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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-20 · 299 added, 246 removed, 64 unchanged (89% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the

Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Exchange Act, about our expectations, beliefs, or intentions regarding our product development efforts, business, financial condition, results of operations,

strategies and prospects.

You can identify forward-looking statements by the fact that these statements do not relate to historical or current matters.

Rather, forward-looking statements relate to anticipated or expected events, activities,

trends or results as of the date they are made.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ

materially from any future results expressed or implied by the forward-looking statements.

Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

These factors include those contained in “Item 1A — Risk Factors” of this Annual Report on Form 10-K.

We do not undertake any obligation to update forward-looking statements except as required by applicable law.

We intend that all forward-looking

statements be subject to the safe harbor provisions of PSLRA.

These forward-looking statements reflect our views only as of the date they are made.

We are a preclinical-stage biopharmaceutical company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines.

in-licensed a portfolio of over 100 patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSlice TM and UltraSlice TM gene-editing proteins, and the ToRNAdo TM mRNA

delivery system, which we collectively refer to as our “mRNA technology platform.” We plan to develop and advance a pipeline of therapeutic products, both internally and through strategic partnerships, with the near-term focus on deploying our mRNA

technology platform through strategic partnerships.

We license our mRNA technology platform from Factor Limited under an exclusive license agreement.

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this report.

The following

discussion contains forward-looking statements.

See “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS” in Part I of this report.

Forward-looking statements are not guarantees of future activities or results.

Many factors could cause our

actual activities or results to differ materially from those anticipated in forward-looking statements, including those discussed in “Item 1A.

Risk Factors” of Part I of this report.

We are a life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines.

We have in-licensed a portfolio of over 100

patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSlice TM and UltraSlice TM gene-editing proteins, and the ToRNAdo TM mRNA delivery system, which we collectively

refer to as our “mRNA technology platform.” We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.” We license our mRNA technology platform from Factor Bioscience Limited (“Factor

Limited”) under an exclusive license agreement.

Our near-term focus is on entering into strategic partnerships to deploy our mRNA technology platform.

We expect that potential strategic partners will use our mRNA technology

platform for preclinical and eventual clinical development of product candidates for a variety of clinical indications.

Following receipt of the results from the INSPIRE phase 2 trial of IRX-2, our only product candidate, in June 2022, we determined to cease the development of IRX-2.

We do not currently plan to

develop any product candidates.

In the future we may develop and advance product candidates, either internally and/or through strategic partnerships.

Recent Financings

In July 2023, we received $8.7 million from a private placement in which we issued $8.7 million in aggregate principal amount of convertible notes (the “July 2023 convertible notes”) and warrants

to purchase an aggregate of approximately 6.1 million shares of our common stock (the “July 2023 warrants”).

On December 8, 2023, we received $1.5 million in exchange for a 6% promissory note with an aggregate principal amount of $1.5 million we issued to Charles Cherington.

The promissory note was to

mature on January 8, 2024, and interest accrued at a rate of 6.0% per annum, payable at maturity.

On December 14, 2023, we repaid the $1.5 million of principal and $1,500 of accrued interest due under the promissory note.

There are no further

obligations under the promissory note.

On December 14, 2023, we entered into a purchase agreement with certain purchasers for the private placement of $9.2 million of convertible notes (the “December 2023 convertible notes” and

together with the July 2023 convertible notes, the “convertible notes”) and warrants to purchase an aggregate of approximately 9.6 million shares of our common stock (the “December 2023 warrants” and together with the July 2023 warrants, the

“note warrants”).

There were two closings under this purchase agreement:

on December 15, 2023, we received $7.8 million and issued $7.8 million in December 2023 convertible notes and December 2023 warrants to purchase approximately 8.1 million

shares of our common stock, and on January 11, 2024, we received the remaining $1.4 million and issued an aggregate of $1.4 million in December 2023 convertible notes and December 2023 warrants to purchase approximately 1.5 million shares of our

common stock.

The July 2023 convertible notes bear interest at 6% per annum, and the December 2023 convertible notes bear interest at 12% per annum, both of which are payable quarterly in arrears.

election, we may pay interest either in cash or in-kind by increasing the outstanding principal amount of the applicable notes.

The July 2023 convertible notes mature on July 14, 2028, and the December 2023 convertible notes mature on December

15, 2028 and January 11, 2029, depending on the issuance date of such notes, unless earlier converted or repurchased.

We may not redeem any of the convertible notes prior to maturity.

At the option of the holder, the July 2023 convertible notes and the December 2023 convertible notes may be converted from time-to-time in whole or in part into shares of our common stock at a

conversion rate of $2.86 per share and $1.9194 per share, respectively, subject to customary adjustments for stock splits, stock dividends, recapitalization and the like.

The convertible notes contain conversion limitations such that no

conversion may be made if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after conversion thereof, subject to certain increases not in excess of either 9.99%

or 19.99% at the option of the holder.

The convertible notes provide for customary events of default (subject in certain cases to customary grace and cure periods), which include, among others:

nonpayment of principal or interest;

breach of covenants or other agreements in the convertible notes;

the occurrence of a material adverse effect event and certain events of bankruptcy.

Generally, if an event of default occurs and is continuing under the convertible notes, the

holder thereof may require us to repurchase some or all of their convertible notes at a repurchase price equal to 100% of the principal amount of the convertible notes being repurchased, plus accrued and unpaid interest thereon.

In connection with the issuance of the December 2023 convertible notes, we agreed to reduce the exercise price of the warrants we issued in a private placement in December 2022 to purchase an

aggregate of approximately 4.4 million shares of our common stock from $3.28 to $1.43 per share and of the July 2023 warrants from $2.61 to $1.43 per share.

Basis of Presentation

We are a pre-clinical stage company and have had no revenues from product sales to date.

We will not have revenues from product sales until such time as we receive regulatory

approval of our product candidates, successfully commercialize our products or enter into a licensing agreement with respect to our intellectual property, which may include up-front licensing fees, of which there can be no assurance.

Our near-term focus is on deploying our mRNA technology platform through strategic partnerships.

We are not currently developing any product candidates.

Our future revenue, if any, is primarily

expected to come from out-licensing our mRNA technology platform and/or aspects thereof.

In February 2023, we entered into an exclusive option and license agreement with a third party, under which we granted such third party an option to obtain an exclusive sublicense to certain of

our technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us of $0.3 million.

In August 2023, that third party requested that we begin developing certain induced pluripotent stem cell

lines in exchange for a cell line customization fee.

The third party paid us $0.4 million towards the customization fee, which we are recognizing ratably over the customization period, which is expected to be approximately 20 to 25 months.

will only earn the remaining amount of the customization fee if we make certain progress towards delivery of the customized cell line.

We estimate the amount of consideration we expect to recognize as revenue that is not probable of having a

significant reversal of such recognized revenue, and we place a constraint on the remaining contractual consideration.

As it becomes evident that the constrained amounts are no longer at risk of a significant reversal of revenue, we will remove

the constraint from the related revenue and recognize a cumulative catch-up adjustment to revenue in the period in which the constraint was removed.

For additional information, see Note 5 to the consolidated financial statements included in Part

II, Item 8 of this report.

License Costs

We recognize certain license costs payable to Factor Limited under the exclusive license agreement we entered into with Factor Limited.

Research and Development Expenses

We expense our research and development costs as incurred.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities,

as well as support for selected investigator-sponsored research.

Upfront payments and milestone payments for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as

support for selected investigator-sponsored research.

Upfront payments and milestone payments we make for the in-licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not

expected to have any alternative future uses other than the specific research and development project for which it was intended.

In-process research and development (“IPR&D”) that we acquire and which has no alternative future uses and,

therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.

The major components of research and development costs have included preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for

clinical trials, expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related

to our product development efforts.

We have contracted with third parties to perform various clinical study and trial activities in the development and testing of potential

The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, supplies and materials, preclinical study costs, expensed licensed

technology, consulting, scientific advisors and other third-party costs, and allocations of various overhead costs related to our product development efforts.

Research and development costs for the year ended December 31, 2022 also included

expenses related to our former IRX-2 clinical trials as well as insurance coverage for the clinical trials.

We have contracted with third parties to perform various studies.

The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.

We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting

If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly.

The expenses for some third-party services may be recognized on a straight-line basis if the

expected costs are expected to be incurred ratably during the period.

Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities

among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions.

Preclinical and clinical study and trial associated activities such as production and testing of clinical material require

significant up-front expenditures.

We accrue for

third party expenses based on estimates of the services received and efforts expended during the reporting period.

If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted

The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period.

Payments under the contracts depend on factors such as the

achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel,

legal and other professional fees, travel, insurance, and other corporate costs.

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and

other professional fees, travel, insurance, and other corporate costs.

Comparison of the Years Ended December 31, 2023 and 2022

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(in thousands)

Cost of revenues

Operating expenses:

Research and development

Impairment of in-process research and development

In-process research and development

General and administrative

Transaction costs

Acquisition of Exacis IPR&D

Impairment of IRX-2 IPR&D

Total operating expenses

Loss from operations

Other income (expense), net:

Loss on sale of NTN assets

Other expense, net:

Change in fair value of warrant liabilities

Change in fair value of contingent consideration

Loss on non-controlling investment

Other (expense) income, net

Total other income (expense), net

Interest income

Interest expense

Other expense, net

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

Benefit (provision) for income taxes

During the year ended December 31, 2023, we recognized revenue related to the cell line customization activities we performed for a third party.

We did not perform any such activities, or

otherwise recognize any revenue, during the year ended December 31, 2022.

Cost of Revenue

During the year ended December 31, 2023, our cost of revenues includes direct labor and materials to perform the customization cell line activities for a third party, as well as royalty expense

owed to Factor Limited in accordance with our exclusive license agreement with Factor Limited.

There were no comparable expenses for the year ended December 31, 2022.

Research and Development Expenses

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Stock-based compensation

Professional fees

Other expenses, net

Total research and development expenses

For the year ended December 31, 2022, our research and development expenses decreased primarily due to a reduction in license expenses under the Original Factor License Agreement,

less stock-based compensation expense due to forfeitures of stock options and restricted stock units, and lower clinical trial expense.

These reductions were offset by expenses incurred related to the MSA, which was not in place in the prior year,

and other miscellaneous expense during 2022 when compared to the year ended December 31, 2021.

Impairment of In-Process Research and Development

As discussed in Part I, Item 1 of this Annual Report on Form 10-K, in June 2022, we received the results from the INSPIRE phase 2 trial of IRX-2.

The IRX-2 multi-cytokine biologic

immunotherapy represents substantially all the fair value assigned to the technologies of IRX that we acquired in 2018.

Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of

Event-Free Survival (EFS) at two years of follow up.

Significant additional clinical development work would be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient

subgroups and in combination with checkpoint inhibitor therapies.

The INSPIRE trial is the only Company-sponsored study of IRX-2.

IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of

investigator sponsored trials, which have either ended or are not currently active.

Based on the totality of available information, we currently do not have plans to further develop the IRX-2 product candidate.

As such, we determined that the

carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million for the year ended December 31, 2022.

There was no similar impairment charge for the year ended December 31, 2021.

In-Process Research and Development

During the year ended December 31, 2021, we expensed the $80.5 million fair value of IPR&D acquired in the Novellus Acquisition because there was no future alternative use for

the IPR&D other than for its intended purpose.

There was no similar transaction for the year ended December 31, 2022.

Total research and development expenses decreased by approximately $4.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to (a) decreased

expenses under our master services agreement (“MSA”) with Factor Bioscience during 2023 and (b) decreased payroll expense and stock-based compensation expense due to employee terminations and a reduction in clinical trial expense as a result of

our clinical trial ending in 2022, partially offset by (i) a full year of fees paid to Factor Bioscience under the MSA during 2023 and (ii) an increase in professional fees in 2023 related to consulting activities.

General and Administrative Expenses

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Loss on disposal or sale of fixed assets

Occupany expense

Other expenses, net

Total general and administrative expenses

The increase in general and administrative expense for the year ended December 31, 2022 primarily related to increased legal fees, settlements related to certain legal matters and

increased headcount, as well as severance expense for certain employees, including our former Chief Executive Officer, who resigned effective May 26, 2022.

Other increases included premiums for public company insurance policies and losses on the

disposal or sale of fixed assets, as compared to the same period in 2021.

These increases were offset by decreased stock-based compensation expense due primarily to forfeitures of stock options and restricted stock units as compared to the year

ended December 31, 2021.

Transaction Costs

For the year ended December 31, 2021, we incurred approximately $5.8 million in transaction costs related to the issuance of common stock to Eterna LLC’s financial advisor upon

consummation of the Merger, and there were no comparable transaction costs for the year ended December 31, 2022.

Loss on Sales of NTN Assets

We incurred a $9.6 million loss on the sale of NTN assets for year ended December 31, 2021 in connection with the Disposition, and there were no comparable transaction costs for the

year ended December 31, 2022.

Our general and administrative expenses decreased by approximately $2.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to (a) decreases

in professional fees resulting from less legal and consulting fees, (b) decreases in payroll expense and stock-based compensation expense resulting from lower headcount, (c) a reduction in insurance premiums and (d) a reduction in the loss on

disposal of fixed assets.

These decreases were offset by increased occupancy expenses as a result of the June 2023 rent commencement date for our Somerville lease and the recognition of the related rent expense.

We expect our occupancy expenses to increase substantially in 2024 compared to 2023 due to our payment obligations under our sublease for office and laboratory space in Somerville,

Massachusetts.

The term of the sublease is approximately 10 years, and our base rent obligations over the term is estimated to be approximately $63.0 million, plus our share of the sublessor’s parking spaces and operating expenses.

Acquisition of Exacis In-Process Research and Development

We acquired from Exacis Biotherapeutics Inc.

(“Exacis”) substantially all of its intellectual property assets, including all of its right, title and interest in and to an exclusive license

agreement by and between Exacis and Factor Limited (the “Purchased License”).

The Purchased License was determined to be an IPR&D asset that has no alternative future use and no separate economic value from its original intended purpose,

which is expensed in the period the cost is incurred.

As a result, we expensed the fair value of the Purchased License of approximately $0.5 million during the year ended December 31, 2023.

For additional information, see Note 4 to the

accompanying consolidated financial statements included in this report.

Impairment of In-Process Research and Development

During the year ended December 31, 2022, we received the results from the INSPIRE phase 2 trial of IRX-2.

Despite outcomes that favored IRX-2 in certain predefined subgroups, the trial did not

meet its primary endpoint of event-free survival at two years of follow up.

Based on the totality of available information, following receipt of the results described above we determined we would not further develop IRX-2 and that the carrying

value of the IPR&D asset was impaired.

Accordingly, we recognized a non-cash impairment charge of approximately $6.0 million during the year ended December 31, 2022, which reduced the value of this asset to zero.

Change in Fair Value of Warrant Liabilities

For the year ended December 31, 2022, we recognized a credit of $11.4 million for the change in the fair value of warrant liabilities, which was offset by $0.6 million in expense

related to the excess fair value of the Q1-22 Common Warrants and Q1-22 Pre-Funded Warrant (as defined below) issued in connection with the Q1-22 PIPE Transaction (as defined below) over the $12.0 million gross proceeds received.

There were no

comparable credits or expenses for the year ended December 31, 2021.

For the year ended December 31, 2023 and 2022, we recognized credits to expense related to the change in the fair value of warrant liabilities due to a decrease in the market price of our common

Change in Fair Value of Contingent Consideration

On the closing date of our acquisition of the intellectual property assets of Exacis, we recognized a contingent consideration liability of $0.2 million for future payments that may be payable to

Exacis, which was included as part of the $0.5 million fair value of the Purchased License and expensed as IPR&D for the year ended December 31, 2023.

We remeasured the fair value of the contingent consideration liability at the end of each

quarterly period enduring the year, and for the year ended December 31, 2023, the change in fair value was approximately $0.1 million, which is recognized in the consolidated statement of operations.

There were no contingent consideration

liabilities during the same period in 2022.

Loss on Non-Controlling Investment

We account for our investment in NoveCite under the equity method.

During the year ended December 31, 2022, we recognized approximately $0.9 million of loss on our 25%

non-controlling investment in NoveCite.

Of the $0.9 million loss for the year ended December 31, 2022, $0.5 million related to NoveCite’s results of operations for the year ended December 31, 2021.

We have not guaranteed obligation of NoveCite

nor are we otherwise committed to provide any financial support for NoveCite.

Therefore, we will record losses only up to our investment carrying amount.

There was no comparable loss for the year ended December 31, 2021.

We account for our 25% non-controlling investment in NoveCite, Inc.

(“NoveCite”) under the equity method.

We have not guaranteed any obligations of NoveCite, nor are we otherwise committed to

providing further financial support for NoveCite.

Therefore, we only record 25% of NoveCite’s losses up to our investment carrying amount of $1.0 million.

For the years ended December 31, 2023 and 2022, we recognized losses of approximately

$0.1 million and $0.9 million, and as of December 31, 2023, the carrying value of our initial investment is zero.

Interest Income

We recognized interest income for the year ended December 31, 2023 due to depositing our cash into interest bearing accounts

compared to the same period in 2022.

Interest Expense

We recognized an increase in interest expense for the year ended December 31, 2023 primarily due to interest related to the

convertible notes of approximately $0.3 million as well as the amortization of the debt discount and debt issuance costs associated with the convertible note financings.

There were no convertible notes for the same period in 2022.

Other (Expense) Income, Net

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Liquidated damages

Interest expense, net

PPP Loan forgiveness and ERC refunds

Other income, net

Total other (expense), income net

For the year ended December 31, 2022, the increase in other expense, net was primarily due to fees related to the Q1-22 PIPE Transaction (as defined below), which were allocated to

the warrants issued in connection with the transaction.

Additionally, we recorded a loss related to the liquidated damages we incurred under our registration rights agreement with the Q1-22 PIPE Investor (as defined below) as a result of not timely

filing with the SEC our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

These increases in expense to the year ended December 31, 2022 were offset by income from the sale of certain fixed assets and a decrease in interest

expense when compared to the year ended December 31, 2021.

During the year ended December 31, 2021, we recognized income from the forgiveness of our Paycheck Protection Program loan and for payroll tax refunds under the Employee Retention Credit

program, both of which were under the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S.

Small Business Administration (the “CARES Act”).

We did not receive any such income for the year ended December 31, 2022.

Other (expense) income, net

Total other expense, net

For the year ended December 31, 2023, we recognized (a) commitment fees and other fees related to the SEPA we entered into with Lincoln Park in April 2023 and (b) other miscellaneous expense.

During the year ended December 31, 2022, we expensed fees associated with a private placement we completed in the first quarter of 2022, as all of the fees incurred were allocated to the warrants issued in connection with such transaction, and we

incurred a loss for liquidated damages under a registration rights agreement we entered into with investors in the private placement resulting from not timely filing our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

Provision for Income Taxes

We recognized a provision for income taxes of approximately $45,000 and $64,000 for the years ended December 31, 2022 and 2021, respectively.

Our income tax provision is primarily

state income tax.

At December 31, 2022 and 2021, we had available net operating loss (“NOL”) carryforwards of approximately $35.6 million and $20.7 million for federal income tax purposes, respectively, of which $35.6 million can be

carried forward indefinitely.

We have available $28.8 million and $20.7 million of state NOLs for the years ended December 31, 2022 and 2021, respectively, which begin to expire in 2041.

We also have foreign NOL carryforwards of $6.3 million and

$4.8 million for the years ended December 31, 2022 and 2021, respectively, which carry forward indefinitely.

Section 382 of the Internal Revenue Code (“IRC”) imposes limits on the ability to use NOL carryforwards that existed prior to a change in

control to offset future taxable income.

Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the NOL carryforwards.

We continue to disclose the NOL carryforwards at their

original amount in the table above as no potential limitation has been quantified.

We have also established a full valuation allowance for all deferred tax assets, including the NOL carryforwards, since we could not conclude that we were more

likely than not able to generate future taxable income to realize these assets.

During 2023, we expect to incur state income tax liabilities related to our operations.

We have established a full valuation allowance for all deferred tax assets, including our net operating

loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets.

The effective tax rate differs from the statutory tax rate due primarily to our full valuation

Liquidity and Capital Resources

At December 31, 2022, we had cash and cash equivalents of approximately $15.5 million, of which approximately $4.1 million was restricted cash, as discussed below.

On March 6, 2022, we entered into a securities purchase agreement (the “Q1-2022 Purchase Agreement”) with an investor (the “Q1-22 PIPE Investor”), providing for the private

placement (the “Q1-22 PIPE Transaction”) to the Q1-22 PIPE Investor of approximately 343,000 units, each unit consisting of (i) one share of our common stock (or, in lieu thereof, one pre-funded warrant (each, a “Q1-22 Pre-Funded Warrant”) to

purchase one share of common stock) and (ii) one warrant (each, a “Q1-22 Common Warrant”) to purchase one share of common stock, for an aggregate gross purchase price of approximately $12.0 million.

The Q1-22 PIPE Transaction closed on March 9,

2022 for net proceeds of approximately $11.0 million.

The Q1-22 PIPE Investor exercised all of the Q1-22 Pre-Funded Warrants on July 12, 2022 at an exercise price of $0.10 per share for total proceeds of approximately $7,000.

Pursuant to Q1-22

Purchase Agreement, we are prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the Q1-22 PIPE Transaction, including issuing equity under the Second Purchase Agreement (as defined below).

On October 18, 2022, we entered into a facility sublease agreement (the “Sublease”) for approximately 45,500 square feet of office and laboratory space in Somerville,

Massachusetts.

The term of the Sublease is approximately 10 years, and we will pay approximately $63.0 million in base rental payments over the 10-year term, plus our share of the Sublessor’s parking spaces and operating expenses.

As part of the

Sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the lease.

The letter of credit was issued by our commercial bank,

which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.

The amount of required restricted cash collateral will decline in parallel with the reduction in

the amount of the letter of credit over the term of the sublease.

The amount of restricted cash reduces by an equal amount our available working capital.

On November 23, 2022, we entered into a securities purchase agreement (the “Q4-22 Purchase Agreement”) with certain investors (the “Q4-22 PIPE Investors”), providing for the private

placement (the “Q4-22 PIPE Transaction”) to the Q4-22 Investors of approximately 2,185,000 units, each unit consisting of (i) one share of common stock and (ii) two warrants, each exercisable to purchase one share of common stock at an exercise

price of $3.28 per share (the “Q4-22 Warrants”), at a purchase price of $3.53 per unit (inclusive of $0.125 per Q4-22 Warrant), for net proceeds of approximately $7.4 million.

In April 2021, we and an investment group (the “Investment Group”) executed a purchase agreement (the “First Purchase Agreement”), pursuant to which we had the

right, but not the obligation, to sell to the Investment Group, and the Investment Group was obligated to purchase, up to $20.0 million of shares of our common stock.

Sales of common stock by us were subject to certain limitations, and could occur

from time to time, at our sole discretion.

In consideration for the Investment Group’s entry into the First Purchase Agreement, we issued the Investment Group approximately 3,000 shares of common stock.

As of December 31, 2022, we had issued and

sold to the Investment Group approximately 56,000 shares of common stock under the First Purchase Agreement for gross proceeds of $20.0 million, and no further shares may be sold to the Investment Group under the First Purchase Agreement.

In May 2021, we and the Investment Group executed a second purchase agreement (the “Second Purchase Agreement”), pursuant to which we have the right, but not

the obligation, to sell to the Investment Group, and the Investment Group would be obligated to purchase, up to $40.0 million of shares of our common stock.

Sales of common stock by us are subject to certain limitations, and may occur from time to

time, at our sole discretion.

In consideration of the Investment Group’s entry into the Second Purchase Agreement, we issued to the Investment Group 50,000 shares of common stock.

Actual sales of shares of common stock to the Investment Group under the Second Purchase Agreement depend on a variety of factors to be determined by us from

time to time, including, among others, market conditions, the trading price of the common stock and determinations by us as to the appropriate sources of funding for us and our operations.

As of December 31, 2022, we had issued and sold approximately 121,000 shares of common stock under the Second Purchase Agreement for total gross proceeds of

$34.1 million.

Pursuant to the securities purchase agreement in respect of the Q1-22 PIPE Transaction, we were prohibited from issuing additional shares under the Second Purchase Agreement for a period of one-year immediately following the closing

of the Q1-22 PIPE Transaction.

We have to date incurred operating losses, and we expect these losses to continue in the future as we further develop our product development programs and operate as a publicly

traded company.

In the near-term, we intend to focus on licensing opportunities for our in-licensed technology, but there can be no assurance that we will enter into agreements with respect to such opportunities on such terms and within a

timeframe necessary to satisfy our need for working capital.

While we are not presently pursuing product development, we may do so in the future, and current and potential licensing partners may seek to do so.

Developing product candidates,

conducting clinical trials and commercializing products are expensive, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates Based on our current financial condition and

forecasts of available cash, we believe we do not have sufficient funds to fund our operations for the next twelve months from the filing of the financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2022.

We can provide no assurance that we will be able to satisfy our near- or long-term cash needs through licensing transactions, or that we will obtain any additional financing that we require in the future or, even if such financing is available,

that it will be obtainable on terms acceptable to us.

In that regard, our future funding requirements will depend on many factors, including:

the terms and timing of any collaborative, licensing and other agreements that we may establish;

the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;

the cost and timing of regulatory approvals;

the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;

the cost and timing of establishing sales, marketing and distribution capabilities;

the effect of competition and market developments;

the scope, rate of progress and cost of clinical trials and other product development activities;

future clinical trial results.

We plan to raise additional funds to support our product development activities and working capital requirements through public or private equity offerings, debt financings,

strategic partnerships, out-license collaborations or other means.

Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders.

There can be no assurance that any such required additional funding

will be available to us at all or available on terms acceptable to us.

Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on

terms that are not favorable to us.

If we are not able to secure additional funding when needed, we may have to delay the commercialize of our products, reduce the scope of or eliminate one or more research and development programs, which could

have an adverse effect on our business.

At December 31, 2023, we had cash and cash equivalents of approximately $11.7 million, of which approximately $4.1 million was restricted cash (see —Material Cash Requirements—Somerville

Sublease, below) and an accumulated deficit of approximately $187.0 million.

We have to date incurred operating losses, and we expect these losses to continue in the future.

For the year ended December 31, 2023, we incurred a net loss of $21.7

million, and we used $20.4 million in operating activities.

Currently, our sole source of liquidity is through sales of our common stock under the standby equity purchase agreement (the “SEPA”) we entered into with Lincoln Park Capital Fund, LLC (“Lincoln

Park”) in April 2023, pursuant to which Lincoln Park committed to purchase up to $10.0 million of our common stock.

Such sales of common stock by us, if any, are subject to certain conditions and limitations set forth in the SEPA, including a

condition that we may not direct Lincoln Park to purchase any shares of common stock under the SEPA if such purchase would result in Lincoln Park beneficially owning more than 4.99% of our issued and outstanding shares of common stock.

under the SEPA may occur from time to time, at our sole discretion, through April 2025.

To date, we have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the 74,000 commitment shares, and have received

approximately $0.3 million in gross proceeds from such sales.

Based on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the 12 months following the issuance date of the

accompanying consolidated financial statements.

We can provide no assurance that we will be able to obtain additional capital when needed, on favorable terms, or at all.

If we cannot raise capital when needed, on favorable terms or at all, we

will need to reevaluate our planned operations and may need to reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations.

If we become unable to continue as a going concern, we may have to liquidate our

assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock.

See the risk factor in Item 1A of Part II of this

report titled, “We will require substantial additional capital to fund our operations, and if we fail to obtain the necessary financing, we may not be able to pursue our business strategy.”

Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock and of convertible notes.

We will continue to

evaluate and plan to raise additional funds to support our working capital needs through public or private equity offerings, debt financings, strategic partnerships, out-licensing our intellectual property or other means.

There can be no

assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders.

Our ability to raise capital through sales of our common stock will depend on a variety of factors

including, among others, market conditions, the trading price and volume of our common stock, and investor sentiment.

In addition, macroeconomic factors and volatility in the financial market, which may be exacerbated in the short term by

concerns over inflation, interest rates, impacts of the wars in Ukraine and the Middle East, strained relations between the U.S.

and several other countries, and social and political discord and unrest in the U.S., among other things, may make

equity or debt financings more difficult, more costly or more dilutive to our stockholders.

In addition, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational

restrictions and security interests in our assets.

If we raise capital through collaborative arrangements, we may be required to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us.

We prepared the accompanying consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of

As discussed above, there is substantial doubt about our ability to continue as a going concern because we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12

months from the date of issuance of the accompanying consolidated financial statements.

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and

reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.

In addition, while we are not presently pursuing product development, we may do so in the future.

Developing product candidates, conducting clinical trials and commercializing products requires

substantial capital, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates.

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

5 unchanged sentences

Financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Net Cash Used in Operating Activities

The decrease in cash used in operating activities was due to a decrease in net loss of $3.5 million, after giving effect to adjustments made for non-cash transactions, offset by an

increase in cash provided by operating assets and liabilities of $6.0 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The decrease in cash used in operations was primarily driven by increased accrued

compensation due to severance accruals, accrued costs for litigation matters, amounts due to related party for the License Fee Obligation and increased insurance liabilities.

There was an increase of approximately $0.6 million in cash used in operating activities for the year ended December, 2023, as compared to year ended December 31, 2022.

This change was due to an

increase in cash used in operating assets and liabilities of $5.5 million, primarily related to MSA fees, insurance premiums and accrued severance payments, offset by a $6.1 million decrease in net loss, after giving effect to adjustments made for

non-cash transactions, for the year ended December 31, 2023 when compared to the year ended December 31, 2022.

Net Cash Used in Investing Activities

The decrease in net cash used in investing activities was primarily due to $22.9 million of cash used to purchase Novellus during the year ended December 31, 2021, which was offset

by proceeds of approximately $0.3 million from the Merger and the Disposition.

There were no similar transactions during the year ended December 31, 2022.

Total cash used in investing activities remained relatively flat for the year ended December 31, 2023 compared to 2022.

Purchases of property and equipment decreased by $0.3 million for the year

ended December 31, 2023 compared to 2022, which was offset by a decrease in proceeds received from the sale of fixed assets of $0.3 million for the year ended December 31, 2022 compared to 2022.

Net Cash Provided by Financing Activities

The decrease in net cash provided by financing activities was primarily the result of a decrease in net proceeds from capital raising transactions of approximately $42.9 million,

net, offset by a decrease in principal payments made for long-term debt arrangements of $0.9 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

Net cash provided by financing activities for the year ended December 31, 2023 includes approximately $16.3 million in net proceeds received from convertible note financings and approximately

$0.3 million in net proceeds received under the SEPA.

Net cash provided by financing activities for the year ended December 31, 2022 includes approximately $19.6 million in net proceeds received from capital raising transactions.

Material Cash Requirements

Somerville Sublease

In October 2022, we entered into a sublease for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts.

The term of the sublease is approximately 10 years,

and our base rent obligations over the term is estimated to be approximately $63.0 million, plus our share of the sublessor’s parking spaces and operating expenses.

Our base rent obligations under the sublease during 2024 are expected to be $0.5

million per month.

As part of the sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the sublease.

The letter of credit

was issued by our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.

The amount of required restricted cash collateral will decline

in parallel with the reduction in the amount of the letter of credit over the term of the sublease.

Convertible Notes

As of the date of this report, the aggregate amount outstanding under our convertible notes, including accrued interest, is $18.2 million, of which $9.0 million and $9.2 million relates to the

July 2023 convertible notes and the December 2023 convertible notes, respectively.

The July 2023 convertible notes mature on July 14, 2028, and the December 2023 convertible notes mature on December 15, 2028 and January 11, 2029, depending on the

issuance date of such notes, unless earlier converted or repurchased.

We may not redeem any of the convertible notes prior to maturity.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the

date of the consolidated financial statements, as well as the reported expenses during the reporting periods.

preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the

consolidated financial statements, as well as the reported expenses during the reporting periods.

We continually evaluate our judgments, estimates and assumptions.

We base our estimates on the terms of underlying agreements, our

expected course of development, historical experience and other factors we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities

that are not readily apparent from other sources.

We base our estimates on the terms of underlying agreements, our expected course

of development, historical experience and other factors we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not

readily apparent from other sources.

Actual results may differ from these estimates.

We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated

financial statements.

We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial

Goodwill Impairment

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in the acquisition of IRX Therapeutics, Inc.

in November 2018 (the “IRX

Acquisition”), which was accounted for as a business combination.

Goodwill is not amortized but is tested for impairment annually, or if events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying

Since management evaluates Eterna as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the

entity is less than its carrying value.

Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events.

If the entity does not pass the

qualitative assessment, then the entity’s carrying value is compared to its fair value.

Goodwill is considered impaired if the carrying value of the entity exceeds its fair value.

in November 2018, which was accounted for

as a business combination.

Goodwill is not amortized but is tested for impairment annually or more frequently if events occur or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying

Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other

relevant events.

Management evaluates our company as a single reporting unit, therefore, our goodwill is tested for impairment at the entity level.

Goodwill is tested for impairment as of December 31 st of each year, or more frequently as warranted by events or changes in circumstances mentioned above.

Accounting guidance also permits an optional qualitative assessment for goodwill to determine

whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value.

If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than

its carrying amount, then no further quantitative testing would be necessary.

A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed.

The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value.

Contingent Consideration

Contingent consideration from an asset acquisition that is indexed to or settled in shares of our common stock and that is classified as a liability is initially measured at fair value, with

subsequent changes in fair value recognized in earnings.

Measuring the fair value requires various inputs, and a significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the

fair value of the contingent consideration liability, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

Recent Accounting Pronouncements

Newly Adopted Accounting Standards

In July 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-05, Leases (Topic 842) – Lessors - Certain Leases with Variable Lease

Payments, which amends the lessor classification guidance to introduce additional criteria when classifying leases with variable lease payments that do not depend on a reference index or a rate.

We adopted this ASU effective January 1,

2022, which did not have a material impact on our financial statements.

In May 2021, the FASB issued ASU 2021-04 , Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),

Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options .

ASU 2021-04 addresses the accounting for certain modifications or exchanges of freestanding equity-classified written call options.

We adopted this ASU effective January 1, 2022, which did not have a material impact on our financial statements.

In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance, which requires a business

entity to disclose information about certain government assistance that it has received, including (i) the type of assistance, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entities accounting

We adopted this standard effective January 1, 2022, which did not have a material impact on the Company’s financial statements.

We have approximately $0.6 million in payroll tax refunds recorded in other receivable on the accompanying

consolidated balance sheets as of December 31, 2022 and 2021 pursuant to the Employee Retention Credit program under the CARES Act.

Accounting Standard to be Adopted

In June 2022, the FASB issued ASU No.

In June 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to

Contractual Sale Restrictions (“ASU 2022-03”).

The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that

prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in

accordance with Topic 820.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted.

We are evaluating when to adopt the amendments in ASU 2022-02.

We do not expect a material impact

as a result of adopting this amendment.

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”).

The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an

equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual

sale restrictions that are measured at fair value in accordance with Topic 820.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and,

therefore, is not considered in measuring fair value.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted.

We do not expect a material impact on

our consolidated financial statements as a result of adopting this ASU.

In October 2023, the FASB issued ASU No.

2023-06, Disclosure Improvements – Codification Amendment in Response to the SEC’s Disclosure Update and Simplification

This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations.

The amendments to the various topics should be applied prospectively, and the

effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure.

If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30,

2027, then this ASU will not become effective.

Early adoption is prohibited.

We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures , which provides updates to

qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others.

2023-07 is effective for fiscal years

beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024.

Early adoption is permitted, and the amendments should be applied retrospectively.

We do not expect the amendments in this ASU to have a

material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures , which requires disclosure of disaggregated income taxes paid,

prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.

2023-09 is effective for fiscal years beginning after December 15, 2024 and allows for adoption

on a prospective basis, with a retrospective option.

Early adoption is permitted.

We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.

Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” on page F-1 for the consolidated financial statements filed with this report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 7. Management’s Discussion and Analysis