with SEC rules, amounts shown in this column reflect the aggregate grant date fair value of the stock option awards computed in accordance with Financial Accounting Standard Board, or FASB, Accounting Standards Codification Topic 718 for stock-based compensation transactions, or ASC 718.

Assumptions used in the calculation of these amounts are described in Note 9 to our audited financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2019.

These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.

The 2019 a mounts shown in this column represent performance bonuses earned in 2019 , which were paid in cash in March 2020 .

The 2018 amounts shown in this column represent performance bonuses earned in 2018, which were paid in cash in January 2019.

Bradbury was our Chief Executive Officer from June 1, 2018 through December 31, 2019 .

Effective as of January 1, 2020, Mr.

Bradbury transitioned from Chief Executive Officer to Executive Chairman of our Board of Directors.

Steel joined us on June 1, 2018 as our President and Chief Business Officer.

Accordingly, the salary and non-equity incentive plan compensation amounts listed for Mr.

Steel for 2018 represent compensation earned from June 1, 2018 through December 31, 2018.

Effective as of January 1, 2020, Mr.

Steel transitioned from Chief Business Officer to Chief Executive Officer.

Compensation Program Overview

Our compensation program for executive officers is designed to encourage our management team to continually achieve our short-term and long-term corporate objectives while effectively managing business risks and challenges.

We provide what we believe is a competitive total compensation package to our management team through a combination of base salary, an annual performance-based bonus and long-term equity-based incentives.

Annual Base Salary

The 2019 annual base salaries for our named executive officers are provided below:

In March 2019, the Compensation Committee approved an increase in the annual base salary for Mr.

Bradbury from $400,000 to $430,000.

In March 2019, the Compensation Committee approved an increase in the annual base salary for Dr.

Polu from $375,000 to $400,00.

In June 2019, the Compensation Committee approved an additional increase in the annual base salary for Dr.

Polu to $425,000.

In December 2019, the Compensation Committee approved an increase in the annual base salary for Dr.

Polu to $450,000 in connection with his transition to Executive Vice President, Research and Development and Chief Medical Officer.

Bradbury’s annual base salary was decreased to $150,000 in connection with his transition to Executive Chairman of our Board.

These changes to annual base salaries were effective as of January 1, 2020.

Steel’s annual base salary remained the same for 2020.

Bonus Compensation

With respect to 2019, each of our named executive officers were eligible to receive a performance-based bonus based on the attainment of individual and corporate objectives.

The 2019 performance-based bonus awards were determined by multiplying the bonus target opportunity for each named executive officer by a corporate performance factor established by our Compensation Committee based on our performance as measured against our corporate goals and additional unanticipated performance achievements during the year.

The Compensation Committee sets the target bonus opportunity at the beginning of the year, based primarily on data provided by Radford.

The target bonus opportunity as a percentage of 2019 base salary for each of our named executive officers is as follows:

2019 Target Bonus

(% of annual base salary)

In June 2019, the Compensation Committee approved increasing the target bonus opportunity for Dr.

Polu from 37.5% to 40%, effective as of January 1, 2019.

In February 2020, the Compensation Committee reviewed our corporate performance and noted that we made substantial progress on our clinical development and business goals, as well as achieved various additional accomplishments during 2019.

Such progress included the following:

Initiated a Phase 1b/2 clinical trial for the treatment of aGVHD and received Orphan Drug designations for the prevention and treatment of GVHD in the first quarter of 2019;

Initiated a Phase 1b proof-of-concept clinical trial for the treatment of uncontrolled moderate to severe asthma in the second quarter of 2019;

Initiated a Phase 1b proof-of-concept clinical trial for the treatment of lupus nephritis in the third quarter of 2019 and secured Fast Track designation for the treatment of lupus nephritis in the fourth quarter of 2019;

Completed various translational studies to support our clinical development program and raise the awareness of the CD6-ALCAM pathway;

Secured a term debt facility for up to $20.0 million in three tranches from Oxford Finance LLC and Silicon Valley Bank to further capitalize the company in the third quarter of 2019;

Expanded existing license agreement with Biocon to include development and commercialization rights in Australia and New Zealand in the fourth quarter of 2019;

Secured exclusive rights from Biocon to negotiate licensing rights with third parties to develop and commercialize itolizumab in select major markets outside of North America in the third quarter of 2019.

As a result, the Compensation Committee approved 2019 performance cash bonus payments to our named executive officers based on an assessment of corporate performance during 2019.

Bradbury was awarded a $153,000 bonus, Dr.

Polu was awarded a $147,375 bonus and Mr.

Steel was awarded a $142,500 bonus, in each case in recognition of a 90% performance achievement level.

Also, in December 2019, the Compensation Committee approved increasing the target bonus opportunity for 2020 for Mr.

Steel from 40% to 60% in connection with his transition to President and Chief Executive Officer and reduced Mr.

Bradbury’s target bonus opportunity to 0% in connection with his transition to Executive Chairman of our Board.

Polu’s target bonus opportunity for 2020 remained unchanged at 40%.

Equity-Based Incentive Awards

Our equity-based incentive awards are designed to align our interests and those of our stockholders with those of our employees and consultants, including our named executive officers.

The Board and Compensation Committee are responsible for approving equity grants.

To date, stock option awards are the only form of equity awards we have granted to our named executive officers.

We have historically used stock options as an incentive for long-term compensation to our named executive officers because they are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, which exercise price is set at the fair market value of our common stock on the date of grant.

We may grant equity awards at such times as our Board and/or Compensation Committee determines appropriate .

Other than our founders, our executive officers generally are awarded an initial grant in the form of a stock option in connection with their commencement of employment with us.

Additional grants may occur periodically in order to retain and specifically incentivize executives with respect to achieving certain corporate goals or to reward executives for exceptional performance.

Prior to our initial public offering in October 2018, we granted all stock options pursuant to our 2017 Equity Incentive Plan, or 2017 Plan.

Following our initial public offering, we have granted and will grant equity incentive awards under the terms of our 2018 Equity Incentive Plan, or 2018 Plan.

The terms of the 2017 Plan and the 2018 Plan are described below under “—Equity Benefit Plans.”

All options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of such award.

Our stock option awards generally vest over a four-year period subject to continued service and may be subject to acceleration of vesting and exercisability under certain termination and change in control events.

See “— Outstanding Equity Awards at Fiscal Year-End.”

In February 2019, the Compensation Committee granted options to purchase 90,000 shares of our common stock to each of Mr.

Bradbury and Dr.

Polu and an option to purchase 44,352 shares of our common stock to Mr.

Steel at an exercise price of $7.16 per share .

In addition, in February 2019, the Compensation Committee granted an option to purchase 45,648 shares of our common stock to Mr.

Steel at an exercise price of $7.88 per share.

Each of the options vests as to 25% of the shares on February 13, 2020 with the balance of shares vesting in approximately equal monthly installments over the remaining 36 months, subject to the respective named executive officer’s continued service with us and subject to full acceleration of all of the shares in the event the respective named executive officer is terminated by us without cause or resigns for good reason within 12 months after a change in control.

Additionally, in December 2019, the Compensation Committee granted options to purchase 36,000, 100,000 and 125,000 shares of our common stock to M ess r s .

Bradbury and Steel and Dr.

Polu , respectively, at an exercise price of $4.75 per share.

Each of the options vests as to 25% of the shares on December 10 , 2020 with the balance of shares vesting in approximately equal monthly installments over the remaining 36 months, subject to the respective named executive officer’s continued service with us and subject to full acceleration of all of the shares in the event the respective named executive officer is terminated by us without cause or resigns for good reason within 12 months after a change in control.

Agreements with our Named Executive Officers

We have entered into offer letter agreements with each of our named executive officers which are described below.

For a discussion of the severance pay and other benefits available in connection with a termination of employment and/or a change in control under the arrangements with our named executive officers, please see “—Potential Payments Upon Termination or Change in Control” below.

In addition, each of our named executive officers is eligible to participate in the employee benefit plans generally available to our employees.

In June 2018, we entered into an offer letter with Mr.

Bradbury, which governs the terms of his employment with us.

The offer letter provides for an initial annual base salary and eligibility to receive an annual performance-based bonus, based on the attainment of individual and corporate objectives to be determined and approved by us.

In December 2019, the Compensation Committee, in connection with Mr.

Bradbury’s transition to Executive Chairman of our Board, approved decreasing Mr.

Bradbury’s annual base salary to $150,000 and reduced his target bonus opportunity to 0%.

In August 2018, we entered into an offer letter with Dr.

Polu, which governs the terms of his employment with us.

The offer letter provides for an initial annual base salary and eligibility for an annual performance-based bonus, based on the attainment of individual and corporate objectives to be determined and approved by us.

The offer letter also provided for an initial stock option which was granted in August 2018.

The offer letter also contemplates that Dr.

Polu will, at our discretion, be reimbursed for up to $50,000 per year, subject to adjustment based on our business needs, to commute to our offices in La Jolla.

In June 2018, we entered into an offer letter with Mr.

Steel, which governs the terms of his employment with us.

Potential Payments and Benefits upon Termination or Change in Control

Each of our named executive officer’s employment is at will and may be terminated by us at any time.

Regardless of the manner in which the named executive officer’s service terminates, such named executive officer is entitled to receive any and all accrued but unpaid amounts earned during his or her term of service, including unpaid salary, as applicable.

In addition, the offer letter agreements with each of Mr.

Bradbury, Dr.

Steel each provide that, if we terminate such named executive officer’s employment without cause, the named executive officer is entitled to receive (i) continuation of the applicable named executive officer’s then-current base salary for six months and (ii) payment of the premiums for group health insurance COBRA continuance coverage for six months or, if earlier, until the date on which the named executive officer becomes eligible to receive comparable benefits from another employer.

Additionally, if we terminate the named executive officer’s employment without cause within one month prior to, or 12 months following, certain change of control and asset sale transactions, the named executive officer is entitled to receive (i) continuation of the applicable named executive officer’s then-current base salary for 12 months, (ii) an amount equal to the applicable named executive officer’s target annual bonus and (iii) payment of the premiums for group health insurance COBRA continuance coverage for 12 months or, if earlier, until the date on which the named executive officer becomes eligible to receive comparable benefits from another employer.

In each case, the severance benefits are conditioned upon the execution and non-revocation of a general release of claims by the applicable named executive officer in a form provided by us.

Our named executive officers are also entitled to “double trigger” vesting acceleration upon their respective terminations in connection with a change in control, as described above under “—Equity Based Incentive Awards”.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding equity awards granted to our named executive officers that remain outstanding as of December 31, 2019:

Option Awards (1)

Exercisable (#)

Unexercisable

With the exception of Dr.

Polu’s August 2018 stock option award, all of the outstanding stock option awards were granted under and subject to the terms of the 2018 Plan, the terms of which are described below under “— Equity Benefit Plans.” Dr.

Polu’s August 2018 stock option award was granted under and subject to the terms of the 2017 Plan, the terms of which are described below under “— Equity Benefit Plans.”

All of the stock option awards were granted with a per share exercise price at least equal to the fair market value of one share of our common stock on the date of grant, as determined in good faith by our Board.

Unless otherwise noted, all options granted provide for the following “standard” vesting schedule:

25% of the shares subject to the option vest on the 12-month anniversary of the grant date and the remaining shares subject to the option vest in equal monthly installments over the next three years subject to the named executive officer’s continued service to us.

The options are subject to potential vesting acceleration as described above under “— Agreements with our Named Executive Officers” and “— Potential Payments and Benefits Upon Termination or Change in Control.”

Option Repricings

We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’ outstanding equity awards during the fiscal year ended December 31, 2019.

Perquisites Health, Welfare and Retirement Benefits

Our named executive officers, during their employment with us, are eligible to participate in our employee benefit plans, including our medical, dental, group term life, disability and accidental death and dismemberment insurance plans, in each case on the same basis as all of our other employees.

In addition, we provide a 401(k) plan to our employees, including our named executive officers, as discussed in the section below entitled “—401(k) Plan.”

We generally do not provide perquisites or personal benefits to our named executive officers, except in limited circumstances.

We do, however, pay the premiums for medical, dental, group term life, disability and accidental death and dismemberment insurance for all of our employees, including our named executive officers.

Our Board may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interests.

We maintain a defined contribution employee retirement plan, or 401(k) plan, for our employees.

Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees.

The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the U.S.

Internal Revenue Code of 1986, as amended, or the Code.

The 401(k) plan provides that each participant may contribute up to the lesser of 100% of his or her compensation or the statutory limit, which was $19,000 for calendar year 2019.

Participants that are 50 years or older can also make “catch-up” contributions, which in calendar year 2019 was up to an additional $6,000 above the statutory limit.

We currently do not make matching contributions into the 401(k) plan on behalf of participants.

Participant contributions are held and invested, pursuant to the participant’s instructions, by the plan’s trustee.

Nonqualified Deferred Compensation

We do not maintain nonqualified defined contribution plans or other nonqualified deferred compensation plans.

Our Board may elect to provide our officers and other employees with nonqualified defined contribution or other nonqualified deferred compensation benefits in the future, if it determines that doing so is in our best interests.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides certain information with respect to all of our equity compensation plans in effect as of December 31, 2019.

Equity Compensation Plan Information

Plan Category

of securities

upon exercise

of outstanding

options, warrants

Weighted-average

exercise price of

outstanding options,

warrants and rights

Number of securities

remaining available

for issuance under

equity compensation

plans (excluding

securities reflected

in column (a))

Equity compensation plans approved by stockholders (2)

Equity compensation plans not approved by stockholders (3)

Under the terms of the 2018 Plan, the number of shares of our common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year through January 1, 2028, in an amount equal to 5.0% of the total number of shares of our capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by our board of directors.

Under the terms of our 2018 Employee Stock Purchase Plan, or ESPP, the number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2028, by the lesser of (1) 1.0% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 343,275 shares;

provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2).

Includes the 2017 Plan, the 2018 Plan and our 2018 Employee Stock Purchase Plan, or the ESPP.

503,716 shares under column (c) are attributable to our ESPP.

As of December 31, 2019, we did not have any equity compensation plans that were not approved by our stockholders.

Equity Benefit Plans

2018 Equity Incentive Plan

Our Board adopted our 2018 Plan in October 2018 and our stockholders approved our 2018 Plan in October 2018.

The 2018 Plan became effective on October 11, 2018 in connection with our initial public offering.

The 2018 Plan is a successor to and continuation of our 2017 Plan.

No further grants will be made under the 2017 Plan.

Our 2018 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Code, to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards to employees, directors and consultants, including employees and consultants of our affiliates.

Our Compensation Committee administers our 2018 Plan and is referred to as the “plan administrator” herein.

Our Board or Compensation Committee may also delegate certain limited authority to one or more of our officers.

ISOs and NSOs are granted under stock option agreements adopted by the plan administrator.

The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2018 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant.

Options granted under the 2018 Plan vest at the rate specified in the stock option agreement as determined by the plan administrator.

The plan administrator determines the term of stock options granted under the 2018 Plan, up to a maximum of 10 years.

Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death, or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service.

This period may be extended in the event that exercise of the option is prohibited by applicable securities laws or our insider trading policy.

If an optionholder’s service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 18 months following the date of death.

If an optionholder’s service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of 12 months following the cessation of service.

In the event of a termination for cause, options generally terminate upon the termination date.

In no event may an option be exercised beyond the expiration of its term.

Our 2018 Plan provides that in the event of certain specified significant corporate transactions (or a change in control, as defined in the 2018 Plan), unless otherwise provided in an award agreement or other written agreement between us and the award holder, the plan administrator may take one or more of the following actions with respect to such stock awards:

arrange for the assumption, continuation, or substitution of a stock award by a successor corporation;

arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation;

accelerate the vesting, in whole or in part, of the stock award and provide for its termination if not exercised (if applicable) at or before the effective time of the transaction;

arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us;

cancel or arrange for the cancellation of the stock award, to the extent not vested or not exercised before the effective time of the transaction, in exchange for a cash payment, if any;

make a payment equal to the excess, if any, of (A) the value of the property the participant would have received on exercise of the award immediately before the effective time of the transaction, over (B) any exercise price payable by the participant in connection with the exercise.

The plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to take the same actions with respect to all participants.

In the event of a change in control, the plan administrator may take any of the above-mentioned actions.

Awards granted under the 2018 Plan may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in the applicable stock award agreement or in any other written agreement between us or any affiliate and the participant, but in the absence of such provision, no such acceleration will automatically occur.

2017 Equity Incentive Plan

Our Board and our stockholders approved our 2017 Plan in December 2017.

No further awards may be granted under the 2017 Plan , and all outstanding awards granted under the 2017 Plan that are repurchased, forfeited, expire or are canceled will become available for grant under the 2018 Plan in accordance with its terms .

Our 2017 Plan provided for the grant of ISOs within the meaning of Section 422 of the Code to employees, including employees of any parent or subsidiary, and for the grant of NSOs, stock appreciation rights, restricted stock, restricted stock units and other forms of stock awards to employees, directors and consultants, including employees and consultants of our affiliates.

Our Compensation Committee administers our 2017 Plan and is referred to as the “plan administrator” herein.

If an optionholder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death or cause, the optionholder may generally exercise any vested options for a period of up to three months following the cessation of service.

This period may be extended in the event that exercise of the option is prohibited by applicable securities laws or our insider trading policy.

If an optionholder’s service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of up to 12 months following the cessation of service.

In the event of a termination for cause, options generally terminate upon the termination date.

In no event may an option be exercised beyond the expiration of its term.

Our 2017 Plan provides that in the event of a “corporate transaction” (as defined in the 2017 Plan) unless otherwise provided in an award agreement or other written agreement between us and the award holder, the plan administrator may take one or more of the following actions with respect to such stock awards:

arrange for the assumption, continuation, or substitution of a stock award by a surviving or acquiring corporation;

arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring corporation;

accelerate the vesting, in whole or in part, of the stock award and provide for its termination if not exercised (if applicable) at or before the effective time of the transaction;

arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us;

cancel or arrange for the cancellation of the stock award, to the extent not exercised before the effective time of the transaction, in exchange for a payment in such form as may be determined by our Board, equal to the excess, if any, of (A) the per share amount (or value of property per share) payable to holders of common stock in connection with the transaction, over (B) the per share exercise price under the stock award (if any), multiplied by the number of vested shares subject to the stock award;

suspend the exercise of the stock award, prior to the effective time of the transaction, for such period as our Board determines is necessary to facilitate the negotiation and consummation of the transaction;

if a stock award is eligible for “early exercise,” cancel or arrange for the cancellation of any such “early exercise” rights upon the transaction, such that following the transaction, such stock award may only be exercised to the extent vested.

The plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to treat all participants in the same manner.

A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in an applicable award agreement or other written agreement, but in the absence of such provision, no such acceleration will occur.

2018 Employee Stock Purchase Plan

Our Board adopted, and our stockholders approved, our ESPP in October 2018 and the ESPP became effective on October 11, 2018 in connection with our initial public offering .

The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for U.S.

Our Compensation Committee administers the ESPP.

The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings.

Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering.

Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering.

An offering under the ESPP may be terminated under certain circumstances.

Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings (as defined in the ESPP) for the purchase of our common stock under the ESPP, subject to certain limitations set forth in the ESPP of offering document thereunder .

Unless otherwise determined by our Compensation Committee or Board, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is at least the lesser of (1) 85% of the fair market value of a share of our common stock on the first date of an offering, or (2) 85% of the fair market value of a share of our common stock on the date of purchase.

In the event of certain significant corporate transactions (as defined in the ESPP), any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company).

If the surviving or acquiring entity (or its parent company) elects not to assume, continue, or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days before such corporate transaction, and such purchase rights will terminate immediately.

Director Compensation

Prior to our initial public offering in 2018, we did not pay cash compensation to any of our non-employee directors for service on our Board.

However, we did pay equity compensation to our non-employee directors for service on our Board.

We have reimbursed and will continue to reimburse all of our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our Board and committees of our Board.

On June 11, 2019, we granted each of Drs.

Manian and Pruzanski, Ms.

Demski and Mr.

McDermott an option to purchase 12,000 shares of common stock at an exercise price of $6.01 per share.

Such option vests in 12 successive equal monthly installments beginning on June 11, 2019, subject to their continued service with us.

The following table sets forth in summary form information concerning the compensation that we paid or awarded during the year ended December 31, 2019 to each of our directors that was not also a named executive officer:

Stephen Connelly, Ph.D.

Manian, Ph.D.

Charles McDermott

Mark Pruzanski, M.D.

Bradbury, Mr.

Steel and Dr.

Connelly did not earn compensation during 2019 for their services on the Board.

Bradbury’s and Mr.

Steel’s compensation is fully reflected in the “— Summary Compensation Table” above.

In accordance with SEC rules, this column reflects the aggregate grant date fair value of the stock option awards granted in 2019 computed in accordance with FASB ASC Topic 718 .

Assumptions used in the calculation of these amounts are described in Note 9 to our audited financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2019.

These amounts do not reflect the actual economic value that will be realized by the non-employee director upon the vesting of the stock option awards, the exercise of the stock option awards or the sale of the common stock underlying such stock option awards.

As of December 31, 2019, the aggregate number of shares subject to outstanding options to purchase our common stock held by our non-employee directors was as follows:

12,000 shares for Ms.

Demski , 12,000 shares for Dr.

Manian , 12,000 shares for Mr.

McDermott and 12,000 shares for Dr.

Our Board adopted a director compensation policy in June 2019 that became effective on June 10, 2019 and is applicable to all of our non-employee directors.

This compensation policy provides that each such non-employee director will receive the following compensation for service on our Board:

an annual cash retainer of $40,000;

an additional cash retainer of $20,000 to the chairman of the Board;

an additional annual cash retainer of $7,500, $5,000 and $4,000 for service as a member of the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee, respectively;

an additional annual cash retainer of $15,000, $10,000 and $8,000 for service as chairman of the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee, respectively (in lieu of the additional cash retainer for committee membership);

an initial option grant to purchase 24,000 shares of our common stock for each non-employee director who first joins our Board, on the date of initial election or appointment to the Board, vesting over a three-year period following the grant date;

an annual option grant to purchase 12,000 shares of our common stock for each non-employee director serving on the Board on the date of our annual stockholder meeting, vesting over the one-year period following the grant date.

Each of the option grants described above will vest and become exercisable subject to the director’s continuous service to us, provided that each option will vest in full upon a change in control (as defined in the 2018 Plan).

The term of each option will be 10 years, subject to earlier termination as provided in the 2018 Plan, except that the post-termination exercise period will be for 12 months from the date of termination, if such termination is other than for death, disability or cause.

The options will be granted under our 2018 Plan, the terms of which are described in more detail above under “—Equity Benefit Plans—2018 Plan.”

Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters.

SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of our common stock as of March 15, 2020 by:

(i) each of our directors;

(ii) each of our named executive officers;

(iii) all of our current executive officers and directors as a group;

and (iv) all those known by us to be beneficial owners of more than 5% of its common stock.

The following table is based upon information supplied by officers, directors and principal stockholders and Schedules 13G filed with the SEC.

Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

Applicable percentages are based on 17,618,591 shares outstanding on March 15, 2020, adjusted as required by rules promulgated by the SEC.

Unless otherwise indicated, the address for the following stockholders is:

c/o Equillium, Inc., 2223 Avenida De La Playa, Suite 105, La Jolla, CA 92037.

Beneficial Ownership

Beneficial Owner

Number of Shares

Percent of Total

Greater than 5% stockholders

Biocon SA (1)

Victory Capital Management, Inc.

Named Executive Officers and Directors

Stephen Connelly, Ph.D.

Charles McDermott (9)

Mark Pruzanski (10)

All current executive officers and directors as a group (10 persons) (11)

Less than one percent.

The address of Biocon SA is c/o BDO SA, Rue de l’Avenir 2, 2800 Delémont, Switzerland.

Information is based solely on a Schedule 13G/A filed with the SEC on January 29, 2020 by Victory Capital Management, Inc., or Victory.

The Schedule 13G/A indicates that Victory has sole voting power with respect to 2,171,974 shares and sole dispositive power with respect to 2,233,724 shares.

The address of Victory is 4900 Tiedeman Rd., 4th floor, Brooklyn, OH 44144.

Consists of (i) 2,969,596 shares of common stock held by BioBrit, of which Mr.

Bradbury is the managing member, (ii) 742,399 shares of common stock held by The Bradbury Family 2009 Irrevocable Trust dated September 1, 2009, or the Bradbury Trust and (iii) 28,125 shares of common stock that Mr.

Bradbury has a right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of 236,341 shares of common stock that Dr.

Polu has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) 48,495 shares of common stock held by Mr.

Steel, (ii) 3,232,500 shares of common stock held by Bruce D.

Steel, as trustee of the Steel Family Revocable Trust dated June 5, 2002, (iii) 431,000 shares of common stock held by Kevin N.

Steel, as trustee of the Sierra Kathleen Steel Trust of January 1, 2005 and (iv) 28,125 shares of common stock that Mr.

Steel has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) 1,293,000 shares of common stock held by Dr.

Connelly and (ii) 28,125 shares of common stock that Dr.

Connelly has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) 23,799 shares of common stock held by the Martha J.

Demski Trust Dated October 1, 1994, 14,875 shares of which were subject to a right of repurchase by us as of March 15, 2020 and (ii) 11,000 shares of common stock that Ms.

Demski has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) 23,799 shares of common stock held by Dr.

Manian, 13,387 shares of which were subject to a right of repurchase by us as of March 15, 2020 and (ii) 11,000 shares of common stock that Dr.

Manian has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) 23,799 shares of common stock held by the McDermott Family Trust Dated November 25, 2002, 14,875 shares of which were subject to a right of repurchase by us as of March 15 , 20 20 and (ii) 11,000 shares of common stock that Mr.

McDermott has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options .

Consists of (i) 23,799 shares of common stock held by Dr.

Pruzanski, 14,875 shares of which were subject to a right of repurchase by us as of March 15, 2020 and (ii) 11,000 shares of common stock that Dr.

Pruzanski has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

Consists of (i) the shares described in Notes (3) through (10) above, (ii) 130,520 shares of common stock held by the Keyes Trust Dated September 10, 2004 and beneficially owned by Jason A.

Keyes, our Chief Financial Officer, 77,459 shares of which were subject to a right of repurchase by us as of March 15, 2020, (iii) 21,875 shares of common stock that Mr.

Keyes has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options, (iv) 70,810 shares of common stock held by Christine Zedelmayer, our Chief Operating Officer, 28,505 shares of which were subject to a right of repurchase by us as of March 15, 2020 and (v) 51,320 shares of common stock that Mrs.

Zedelmayer has the right to acquire from us within 60 days of March 15, 2020 pursuant to the exercise of stock options.

The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

Certain Relationships and Related Transactions, and Director Independence.

RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES

We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and oversight of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000.

Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactions under this policy.

A related person is any executive officer, director, nominee to become a director or a holder of more than 5% of our common stock, including any of their immediate family members and affiliates, including entities owned or controlled by such persons.

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our Audit Committee (or, where review by our Audit Committee would be inappropriate, to another independent body of our Board) for review.

The presentation must include a description of, among other things, all of the parties thereto, the direct and indirect interests of the related persons, the purpose of the transaction, the material facts, the benefits of the transaction to us and whether any alternative transactions are available, an assessment of whether the terms are comparable to the terms available from unrelated third parties and management’s recommendation.

To identify related-person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders.

In considering related-person transactions, our Audit Committee or another independent body of our Board takes into account the relevant available facts and circumstances including, but not limited to :

the risks, costs and benefits to us;

the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

the terms of the transaction;

the availability of other sources for comparable services or products;

the terms available to or from, as the case may be, unrelated third parties.

In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.

CERTAIN RELATED-PERSON TRANSACTIONS

The following includes a summary of transactions with related persons since January 1, 2018, to which we have been a party and in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years:

Employment Arrangements

We currently have written offer letters with our executive officers .

For information about our offer letters with our named executive officers, refer to “Executive Compensation— Agreements with our Named Executive Officers.”

Stock Options Granted to Executive Officers and Directors

We have granted stock options to our executive officers and directors.

For information about our stock option awards to our named executive officers and our directors, refer to “Executive Compensation—Equity-Based Incentive Awards”, “Executive Compensation—Outstanding Equity Awards at Fiscal Year-End” and “Executive Compensation—Director Compensation”

Convertible Promissory Note Financing

From May 2017 to June 2018, we issued and sold to investors convertible promissory notes in the aggregate principal amount of approximately $9.4 million.

The convertible promissory notes carried an interest rate of 6% per annum.

The participants in this convertible promissory note financing included the following executive officers and members of our Board, or entities affiliated with them.

AGGREGATE PRINCIPAL

AMOUNT OF NOTES

Executive Officers and Directors

Consists of convertible promissory notes held by (i) BioBrit, in the principal amount of $409,732 (which convertible promissory note was originally issued in May 2017 in principal amount of $400,000 and was amended and restated in October 2017 in principal amount of $409,732, which amount includes accrued interest from May 2017 to October 2017), or the BioBrit Note, and (ii) the Bradbury Trust, in the principal amount of $102,433 (which convertible promissory note was originally issued in May 2017 in principal amount of $100,000 and was amended and restated in October 2017 in principal amount of $102,433, which amount includes accrued interest from May 2017 to October 2017), or the Bradbury Trust Note.

Bradbury is the managing member of BioBrit.

Such convertible promissory note, or the Steel Note, was originally issued in May 2017 in principal amount of $500,000 and was amended and restated in October 2017 in principal amount of $512,164, which amount includes accrued interest from May 2017 to October 2017.

The BioBrit Note, the Bradbury Trust Note and the Steel Note automatically converted in connection with the closing of our initial public offering into an aggregate of 38,796 shares, 9,699 shares and 48,495 shares of our common stock, respectively.

Biocon Agreements

In May 2017, we entered into a collaboration and license agreement, or the Biocon License, and a clinical supply agreement with Biocon SA (subsequently assigned to Biocon Limited), one of our 5% stockholders.

In connection with the Biocon License, we entered into a Common Stock Purchase Agreement with Biocon SA, pursuant to which we issued 2,088,074 shares of our common stock as consideration under the Biocon License.

In connection with the closing of our initial public offering, we issued to Biocon SA an additional 228,060 shares of common stock pursuant to certain anti-dilution rights that were satisfied in full upon such issuance.

Indemnification Agreements

We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws.

These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers or as a director or executive officer of any other company or enterprise to which the person provides services at our request.

We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties.

They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders.

A stockholder’s investment may decline in value to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

INDEPENDENCE OF THE BOARD OF DIRECTORS

As required under the Nasdaq Stock Market listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board of directors.

Our Board consults with our counsel to ensure that the Board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in effect from time to time.

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and us, our senior management and our independent auditors, the Board has affirmatively determined that the following four directors are independent directors as defined by Rule 5605(a)(2) of the Nasdaq Listing Rules:

McDermott, Ms.

Demski and Dr.

In making this determination, the Board found that none of these directors had a material or other disqualifying relationship with us.

Bradbury, Dr.

Connelly and Mr.

Steel are not considered independent because of their current employment with us.

The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

Principal Accounting Fees and Services.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table represents aggregate fees billed to us by KPMG for the fiscal years ended December 31, 2019 and 2018:

Fiscal Year Ended

December 31, 2019

Fiscal Year EndedDecember 31, 2018

Audit Fees (1)

Audit Related Fees

All Other Fees

Audit fees consist of fees billed for professional services by KPMG for audit and quarterly review of our financial statements and review of our registration statements and related issuances of consents, and related services that are normally provided in connection with statutory and regulatory filings or engagements.

Included in the 2019 audit fees is $67,785 of fees billed in connection with the filing of our registration statement on Form S-3 in November 2019.

Included in the 2018 audit fees is $338,989 of fees billed in connection with our October 2018 public offering.

All fees described above were pre-approved by the Audit Committee.

In connection with the audit of the 2019 financial statements, we entered into an engagement agreement with KPMG that sets forth the terms by which KPMG will perform audit services for us.

PRE-APPROVAL POLICIES AND PROCEDURES

The Audit Committee must pre-approve the audit and non-audit services rendered by our independent registered public accounting firm.

The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference.

Exhibits, Financial Statement Schedules.

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Warrant to Purchase Common Stock, dated September 30, 2019, issued to Silicon Valley Bank, incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 12, 2019.

Description of Common Stock.

Description of Common Stock, incorporated by reference to Exhibit 4.4 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

Form of Warrant, issued February 5, 2021, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 4, 2021.

Form of Indemnity Agreement by and between the Registrant and its directors and officers, incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No.

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333-227387), as amended, originally filed with the Securities and Exchange Commission on September 17, 2018.

Offer Letter, dated August 1, 2018, by and between the Registrant and Krishna Polu, M.D., incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1 (File No.

333-227387), as amended, originally filed with the Securities and Exchange Commission on September 17, 2018.

First Amendment to Collaboration and License Agreement, effective as of September 28, 2018, by and between the Registrant and Biocon Limited, incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 (File No.

333-227387), as amended, originally filed with the Securities and Exchange Commission on September 17, 2018.

Second Amendment to Collaboration and License Agreement, dated April 22, 2019, by and between the Registrant and Biocon Limited.

333-227387), as amended, originally filed with the Securities and Exchange Commission on October 2, 2018.

Second Amendment to Collaboration and License Agreement dated April 22, 2019, by and between the Registrant and Biocon Limited, incorporated by reference to Exhibit 10.15 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

Loan and Security Agreement, effective as of September 30, 2019, by and among the Registrant, Oxford Finance LLC and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2019.

1 unchanged sentence

333-234683), filed with the Securities and Exchange Commission on November 13, 2019.

Third Amendment to Collaboration and License Agreement, dated December 10, 2019, by and between the Registrant and Biocon Limited.

Offer Letter, dated January 19, 2018, by and between the Registrant and Christine Zedelmayer.

Third Amendment to Collaboration and License Agreement, dated December 10, 2019, by and between the Registrant and Biocon Limited, incorporated by reference to Exhibit 10.18 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

Offer Letter, dated January 19, 2018, by and between the Registrant and Christine Zedelmayer, incorporated by reference to Exhibit 10.19 of the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2020.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Daniel M.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Krishna Polu.

Bradbury, incorporated by reference to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Krishna Polu, incorporated by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Bruce D.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Christine Zedelmayer.

Subsidiaries of Equillium, Inc.

Steel, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

First Amendment to Offer Letter, effective as of January 1, 2020, by and between the Registrant and Christine Zedelmayer, incorporated by reference to Exhibit 10.23 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

Purchase Agreement, dated March 27, 2020, by and between the Registrant and Lincoln Park Capital Fund, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 30, 2020.

Open Market Sale Agreement, dated as of July 14, 2020, by and between the Registrant and Jefferies LLC, incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 14, 2020.

Second Amendment to Offer Letter, effective as of September 28, 2020, by and between the Registrant and Krishna Polu, incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed on September 28, 2020.

Offer Letter, dated December 15, 2020, by and between the Registrant and Dolca Thomas, M.D., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 21, 2020.

Purchase Agreement between the Company and the Purchasers, dated February 3, 2021, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 4, 2021.

Amended and Restated Offer Letter, effective January 26, 2021, by and between the Registrant and Joel Rothman.

Equillium, Inc.

Non-Employee Director Compensation Policy , as amended.

Subsidiaries of Equillium, Inc., incorporated by reference to Exhibit 21.1 of the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 26, 2020.

Consent of Independent Registered Public Accounting Firm.

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Filed herewith.

This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section.

Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.

Indicates management contract or compensatory plan.

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/s/ Stephen Connelly, Ph.D.

Chief Scientific Officer and

Member of the Board of Directors

March 24 , 2021

Stephen Connelly, Ph.D.

Member of the Board of Directors

/s/ Martha J.

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Mark Pruzanski, M.D.

Katherine Xu, M.D.

Member of the Board of Directors

March 24 , 2021

Katherine Xu, M.D.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT R EGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

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We have audited the accompanying consolidated balance sheets of Equillium, Inc.

and its subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S.

and its subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S.

generally accepted accounting principles.

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Accrued expenses

Current portion of long-term notes payable

Total current liabilities

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Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Accumulated deficit

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Loss from operations

Other income (expense), net:

Other (expense) income, net:

Interest expense

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Other income, net

Change in fair value of Biocon anti-dilution right

Total other income (expense), net

Other comprehensive income, net:

Unrealized gain on available-for-sale securities, net

Total other (expense) income, net

Other comprehensive (loss) income, net:

Unrealized (loss) gain on available-for-sale securities, net

Foreign currency translation loss

Total other comprehensive income, net

Total other comprehensive (loss) income, net

Comprehensive loss

Net loss per share, basic and diluted

Weighted-average common shares outstanding,

Weighted-average number of common shares outstanding,

basic and diluted

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Stockholders'

Balance at December 31, 2017

Issuance of common stock, net of liability

Issuance of common stock upon conversion

of promissory notes

Issuance of common stock to Biocon

pursuant to certain anti-dilution rights

Shares issued for public offering, net of

underwriters’ fees and $2,123 of

offering costs

Vesting of restricted stock liability

Stock-based compensation expense

Comprehensive income

(Loss) Income

Balance at December 31, 2018

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Balance at December 31, 2019

Issuance of common stock from follow-on offering, net of issuance costs

Issuance of common stock under ATM, net of issuance costs

Issuance of common stock

Issuance of common stock under employee stock purchase plan

Exercise of stock options

Vesting of restricted stock liability

Stock-based compensation expense

Comprehensive loss

Balance at December 31, 2020

See accompanying notes.

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Stock-based compensation

Deferred rent

Non-cash interest expense

Change in fair value of Biocon anti-dilution right

Accretion of discount on investments, net

Net unrealized gain on foreign currency transactions

Non-cash consulting expense

Amortization of term loan discount and issuance costs

Other non-cash income and expenses

Realized gain on investments

Amortization/accretion of investments, net

Changes in operating assets and liabilities:

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Financing activities:

Proceeds from public offering of common stock, net of $2,123

issuance costs

Proceeds from issuance of convertible promissory notes, net

Proceeds from issuance of common stock from follow-on offering, net of issuance costs

Proceeds from issuance of common stock under ATM facilities, net of issuance costs

Proceeds from issuance of notes payable, net of issuance costs

Proceeds from issuance of common stock under ATM, net of issuance costs

Proceeds from exercise of stock options, including early exercise

Proceeds from ESPP purchase

Proceeds from ESPP purchases

Proceeds from exercise of stock options

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Cash paid for interest

Issuance of commitment shares to Lincoln Park pursuant to agreement

Fair value of common stock warrants in connection with issuance of notes

ATM issuance costs in accrued expenses

Amounts included in accounts payable for purchases of property and

Conversion of convertible promissory notes into common stock

Issuance of common stock to Biocon pursuant to certain anti-dilution rights

Amounts included in accounts payable for purchases of property and equipment

See accompanying notes.

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(the Company) was incorporated in the state of Delaware on March 16, 2017.

The Company is engaged in the research and development of products for severe autoimmune and inflammatory disorders with high unmet medical need.

From inception through December 31, 2019, the Company has devoted substantially all of its efforts to organizing and staffing the company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting preclinical research, filing two initial Investigational New Drug applications (INDs), commencing clinical development of the Company’s initial product candidate, itolizumab (EQ001), and conducting business development activities.

The Company is a clinical-stage biotechnology company leveraging deep understanding of immunology to develop novel products to treat severe autoimmune and inflammatory disorders with high unmet medical need.

From inception through December 31, 2020, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting preclinical research, filing three initial Investigational New Drug applications (INDs), conducting clinical development of the Company’s initial product candidate, itolizumab (EQ001), conducting business development activities, and the general and administrative activities associated with operating as a public company.

In addition, the Company has a limited operating history, has not generated revenues from its principal operations, and the sales and income potential of its business is unproven.

Liquidity and Business Risks

As of December 31, 2020, the Company had $82.2 million in cash, cash equivalents and short-term investments.

The Company has incurred significant operating losses and negative cash flows from operations.

The Company expects to use its cash, cash equivalents, and short-term investments to fund research and development of itolizumab (EQ001) and working capital and other general corporate purposes.

The Company does not expect to generate any revenues from product sales unless and until the Company successfully completes development and obtains regulatory approval of itolizumab (EQ001) or any future product candidate, which will not be for at least the next several years, if ever.

The Company expects to use its cash, cash equivalents, and short-term investments to fund research and development of itolizumab (EQ001) and for working capital and other general corporate purposes.

The Company does not expect to generate any revenues from product sales unless and until the Company successfully completes development and obtains regulatory approval of itolizumab (EQ001) or any future product candidate, which is unlikely to happen within the next 12 months, if ever.

Accordingly, until such time as the Company can generate significant revenue from sales of its product candidates, if ever, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements.

However, the Company may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

The Company’s failure to raise capital or enter into such other arrangements when needed would have a negative impact on the Company’s financial condition and could force the Company to delay, reduce or terminate its research and development programs or other operations, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself.

Management believes that the Company’s cash, cash equivalents and short-term investments as of December 31, 2019 will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the U.S.

Securities and Exchange Commission (SEC).

Management believes that the Company’s cash, cash equivalents and short-term investments as of December 31, 2020 will be sufficient to fund operations for at least the next 12 months from the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (SEC).

The COVID-19 outbreak in the United States and the rest of the world has caused disruptions to the Company’s business, which may delay results of the Company’s clinical trials and adversely impact the Company’s business.

The Company cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues will impact the Company’s business, nor can it predict potential adverse impacts related to the availability of capital to fund the Company’s operations.

Additionally, the Company’s workforce and outside consultants may also be affected, which could result in an adverse impact on the Company’s ability to conduct business.

Any of these factors, alone or in combination with others, could harm the Company’s business, results of operations, financial condition or liquidity.

However, the magnitude, timing, and duration of any such potential financial impacts cannot be reasonably estimated at this time.

Basis of Presentation

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Foreign Currency Translation

The Company’s wholly-owned subsidiary in Australia uses their local currency to be their functional currency.

The Company’s wholly-owned subsidiary in Australia uses its local currency as its functional currency.

Assets and liabilities are translated into U.S.

dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the quarter and year-to-date period.

dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the year-to-date periods.

Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive loss in the Company’s consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of the Company’s consolidated balance sheets.

Realized and unrealized gains and losses denominated in foreign currencies are recorded in operating expenses in the Company’s consolidated statements of operations and were not material to the Company’s consolidated results of operations for the year ended December 31, 2019.

Realized and unrealized gains and losses denominated in foreign currencies are recorded in operating expenses in the Company’s consolidated statements of operations.

For the years ended December 31, 2020 and 2019, net realized and unrealized gains totaled $0.3 million and $15,000, respectively.

Recent Accounting Pronouncements

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The Company anticipates that the adoption will not have a material impact on its consolidated statements of operations and consolidated comprehensive loss or its consolidated statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) .

ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments.

The standard is effective for annual reporting periods beginning after December 15, 2018 and interim periods reporting within fiscal years beginning after December 15, 2019.

The Company adopted this guidance as of January 1, 2019, which did not have a material effect on the consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments , which will require a reporting entity to use a new forward-looking impairment model for most financial assets that generally will result in the earlier recognition of allowances for losses.

The ASU, along with related amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology.

The ASU affected receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash.

The standard and other related subsequently issued ASUs will be effective for the Company for annual periods beginning after December 15, 2022, with early adoption permitted beginning in 2019.

The Company is currently evaluating the impact that the adoption of the standard and other related subsequently issued ASUs will have on its consolidated financial statements and accompanying footnotes .

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in this ASU are effective for the Company on January 1, 2021.

The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements and accompanying footnotes.

Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements.

ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted.

The Company will adopt this ASU on January 1, 2020.

The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

ASU 2018-13 was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption was permitted.

The Company adopted this ASU on January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Summary of Significant Accounting Policies

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Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency gains and losses.

Other comprehensive income, net includes unrealized gains on short-term investments as well as foreign currency translation losses.

Other comprehensive (loss) income, net includes unrealized losses or gains on short-term investments as well as foreign currency translation losses or gains.

Cash and Cash Equivalents

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Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily represent amounts related to director and officer insurance and clinical trial agreements.

Prepaid expenses and other current assets primarily represent amounts related to director and officer insurance, preclinical research and clinical trial agreements, equity issuance costs and an estimated tax refund for the year ended December 31, 2020 from the Australian Tax Office for eligible research and development expenditures.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years, or the remaining term of the lease).

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years).

Impairment of Long-Lived Assets

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The Company classifies its estimates for accrued research and development expenses as accrued expenses on the accompanying consolidated balance sheet.

Australian Research and Development Tax Incentive

The Company is eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office for eligible research and development expenditures.

To be eligible, the Company must have revenue of less than AUD $20.0 million during the reimbursable period and cannot be controlled by income tax exempt entities.

The Tax Incentive is recognized as a reduction to research and development expense 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.

The Company classifies its estimate for the Tax Incentive as prepaid expenses and other current assets on the accompanying consolidated balance sheet.

Research and Development

Research and development expenses include salaries and related overhead expenses, external research and development expenses incurred under arrangements with third parties, costs of services performed by consultants and contract research organizations, and regulatory costs including those related to preparing and filing INDs with the FDA.

Research and development expenses include salaries and related overhead expenses, non-cash stock-based compensation expense, external research and development expenses incurred under arrangements with third parties, costs of services performed by consultants and contract research organizations, and regulatory costs including those related to preparing and filing INDs with the FDA.

Research and development costs are expensed as incurred.

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the consolidated statement of operations.

Deferred Rent

Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the facilities the Company leases.

The Company’s leases for its facilities provide for fixed increases in minimum annual rental payments.

The total amount of rental payments due over the lease terms are being charged to rent expense ratably over the life of the leases.

The Company classifies the current and non-current portion of deferred rent as accrued expenses and other non-current liabilities, respectively, on the accompanying consolidated balance sheet.

Biocon Anti-Dilution Right

The Company committed to issue to Biocon SA (together with Biocon Limited, Biocon) additional shares of common stock to maintain Biocon’s ownership interest at 19.5% of the diluted Company shares outstanding (as defined in the License Agreements (as defined below)) until the Company received aggregate cumulative gross proceeds from sales of equity securities of $15.0 million (Biocon Anti-Dilution Right).

As an obligation existed to issue a variable number of shares and that obligation was not indexed to the Company’s common stock, the Biocon Anti-Dilution Right was classified as a liability in the accompanying consolidated balance sheet.

The Biocon Anti-Dilution Right was recorded at fair value using the precedent transaction method.

The fair value of the Biocon Anti-Dilution Right was re-measured at each financial reporting period with any changes in fair value recognized as a component of other expense (income).

In connection with the Company’s initial public offering (IPO) in October 2018, the Company issued to Biocon 228,060 shares of common stock in full satisfaction of the Biocon Anti-Dilution Right and the liability was reclassified to stockholders’ equity .

Stock-based Compensation

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The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bid and/or offers.

The following tables summarize the Company’s assets that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

The following table s summarize the Company’s assets that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands) :

Fair Value Measurements Using

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treasury securities

Agency securities

Certificates of deposit

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treasury securities and certificates of deposit are valued using Level 1 inputs.

Level 1 securities are valued at unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 1 securities are valued at unadjusted quoted prices in active markets that are observable at the measurement date for identical, unrestricted assets or liabilities.

Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations.

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Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.

The carrying amounts of the Company’s financial instruments, including prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities.

The carrying amount of the Company’s notes payable of $9.7 million at December 31, 2019 approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles (Level 2 inputs).

The carrying amounts of the Company’s financial instruments, including cash, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities.

At December 31, 2020 and 2019, the carrying amount of the Company’s notes payable of $9.9 million and $9.7 million, respectively, approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles (Level 2 inputs).

None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis.

No transfers between levels have occurred during the periods presented.

At December 31, 2020 and 2019, the Company had investments in money market funds of $17.4 million and $10.3 million, respectively, that were measured at fair value using the net asset value per share (or its equivalent) that have not been classified in the fair value hierarchy.

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government securities.

The Company did not hold any Level 1, 2 or 3 financial liabilities that are recorded at fair value on a recurring basis as of December 31, 2019 and 2018.

The Company did not hold any Level 1, 2 or 3 financial liabilities that are recorded at fair value on a recurring basis as of December 31, 2020 or 2019.

Short-term Investments

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treasury securities

Agency securities

Certificates of deposit

December 31, 2019

treasury securities

Agency securities

Certificates of deposit

All of the Company’s available-for-sale securities are available to the Company for use in its current operations.

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There were no impairments considered other-than-temporary during the year ended December 31, 2020, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value.

Unrealized gains and losses are included in accumulated other comprehensive loss.

Unrealized gains and losses are included in accumulated other comprehensive (loss) income.

Property and Equipment

Property and equipment consist of the following (in thousands):

Property and equipment consisted of the following (in thousands):

Furniture & fixtures

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Depreciation expense related to property and equipment was approximately $45,000 and $23,000 for the years ended December 31, 2020 and 2019, respectively.

No material gains or losses on the disposal of property and equipment have been recorded for the years ended December 31, 2019 and 2018.

No material gains or losses on the disposal of property and equipment have been recorded for the years ended December 31, 2020 or 2019.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Accrued expenses consisted of the following (in thousands):

Accrued payroll and other employee benefits

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Collaboration and License Agreement

In May 2017, the Company entered into a collaboration and license agreement (which was amended in September 2018, April 2019 and December 2019), clinical supply agreement, investor rights agreement, and common stock purchase agreement (collectively License Agreements) with Biocon.

Pursuant to the License Agreements, Biocon granted the Company 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 that uses Biocon technology or Biocon know-how (collectively a Biocon Product) in the United States, Canada, Australia and New Zealand (collectively Company Territory).

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Under the License Agreements, net sales are calculated on a country-by-country basis and are subject to adjustments, including whether the Biocon Product is sold in the form of a combination product.

As of December 31, 2020, the Company has not made or received payments in connection with the milestones or royalties within the agreement.

Notes Payable

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Upon entering into the Loan Agreement, the Company borrowed $10.0 million from the Lenders (Term A Loan).

Under the terms of the Loan Agreement, the Company may, at its sole discretion, borrow from the Lenders (i) up to an additional $5.0 million (Term B Loan) upon the Company’s achievement of positive topline data in either the Company’s (a) Phase 1b aGVHD trial of itolizumab (EQ001) or (b) Phase 1b asthma trial of itolizumab (EQ001), supporting a formal decision to advance into Phase 2 development, and as confirmed by the Company’s Board of Directors (the Term B Milestone) and (ii) up to an additional $5.0 million (Term C Loan and together with Term A Loan and Term B Loan, the Term Loans) upon the Company’s achievement of positive topline data in both the Company’s Phase 1b aGVHD trial of itolizumab (EQ001) and the Company’s Phase 1b asthma trial of itolizumab (EQ001), supporting a formal decision to advance into Phase 2 development, and as confirmed by the Company’s Board of Directors (the Term C Milestone).

Under the terms of the Loan Agreement, the Company may, at its sole discretion, borrow from the Lenders (i) up to an additional $5.0 million (Term B Loan) upon the Company’s achievement of positive topline data in either the Company’s (a) Phase 1b aGVHD trial of itolizumab (EQ001) or (b) Phase 1b asthma trial of itolizumab (EQ001), supporting a formal decision to advance into Phase 2 development, and as confirmed by the Board of Directors (the Board) of the Company (the Term B Milestone) and (ii) up to an additional $5.0 million (Term C Loan and together with Term A Loan and Term B Loan, the Term Loans) upon the Company’s achievement of positive topline data in both the Company’s Phase 1b aGVHD trial of itolizumab (EQ001) and the Company’s Phase 1b asthma trial of itolizumab (EQ001), supporting a formal decision to advance into Phase 2 development, and as confirmed by the Board (the Term C Milestone).

The Company 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.

As of December 31, 2020, the Company did not achieve the Term B or Term C Milestone and is not eligible to receive the additional funding up to $10 million under the Loan Agreement.

All of the Term Loans mature on June 1, 2024 (the Maturity Date) and require interest-only payments through June 30, 2021, followed by 36 equal monthly payments of principal and interest;

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The Term Loans will bear interest at a floating per annum rate equal to the greater of (i) 8.25 % and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.00 %.

On December 18, 2020, the Company entered into the First Amendment to the Loan Agreement (the Amendment) with the Lenders whereby if the Company achieves the Term B Milestone on or prior to June 30, 2021, the interest-only payments will be automatically extended to January 1, 2022.

The Company has not yet achieved the Term B Milestone subsequent to December 31, 2020 and through the date of the filing of this Annual Report on Form 10-K.

The Company will be required to make a final payment of 4.50% of the original principal amount of the Term Loans drawn payable on the earlier of (i) the Maturity Date, (ii) the acceleration of any Term Loans, or (iii) the prepayment of the Term Loans (the Final Payment).

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At December 31, 2020, the Company was in compliance with the covenants contained in the Loan Agreement.

Future maturities of the Term Loans, including the Final Payment fee, as of December 31, 2019 are as follows (in thousands):

Year ending December 31, 2020

Future maturities of the Term Loans, including the Final Payment fee, as of December 31, 2020 were as follows (in thousands):

Year ending December 31, 2021

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Stockholders’ Equity

During 2017, the Company issued 8,620,000 shares of common stock to founders at a price of $0.00001 per share and 2,088,074 shares of common stock to Biocon as partial consideration for the License Agreements (Note 7).

The shares issued to Biocon were valued at $0.005 per share, resulting in $9,689 of research license expense.

On October 16, 2018, the Company completed an IPO, selling 4,670,000 shares of common stock at an offering price of $14.00 per share.

The Company received net proceeds of approximately $58.7 million, after deducting underwriting discounts, commissions and offering-related transaction costs.

In connection with the closing of the IPO in October 2018, the Convertible Promissory notes automatically converted into an aggregate of 878,834 shares of the Company’s common stock and the Company issued 228,060 shares of common stock to Biocon pursuant to certain anti-dilution rights.

In November 2018, the Company sold an aggregate of 445,097 shares of common stock pursuant to the underwriters’ partial exercise of their option to purchase additional shares , resulting in additional net proceeds of approximately $5.8 million.

In November 2019, the Company entered into an Open Market Sales Agreement SM with Jefferies LLC (Jefferies) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $8.45 million from time to time through Jefferies acting as its sales agent (ATM facility).

As of December 31, 2020, the Company’s authorized capital stock consisted of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.

The Company had 24,753,102 and 17,425,654 shares of common stock outstanding as of December 31, 2020 and 2019, respectively.

Follow-On Public Offering

In August 2020, the Company 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.

The Company received gross proceeds from this offering totaling $38.2 million.

The proceeds, net of underwriting discounts and related issuance costs, were $35.7 million.

At-the-Market Offering Program

In November 2019, the Company entered into an Open Market Sales Agreement SM with Jefferies LLC (Jefferies) under which the Company could offer and sell shares of its common stock from time to time, through an “at-the-market”, or ATM, equity offering program under which Jefferies acted as sales agent (2019 ATM Facility).

The Company set certain parameters for the sale of shares, which included but were not limited to the number of shares to be issued, the time period during which sales are requested to be made, and any minimum price below which sales may not be made.

Jefferies was 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.

The maximum aggregate offering price of common stock that could be sold under the 2019 ATM Facility was $8.45 million.

In December 2019, the Company sold an aggregate of 18,250 shares of its common stock under the 2019 ATM Facility resulting in net negative proceeds of $0.2 million, after deducting the facility’s costs.

Subsequent to December 31, 2019, the Company sold an aggregate of 174,649 shares of its common stock under the ATM facility resulting in net proceeds of $0.8 million.

During the year ended December 31, 2020, the Company sold an aggregate 925,489 shares of its common stock and received gross proceeds of $8.4 million under the 2019 ATM Facility.

The Company paid commissions on the gross proceeds in the aggregate amount of approximately $0.3 million, during the year ended December 31, 2020, resulting in net proceeds of $8.1 million.

As of December 31, 2020, the 2019 ATM Facility was fully utilized.

On July 14, 2020, the Company entered into a new ATM equity offering program (2020 ATM Facility) with Jefferies under which the Company may offer and sell shares of the Company’s common stock having an aggregate price of up to $150 million, from time to time, through Jefferies acting as our sales agent.

For the year ended December 31, 2020, the Company sold an aggregate of 788,685 shares of common stock under the 2020 ATM Facility and received gross proceeds of $10.4 million.

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

Since December 31, 2020 and through the date of the filing of this Annual Report on Form 10-K, there have been no additional sales of the Company’s stock under the 2020 ATM Facility.

Purchase Agreement

In March 2020, the Company entered into a purchase agreement (Purchase Agreement), with Lincoln Park Capital Fund, LLC (Lincoln Park), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company

may sell to Lincoln Park up to $ 15.0 million of shares of its common stock from time to time over the 36-month term of the Purchase Agreement.

Upon execution of the Purchase Agreement, the Company issued 65,374 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement.

The commitment shares were valued using the closing price of the Company’s common stock on the effective date of the Purchase Agreement resulting in a fair market value of approximately $ 0.2 million.

The fair market value of the commitment shares as well as other issuance costs associated with the Purchase Agreement totaled $ 0.4 million.

These issuance costs are classified as prepaid expenses and other current assets in the accompanying consolidated balance sheet.

As shares of common stock are sold to Lincoln Park in accordance with the Purchase Agreement, the issuance costs, including the fair value of the commitment shares, will be reclassified to additional paid-in capital on the Company’s consolidated balance sheet .

There have been no sales of the Company’s stock under this Purchase Agreement as of December 3 1 , 2020 and through the date of the filing of this Annual Report on Form 10- K .

2018 Equity Incentive Plan

In October 2018, the Company adopted the 2018 Equity Incentive Plan (the 2018 Plan).

In October 2018, the Company adopted the 2018 Equity Incentive Plan (the 2018 Plan) which replaced the Company’s legacy 2017 Equity Incentive Plan (the 2017 Plan).

The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards.

Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2018 Plan is 2,229,773 shares which consists of 333,119 shares of common stock reserved for issuance under the Company’s 2017 Equity Incentive Plan (2017 Plan) at the time the 2018 Plan was adopted, 1,040,000 new shares of common stock approved for issuance under the 2018 Plan and 856,654 shares underlying awards granted under the 2017 Plan that were outstanding as of the effective date of the 2018 Plan and which will be added to the 2018 Plan’s reserve if such awards expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition required to vest such shares or are reacquired, withheld or not issued to satisfy a tax withholding or to satisfy a purchase price or exercise price of a stock award.

As of December 31, 2019, the number of shares reserved under the 2018 Plan was 813,473 shares.

The number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year through January 1, 2028, in an amount equal to 5.0% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors.

As of December 31, 2020, the 2018 Plan had a maximum of 1,039,531 total shares available for issuance.

Options granted under the 2018 Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their date of grant.

The exercise price of each option shall be determined by the Board of Directors based on the estimated fair value of the Company’s stock on the date of the option grant.

The exercise price of each option shall be determined by the Board based on the estimated fair value of the Company’s stock on the date of the option grant.

The exercise price shall not be less than 100% of the fair market value of the Company’s common stock at the time the option is granted.

Most option grants generally vest 25% on the first anniversary of the original vesting commencement date, with the balance vesting monthly over the remaining three years.

A summary of the Company’s stock option activity under its equity incentive plans are as follows:

Repricing of Outstanding Options

On April 22, 2020, the Board approved a repricing of outstanding options to purchase 1,475,093 shares of the Company’s common stock held by employees of the Company, including executive officers (but excluding any employees who serve on the Board) that had exercise prices in excess of the closing stock price on April 22, 2020 and were granted under the Company’s equity incentive plans.

As a result of the repricing, the exercise price of such options was lowered to $2.45 per share, the closing price of the Company’s common stock on April 22, 2020.

The vesting schedule and term of these options remained unchanged.

The Board effectuated the repricing to realign the value of such options with their intended purpose, which is to retain and motivate the holders of such options to continue to work in the best interests of the Company and its stockholders.

Prior to the repricing, many of the options had exercise prices well above the market prices of the Company’s common stock at that time, including prior to the market volatility that had generally been associated with the onset of the COVID-19 pandemic.

The effect of the repricing generated a total incremental cost of approximately $0.4 million, of which approximately $0.2 million was recognized as stock-based compensation expense in the year ended December 31, 2020, with the remainder to be expensed over the remaining vesting periods.

Stock Options

The following summarizes stock option activity for the year ended December 31, 2020 :

Outstanding Options

Exercise Price

Intrinsic Value

(in thousands)

Options Outstanding at December 31, 2018

(in thousands) (a)

Balances as of December 31, 2019

Forfeitures and cancellations

Options Outstanding at December 31, 2019

Options Exercisable at December 31, 2019

Aggregate intrinsic value represents the product of the number of options multiplied by the difference between the Company’s closing stock price per share on the last trading day of the fiscal period, which was $3.38 as of December 31, 2019, and the exercise price.

T he weighted-average fair value per share of options granted for the years ended December 31, 2019 and 2018 were $4.65 and $5.79, respectively.

The following table summarizes certain information regarding stock options (in thousands):

Fair value of options vested during the period

Cash received from options exercised during the period

Intrinsic value of options exercised during the period

Balances as of December 31, 2020 (b)

Options exercisable as of December 31, 2020 (b)

Aggregate intrinsic value in this table was calculated as the positive difference, if any, between the closing price per share of the Company’s common stock on December 31, 2020 of $5.35 and the price of the underlying options.

The weighted-average exercise price per share of the options outstanding and exercisable as of December 31, 2020 includes the impact of the repricing of 1,475,093 options on April 22, 2020 at $2.45 per share.

The aggregate intrinsic value of stock options exercised was $9,000 and $0 for the years ended December 31, 2020 and 2019, respectively.

Cash received from stock options exercised was $7,000 and $69,000 for the years ended December 31, 2020 and 2019, respectively.

The fair value of stock options that vested in the years ended December 31, 2020 and 2019 was $4.1 million and $1.4 million, respectively.

T he weighted-average grant-date fair value of options granted was $3.11 and $4.65 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, unrecognized compensation expense related to unvested stock options was $6.6 million and is expected to be recognized over a weighted-average period of 2.3 years.

2018 Employee Stock Purchase Plan

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The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2028, by the lesser of (1) 1.0% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 343,275 shares;

provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2).

As of December 31, 2019, the Company had issued 13,321 shares of common stock under the ESPP which were issued during the year ended December 31, 2019.

provided that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2).

As of December 31, 2020, the Company had issued 78,764 shares of common stock under the ESPP, 65,443 of which were issued during the year ended December 31, 2020.

The Company had 612,529 shares available for future issuance under the ESPP as of December 31, 2020.

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Consideration received for the exercise of unvested stock options is recorded as a liability and reclassified into equity as the related award vests.

As of December 31, 2019, 265,232 and 446,171 unvested shares issued under early exercise provisions were subject to repurchase by the Company, respectively.

As of December 31, 2020 and 2019, 153,690 and 265,232 unvested shares issued under early exercise provisions were subject to repurchase by the Company, respectively.

The balance sheet reflects an unvested stock liability of $0.1 million and $0.2 million as of December 31, 2020 and 2019, respectively.

The short-term portion of the unvested stock liability totals $0.1 million and is classified as accrued expenses on the accompanying consolidated balance sheet.

The long-term portion of the unvested stock liability totals $0.1 million and is classified as other non-current liabilities on the accompanying consolidated balance sheet.

Stock-Based Compensation Expense

The short-term portion of the unvested stock liability totals approximately $72,000 as of December 31, 2020, and is classified as accrued expenses on the accompanying consolidated balance sheet.

The long-term portion of the unvested stock liability totals approximately $53,000 as of December 31, 2020, and is classified as other non-current liabilities on the accompanying consolidated balance sheet.

Stock- b ased Compensation Expense

On May 28, 2020, the Compensation Committee of the Board issued to its Executive Chairman, Chief Executive Officer and two non-management directors retention stock options to purchase an aggregate of 169,368 shares of the Company’s common stock.

These stock option grants immediately vested at the date of grant.

The non-cash stock-based compensation expense recognized in the year ended December 31, 2020 associated with these stock option grants totaled $0.4 million.

At the time, the Executive Chairman and Chief Executive Officer voluntarily agreed to a 65% and an 85% reduction, respectively, in their base salaries otherwise payable for the remainder of 2020.

The two non-management directors voluntarily agreed to forego 100% of their annual cash retainers otherwise payable to such directors for the remainder of 2020.

Total non-cash stock-based compensation expense for all stock awards and purchase rights, net of forfeitures recognized as they occur, that was recognized in the consolidated statement of operations is as follows (in thousands):

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The Company reduces stock-based compensation expense for actual forfeitures during the period.

Unrecognized compensation expense for stock options at December 31, 2019 was $8.6 million which is expected to be recognized over a weighted-average period of 3.26 years.

Common Stock Reserved for Future Issuance

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The Company leases certain office space in La Jolla and South San Francisco, California under non-cancelable operating leases.

The leases for spaces in La Jolla expire in February 2022.

The lease for space in South San Francisco expires in February 2021.

Rent expense was $0.2 million and $49,000 for the years ended December 31, 2019 and 2018, respectively.

The leases for spaces in La Jolla and South San Francisco expire in February 2022.

Rent expense was $0.2 million for both the years ended December 31, 2020 and 2019.

The future minimum lease payments required under non-cancelable leases as of December 31, 2020, are summarized as follows (in thousands):

Years Ended December 31,

Years Ending December 31,

The Company enters into service agreements with indemnification clauses in the ordinary course of business.

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As of December 31, 2020, there was no litigation against the Company .

The components of loss before income tax provision (benefit) for the years ended December 31, 2019 and 2018 consist of the following (in thousands):

The components of loss before income tax provision (benefit) for the years ended December 31, 2020 and 2019 consisted of the following (in thousands):

The Company has not recorded a current or deferred tax expense or benefit for the years ended December 31, 2020 and 2019.

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Permanent items

Federal research credit

Federal research and orphan drug credits

Foreign rate differential

Change in federal valuation allowance

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Net operating loss carryforward

Equity compensation

Total deferred tax assets

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The federal net operating losses generated prior to 2018 as well as the state net operating loss carry forwards, begin to expire in 2037 unless previously utilized.

The Company has $2.7 million of Australian net operating loss carryforwards that are carried forward indefinitely.

The Company has $1.9 million of Australian net operating loss carryforwards as of December 31, 2020 that are carried forward indefinitely.

At December 31, 2020 , the Company had federal and state tax credit carry forwards of approximately $ 1.4 million and $ 0.6 million , respectively, after reduction for uncertain tax positions.

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The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company had no accrual for interest or penalties on the Company's balance sheets as of December 31, 2019 and has not recognized interest and/or penalties in the consolidated statement of operations for the year ended December 31, 2019.

The Company had no accrual for interest or penalties on the Company's consolidated balance sheet as of December 31, 2020 and has not recognized interest and/or penalties in the consolidated statement of operations for the year ended December 31, 2020.

All tax years for both federal and state purposes remain open and subject to examination by tax jurisdictions.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19.

While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are the extension of the carryback period of certain losses to five years, and the suspension of the 80 percent limitation imposed by the Tax Cuts and Jobs Act of 2017 (TCJA) on utilization of net operating losses generated in 2018, 2019 and 2020 to offset taxable income generated in tax years prior to 2021.

The CARES Act also increased the ability to deduct interest expense from 30 percent, as imposed by the TCJA, to 50 percent of modified taxable income.

The CARES Act also provides a credit against employee wages, the opportunity to defer payment of a portion of federal payroll taxes to December 2021 and December 2022, and enhanced small business loans to assist businesses impacted by the pandemic.

The Company’s tax provision and financial position was not materially impacted by the CARES Act.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, which extended and modified many of the tax related provisions of the CARES Act.

The Company does not anticipate a material impact of the Consolidated Appropriations Act on its tax provision or financial position.

Retirement Plan

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Participating employees may defer up to the Internal Revenue Service annual contribution limit.

The Company has not made any contributions for the years ended December 31, 2019 and 2018.

The Company did not made any contributions for the years ended December 31, 2020 or 2019.

Selected Quarterly Financial Data (unaudited)

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Subsequent Events

In March 2020, as a result of impacts and risks associated with the current global pandemic caused by COVID-19, the Company decided to pause enrollment of the Company’s Phase 1b clinical trial of itolizumab (EQ001) in uncontrolled asthma and the Company’s Phase 1b clinical trial of itolizumab (EQ001) in 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 the Company’s concern for the well-being of patients and their caregivers.

The Company is continuing 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.

The COVID-19 outbreak in the United States and the rest of the world has caused disruptions to the Company’s business which may delay results of the Company’s clinical trials and adversely impact the Company’s business.

Additionally, the Company’s workforce and outside consultants may also be affected, which could result in an adverse impact on the Company’s ability to conduct business.

Any of these factors, alone or in combination with others, could harm the Company’s business, results of operations, financial condition or liquidity.

However, the magnitude, timing, and duration of any such potential financial impacts cannot be reasonably estimated at this time.

On February 3, 2021, the Company entered into a securities purchase agreement (the Securities Purchase Agreement) with two institutional investors (the Purchasers), relating to the issuance and sale (the Offering) of an aggregate of 4,285,710 shares of common stock and warrants to purchase 1,285,713 shares of common stock (the Warrants) for aggregate gross proceeds to the Company from this Offering of approximately $30.0 million, excluding any proceeds the Company may receive upon exercise of the Warrants.

No underwriter or placement agent participated in the Offering.

The Warrants are exercisable immediately upon issuance at an initial exercise price of $14.00 per share and are exercisable on a cashless basis.

The Warrants expire on the earlier of (i) the fifth anniversary of issuance or (ii) the 15 th calendar date following the date on which the Company closes upon an equity financing that results in not less than $25 million of gross proceeds to the Company at a price per share of common stock equal to or greater than $25.00, at which time, all remaining Warrants will automatically exercise on a cashless basis.

The exercise price and the number of shares of common stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, reclassifications and combinations of the Company’s common stock.

Pursuant to the terms of the Securities Purchase Agreement, the Company agreed to appoint Dr.

Yu (Katherine) Xu, Ph.

to the Board as a nominee of the Purchasers.

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-K

Item 9A. Controls and Procedures