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Item 7. Management’s Discussion and Analysis

2023-03-23 compared with 2022-03-25 · 130 added, 108 removed, 125 unchanged (66% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a biotechnology company developing novel small molecule therapeutics to treat diseases across, several therapeutic areas, including, lysosomal storage disorders (“LSDs”), central nervous system disorders (“CNS”), metabolic disorders, and oncology.

We are a biotechnology company developing novel small molecule therapeutics to treat diseases across several therapeutic areas, including central nervous system (“CNS”) disorders, lysosomal storage disorders (“LSDs”), metabolic disorders, and other diseases that can be targeted through protein degradation, such as oncology.

We use our exclusively in-licensed computational target and drug discovery platform, Site-Directed Enzyme Enhancement Therapy (“SEE-Tx®”), to discover novel allosteric binding sites on proteins implicated in a disease and to identify proprietary small molecules that bind these sites to modulate protein function and treat the underlying cause of the disease.

These binding sites, away distinct from the protein’s active site, are called allosteric sites.

We believe that targeting an allosteric binding site instead of the active binding site of a protein provides numerous advantages:

We believe that SEE-Tx® is uniquely suited to identify allosteric binding sites on the protein surface, which are different from the protein’s active (or orthosteric) binding site where the natural ligand of the protein binds.

Targeting an allosteric binding site instead of the active binding site of a protein provides numerous advantages, including:

the ability to regulate proteins implicated in disease through several different mechanisms of action covering both functional and conformational effects, including stabilization, destabilization, targeted degradation, allosteric inhibition, and allosteric activation of the targeted protein;

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The SEE-Tx® platform has been used to identify novel allosteric sites and small molecules for all of our internal programs and partnered programs.

Discovering and targeting novel allosteric sites with our platform not only collapses traditional drug discovery timelines but enables rational drug design and offers the potential for superior small molecule drugs that are highly specific and, potent, and that can penetrate hard to reach tissues and cross the blood-brain barrier.

We have filed four patent applications for our novel small molecule drug candidates that are Structurally Targeted Allosteric Regulators (“STARs”).

In June 2021, the Company announced the publication of two PCT patents.

The first was directed at compounds targeting misfolded beta-glucocerebrosidase (GBA) addressing CNS diseases such as Parkinson’s disease, Gaucher disease, Alzheimer’s disease, and Lewy body dementia.

The second was directed at compounds targeting galactosylceramidase (GALC), addressing demyelinating disorders such as Krabbe disease and multiple sclerosis.

We have identified two different STARs as the lead compounds for our Parkinson’s disease program and our Gaucher disease program and are currently developing these product candidates through preclinical studies.

In September 2021, the Company announced positive topline data of an in vitro study evaluating the two STARs for the treatment of Gaucher and Parkinson’s disease in neuronal cells derived induced pluripotent stem cells (“iPSCs”) of a patient with Gaucher disease that contained the disease-causing mutation of the GBA1 gene and from iPSCs of a healthy donor with a normal GBA1 gene, so called wild-type cells.

The results of the study, conducted at the University of Maryland School of Medicine, demonstrate a significant increase in beta-glucocerebrosidase (“GCase”) protein

levels, improved trafficking of GCase to the lysosome, and a significant decrease of toxic substrates glucosylceramide and alpha-synuclein p129 levels in both the neuronal cells that contained the mutated GBA1 gene as well as the wild-type cells.

Alpha synuclein is considered to be the hallmark of Parkinson’s disease.

In addition, these data provide further evidence that these product candidates have the potential to treat Gaucher disease and slow or stop the progression of GBA Parkinson’s disease.

We expect to complete the preclinical development and submit the regulatory dossier to the Human Research Ethics Committee in Australia to initiate a first-in-human Phase 1 clinical trial in our Parkinson’s disease program, and to initiate the preclinical toxicology studies for our Gaucher program in the second half of 2022.

In addition, we plan to continue to advance research programs and initiate additional programs targeting allosteric binding sites identified with the SEE-Tx® platform.

Discovering and targeting novel allosteric sites with our platform not only reduces traditional drug discovery timelines but enables rational drug design and offers the potential for superior small molecule drugs that are highly specific and that can penetrate hard to reach tissues and cross the blood-brain barrier.

We have generated an extensive preclinical data package providing evidence of the mechanism of action and effect of our lead product candidate GT-02287 for the treatment of GBA1 Parkinson’s disease, including restoration of GCase function, reduction of toxic lipid substrates and toxic forms of alpha-synuclein, improved survival of dopaminergic neurons, and increase of dopamine levels and improved locomotor function in animal models.

We anticipate completing IND-enabling toxicology studies in the first half of 2023 with the goal of filing the dossier required to commence a first-time-in-human, Phase 1 clinical trial of GT-02287 in the second half of 2023.

We plan to conduct the Phase 1 clinical trial in Australia and evaluate administration of both single and multiple ascending dose levels of GT-02287 in healthy volunteers to assess safety and pharmacokinetics.

In addition, we plan to continue to advance research programs and initiate additional programs targeting allosteric binding sites identified with the SEE-Tx® platform in various therapeutic areas, mainly oncology.

Through academic partnerships, co-development and licensing arrangements, we intend to develop a broad pipeline of therapeutics, using our novel approach of identifying and targeting previously unknown allosteric sites.

In response to the current financing environment, we continue to streamline our operational plans to become more capital efficient.

We are focusing on progressing our Parkinson’s and Gaucher disease programs and remain opportunistic to partnering opportunities for these lead programs and for drug discovery collaborations with our exclusively in-licensed computational SEE-Tx® platform.

In addition, we expect to continue to develop our program for Krabbe disease and liver and lung disease program, and use our exclusively in-licensed computational SEE-Tx® platform to establish new programs in oncology while seeking non-dilutive funding in order to continue or progress our other research programs.

We continue to monitor the impacts on our operations and access to financing of global and worsening macroeconomic conditions, such as the war in Ukraine, global geopolitical tension, the COVID-19 pandemic, heightened inflation and rising interest rates, exchange rate fluctuations, supply chain disruptions, recent and potential future bank failures and increases in commodity, energy and fuel prices.

Financial Condition

Since our inception in 2017, we have devoted substantially all of our resources to identify and develop next-generation brain-penetrant allosteric small molecules for the treatment of devastating diseases with high-unmet medical needs using our in-licensed SEE-Tx® platform.

To date, we do not have any product candidates approved for sale and have not generated any revenue from product sales.

We have primarily financed our operations through a combination of sales of our securities and research grants.

Our operations have consisted primarily of organizing and staffing the Company, expanding its operations, securing financing, performing research, conducting preclinical studies and acquiring, developing and securing our in-licensed technology.

To date, we do not have any product candidates approved for sale and have not generated any revenue from product sales, and as a result, we face risks associated with early-stage biotechnology companies whose product candidates are in development.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates.

We expect our research and development expenses to remain significant and to increase to support progress in our research and development activities.

In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

These efforts require significant amounts of additional capital for us to complete our research and development, achieve our research and development objectives, defend our intellectual property rights, and recruit and retain skilled personnel, and key members of management.

Even if our product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

We have financed our operations through a combination of sales of convertible preferred stock, including Series A Preferred Stock and Series B Preferred Stock, and our initial public offering (“IPO”) of our common stock, as well as research grants.

In 2019 and 2020, through our Series A and Series B financings, we raised $14 million in aggregate gross proceeds.

On March 17, 2021, we completed our IPO and issued and sold approximately 4.1 million shares of our common stock at a public offering price of $11.00 per share, including approximately 0.5 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $40.5 million, after deducting the underwriting discounts and commissions and offering expenses.

As of December 31, 2021, we had cash and cash equivalents of $36,881 thousand.

For the year ended December 31, 2021, we had cash outflows from operations of $12,366 thousand.

We have incurred recurring losses and negative cash flows from operations since inception and as of December 31, 2021 and December 31, 2020, had an accumulated deficit of $20,925 thousand and $7,035 thousand, respectively.

From inception through December 31, 2022, we have raised an aggregate of $60 million of gross proceeds through the issuance of convertible preferred stock and our IPO.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $22.1 million.

For the year ended December 31, 2022, we had cash outflows from operations of $14.7 million.

We have incurred recurring losses and negative cash flows from operations since inception and as of December 31, 2022 and December 31, 2021, had an accumulated deficit of $38.5 million and $20.9 million, respectively.

We anticipate incurring additional losses until such time, if ever, that we can generate sales of our product candidates currently in development.

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In addition, we will need significant additional financing to fund our operations and to develop our product candidates.

Our operations have consisted primarily of organizing and expanding the Company’s operation, securing financing, performing research, conducting preclinical studies and developing licensed technology.

We face risks associated with early-stage biotechnology companies whose product candidates are in development.

Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization.

Even if our product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

We may seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

Financing Requirements;

Current Financing Environment

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to seek additional funding through a combination of public or private equity offerings, debt financings, government or private party grants, collaborations, strategic alliances and licensing arrangements.

We may not be able to obtain financing on acceptable terms, or at all, and we may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all.

The terms of any financing may adversely affect our holdings or the rights of our stockholders.

If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.

If we are unable to obtain funding, we could be required to delay, limit, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such candidates ourselves, which could adversely affect our business prospects.

The war in Ukraine, global geopolitical tension, and COVID-19 pandemic continue to have unpredictable impacts on global societies, economies, financial markets, and business practices.

Recently worsening global macroeconomic conditions, including actions taken by central banks to counter inflation, recent and potential future bank failures, volatility in the capital markets and related market uncertainty, may impact our ability to obtain additional financing when needed on favorable terms or at all.

In May 2022, we filed a shelf registration statement on Form S-3, which covers the offering, issuance and sale of up to a maximum aggregate offering price of $100.0 million of any combination of our common stock, preferred stock, debt securities and/or warrants from time to time in one or more offerings (the “Shelf Registration Statement”).

We are currently subject to General Instruction I.B.6 to Form S-3 (the “Baby Shelf Rule”), and the amount of funds we can raise through primary public offerings of securities in any twelve-month period using our Shelf Registration Statement is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates.

We will be limited by the Baby Shelf Rule until such time as our public float exceeds $75.0 million.

As of December 31, 2022, the Company has not sold any securities pursuant to the Shelf Registration Statement.

In May 2022, we entered into a Controlled Equity Offering SM Sales Agreement, or Sales Agreement with Cantor Fitzgerald & Co.

(“Cantor”), pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $16.0 million from time to time through or to Cantor, acting as our agent or principal, in a series of one or more at-the-market equity offerings.

Cantor is not required to sell any specific amount but acts as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices.

Shares sold pursuant to the Sales Agreement will be sold pursuant to the Shelf Registration Statement and will count towards the limit of the Baby Shelf Rule.

Our common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary.

As of December 31, 2022, the Company has not sold any shares of common stock pursuant to the Sales Agreement.

Strategic Transactions;

Collaboration and Licensing Arrangements

Collaboration and Licensing Arrangement

In connection with our business development activities, we enter into collaborative and licensing arrangement with third parties, to use our licensed SEE-Tx® computational platform technology to discover novel allosteric sites on misfolded proteins and identify proprietary small molecules that bind these sites, potentially restoring protein folding and treating disease.

We expect to continue to identify and evaluate collaboration, co-development and licensing opportunities that may be similar to or different from the collaborations and licenses that we have entered into.

On April 20, 2021, the Company entered into a multi-target collaboration agreement with Zentalis Pharmaceuticals, Inc.

We expect to continue to identify and evaluate collaboration, co-development and licensing opportunities that may be similar to or different from the collaboration and licenses arrangements that we have entered into.

Collaboration with Zentalis

On April 20, 2021, we entered into a multi-target collaboration agreement, or the Zentalis Agreement, with Zentalis Pharmaceuticals, Inc.

(“Zentalis”) to discover new product candidates for the treatment of cancer.

Under the terms of the agreement, the Company will use its licensed SEE-Tx® computational platform technology to identify binding site on target proteins and determine the potential suitability of these sites as drug targets, as well as their prospective therapeutic use in oncology.

Pursuant the terms of the agreement, Zentalis agreed to pay the Company, on a program-by-program basis, a non-creditable, non-refundable, program initiation fee and reimburse of expenses incurred by the Company in accordance with the agreed-upon research budget.

With respect to any development program, and subject the delivery of the data package, the Company granted to Zentalis an option to obtain an exclusive, transferable worldwide license, with the right to sublicense, under relevant intellectual property rights and know-how of the Company arising from the collaboration to develop, manufacture and commercialize any products resulting from the development program.

Zentalis may exercise the option, at its reasonable discretion, and shall use commercially reasonable efforts to develop and obtain market approval for products developed from the applicable programs.

Unless terminated earlier, the agreement expires at the expiration of the last valid claim of the licensed patents, subject to certain surviving rights and obligations.

Zentalis and the Company can each terminate the agreement in the event of the bankruptcy or insolvency of the other party, or a material breach by the other party and failure to cure such breach within a certain period of time.

Zentalis shall have the right, at its sole discretion, exercisable at any time to terminate the agreement on a program-by-program basis, upon ninety (90) days’ prior written notice to the Company or, at any time, if a safety concern arises with respect to any development program or product.

In May 2021, the first target development program was identified, and the estimated development cost were approved and collected in July 2021.

The transaction price of this first target development program includes (i) $50 thousand of fixed consideration as program initiation fee, (ii) up to $272 thousand as reimbursement for employee and external research and development cost, (iii) $250 thousand subject to the exercise of a research program option, (iv) up to $41.5 million of variable consideration in the form of event-based milestone payments, if goals will be met in the future, and (v) other royalty-based payments based on future net sales.

As of December 31, 2021, the Company recognized $134 thousand of revenues and reported current portion of deferred revenues for $188 thousand.

Under the terms of the Zentalis Agreement, we have agreed to use our licensed SEE-Tx® computational platform technology to identify binding site on target proteins and determine the potential suitability of these sites as drug targets, as well as their prospective therapeutic use in oncology.

Zentalis has informed us of its desire to wind down the collaboration.

Based on the results generated during the collaboration, we plan to independently continue the research activities with respect to the applicable target as one of our own internal programs.

Components of Our Consolidated Results of Operations

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future.

If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, we will not generate revenue in the future.

Our current revenues are residual and primarily consist of income from subleases of our office space and collaboration arrangements.

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future, if at all.

If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval and successfully commercialize them, we will not generate revenues in the future.

Our current revenue consists primarily of revenue from our Zentalis collaboration arrangement.

Operating Expenses

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Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, which include:

● expenses incurred under collaborations with third parties, including contract research organizations, or CROs, and Universities, that conduct research and preclinical studies, such as in-vitro and in-vivo absorption, distribution, metabolism and excretion (“ADME”), cell model studies, in-vivo pharmacology and pharmacokinetic studies, toxicology studies and chemical synthesis, on our behalf;

various support and facilities-related expenses, which include rent, utilities and maintenance of our Barcelona labs and Lugano office, depreciation, travel and congress expenses;

● expenses incurred under collaborations with third parties, including contract research organizations (“CROs”) and Universities, that conduct research and preclinical studies, such as in-vitro and in-vivo absorption, distribution, metabolism and excretion (“ADME”), cell model studies, in-vivo pharmacology and pharmacokinetic studies, toxicology studies and chemical synthesis, stability studies, manufacturing and control materials, process characterization, scale-up and transfer, on our behalf;

● employee salaries, benefits and other related costs, including share-based compensation expenses, for employees engaged in research and development functions and overhead allocations consisting of various support and facilities-related expenses, which include rent, utilities and maintenance of our Barcelona labs and Lugano office space, depreciation, travel and conference expenses;

● fees paid to consultants who assist with research and development activities and related travel expenses;

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Our primary research and development focus since inception has been the application of our in-licensed SEE-Tx® platform to various indications and targets.

We are using our platform to design and develop a broad pipeline of STARs.

We are using our platform to generate a broad pipeline of product candidates.

Research and development activities are central to our business model.

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General and administrative expenses consist primarily of salaries, bonus and other related costs, including share-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions.

General and administrative expenses also include legal fees relating to patent and corporate matters;

professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses, and other operating costs.

General and administrative expenses also include legal fees relating to patent and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses, and other operating costs.

We anticipate that our general and administrative expenses will increase in the future, in the form of additional compensation, including salaries, benefits, incentive arrangements and share-based compensation awards, as we increase our headcount to support the expected growth, attract and retain additional personnel and the potential commercialization of our product candidates.

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Other Financial Income (Expense)

Other financial income (expense) consists of interest income, interest expense and foreign exchange gain or loss.

Other financial income (expense) consists of interest income, interest expense and foreign exchange gain or loss, net.

Consolidated Results of Operations

Comparison of the Year Ended December 31, 2021 and 2020

The following table summarizes our historical results of operations for the periods indicated, together with the changes in those items in dollars.

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the periods indicated, together with the changes in those items in dollars.

Collaborative Agreements

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Basic and diluted loss per share

Weighted-average ordinary shares used in per share calculations – basic and diluted

Comparison of the year ended December 31, 2021 and 2020

For the year ended December 31, 2021 and 2020 total revenues were $164,994 and $28,881 respectively and consist mainly of income from a collaboration agreement and the sublease of the Lugano office space.

Collaboration revenues were $133,928 and nil as of December 31, 2021 and 2020, respectively and refer to a program initiation fee and development services on the first target development program identified under the collaboration agreement with Zentalis.

Weighted-average common stock used in per share calculations – basic and diluted

Comparison of the Years ended December 31, 2022 and 2021

For the years ended December 31, 2022 and 2021, total revenues were $140,108 and $164,994, respectively and consisted mainly of revenues from a collaboration agreement and other income related to subleasing our Lugano office space.

Collaboration revenues were $132,640 and $133,928 as of December 31, 2022 and 2021, respectively, and refer to development services related to the first target development program identified under the Zentalis Agreement.

Research and Development Expenses

Research and development expenses increased by $1,213,061 to $8,377,290 for the year ended December 31, 2022, from $7,164,229 for the year ended December 31, 2021.

The increase in research and development expenses was primarily attributable to increases in outside services as we continue to expand our research and development activities, including external collaborations for chemical synthesis, toxicology studies, in vitro ADME and model studies, and in vivo , pharmacology and pharmacokinetic studies and increases in personnel-related costs resulting from

an increase in employee headcount and stock-based compensation.

As of December, 2021, and 2020, research and development expense are net of research grant of $184,748 and $315,823, respectively.

The increase in research and development expenses for the year ended December 31, 2022 was primarily attributable to increases in external collaborations and external expenses, such as pre-IND clinical studies, quality and clinical manufacturing due to advancement of our GBA1 PD research programs into a development stage.

The variance is also due to higher personnel-related costs resulting from an increase in employee headcount and stock-based compensation expenses.

As of December 31, 2022, and 2021, research and development expenses are net of research grant of $82,133 and $184,748, respectively.

General and Administrative Expenses

General and administrative expenses increased by $2,712,925 to $9,539,863 for the year ended December 31, 2022 from $6,826,938 for the year ended December 31, 2021.

The increase in general and administrative expenses was primarily attributable to increase in expenses for listing fees, legal fees relating to patent and corporate matters, professional fees for accounting, professional services and investor relations as we continue to expand our business and build management infrastructure and increases in personnel-related costs resulting from an increase in employee headcount, stock-based compensation and warrants issuance costs.

The increase in general and administrative expenses for the year ended December 31, 2022 was primarily attributable to increases in expenses for legal fees relating to patent and corporate matters, professional fees for audit services, insurance and information technology as we continue to expand our business and build management infrastructure.

The variance is also due to higher personnel-related costs resulting from an increase in employee headcount and stock-based compensation expenses.

Interest income, net

Interest income net increased by $362,862 to $375,357 for the year ended December 31, 2022 from $12,495 for the year ended December 31, 2021.

The increase is due to interest income earned on the excess of cash invested in United States Treasury Securities.

Income tax increased by $88,968 to $92,976 for the year ended December 31, 2022 from $4,008 for the year ended December 31, 2021.

The increase is due to higher taxable profit realized by our Spanish subsidiary as a consequence of the allocation of non deductible tax expenses.

Liquidity and Capital Resources

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We do not currently have any approved products and have never generated any revenue from product sales.

To date, we have financed our operations primarily through the sale of equity securities.

As of December 31, 2021, and 2020, we had $36,881 thousand and $7,493 thousand in cash and cash equivalents, respectively, and an accumulated deficit of $20,925 thousand and $7,035, respectively.

We had an indebtedness of $694 thousand and $738 thousand as of December 31, 2021 and 2020, respectively.

On March 17, 2021, we completed our IPO and issued approximately 4.1 million shares of our common stock including approximately 0.5 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $11.00 per share, resulting in net proceeds of approximately $40.5 million, after deducting the underwriting discounts and commissions and offering expenses.

In August 2020, our wholly-owned subsidiary, GT Gain Therapeutics SA obtained a CHF 638 ($700) thousand nine-year loan.

The loan has zero interest.

The loan is due in quarterly installment of CHF 20 ($22) thousand commencing on December 31, 2021 and ending on September 30, 2029.

The loan is part of the infrastructure put in place by the Federal Council and Swiss Parliament to assist companies in Switzerland in view of the economic consequences of the coronavirus.

To date, we have financed our operations primarily through the sale of equity securities and research grants.

As of December 31, 2022, and 2021, we had $22.1 million and $36.9 million in cash and cash equivalents and marketable securities, respectively, and an accumulated deficit of $38.5 million and $20.9 million, respectively.

We had indebtedness of $0.60 million and $0.69 million as of December 31, 2022 and 2021, respectively.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

stock, debt securities and/or warrants from time to time in one or more offerings (the “Shelf Registration Statement”).

We will be limited by the Baby Shelf Rule until such time as our public float exceeds $75.0 million.

As of December 31, 2022, the Company has not sold any securities pursuant to the Shelf Registration Statement.

In May 2022, we entered into a Controlled Equity Offering SM Sales Agreement, or Sales Agreement with Cantor Fitzgerald & Co.

Cantor is not required to sell any specific amount but acts as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices.

Shares sold pursuant to the Sales Agreement will be sold pursuant to the Shelf Registration Statement and will count towards the limit of the Baby Shelf Rule.

Our common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary.

As of December 31, 2022, the Company has not sold any shares of common stock pursuant to the Sales Agreement.

Until such time, if ever, as we can generate substantial product revenues to support our business and corporate strategy, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, government or private party grants, collaborations, strategic alliances and licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders.

Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock.

We may not be able to obtain additional funds through equity or debt financings when needed on favorable terms or at all, including as a result of rising interest rates, recent and potential future bank failures, volatility in the capital markets and related market uncertainty.

If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

The following table provides information regarding our cash flows for the periods presented:

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Cash used in investing activities

Cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash (used) / provided by financing activities

Net (decrease) / increase in cash, cash equivalents and restricted cash

Cash Used in Operating Activities

During the year ended December 31, 2022, we used $14,692 thousand of cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative support activities.

Cash used in operating activities reflected our net loss of $17,591 thousand, which was partially offset by adjustments to reconcile net loss to cash used in operating activities of $1,384 thousand related mainly to stock-based compensation, depreciation and amortization, as well as a $1,515 thousand increase in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2021, we used $12,366 thousand of cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and

administrative support activities.

Cash used in operating activities reflected our net loss of $13,891 thousand, which was partially offset by adjustments to reconcile net loss to cash used in operating activities of $1,855 thousand related to stock based compensation, depreciation, internal use-software and issuance of warrants, as well as a $330 thousand decrease in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2020, we used $3,240 thousand of cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative

support activities.

Cash used in operating activities reflected our net loss of $3,578 thousand, partially offset by adjustments to reconcile net loss to cash used in operating activities of $91 thousand related to stock based compensation and depreciation, as well as a $246 thousand increase in cash flows resulting from changes in our operating assets and liabilities.

Cash Used in Investing Activities

During the year ended December 31, 2021 and 2020, cash used in investing activities was $94 thousand and $21 thousand, respectively, primarily due to purchases of furniture, computers and lab instruments.

Cash Provided by Financing Activities

During the year ended December 31, 2021, cash provided by financing activities was $41,767 thousand of which $42,630 thousand related to proceeds from the issuance of our common stock through the IPO net of underwriter discounts, $12 thousand proceeds from the exercise of stock options, offset by payment for offering cost of $853 thousand and payment of current portion of long term debts for $22 thousand.

During the year ended December 31, 2020, cash provided by financing activities was $10,487 thousand due to (i) net proceeds from the issuance of Series A and Series B Preferred Stock for $10,219 thousand, (ii) proceeds from long term loans for $738 thousand and, (iii) disbursements for offering costs for $471 thousand.

During the year ended December 31, 2022, cash used in investing activities was $14,775 thousand, primarily due to the purchase of marketable securities for $17,735 thousand and the purchase of computers and equipment for $119 thousand, offset by $3,079 thousand attributable to maturity of marketable securities.

During the year ended December 31, 2021, cash used in investing activities was $94 thousand primarily due to purchases of furniture, computers and lab instruments.

Cash Used/Provided by Financing Activities

During the year ended December 31, 2022, cash used by financing activities was $79 thousand related to the payment of the current portion of a long-term loan.

During the year ended December 31, 2021, cash provided by financing activities was $41,767 thousand, reflecting $42,630 thousand related to proceeds from the issuance of our common stock through the IPO, net of underwriter discounts and commissions, $12 thousand in proceeds from the exercise of stock options, offset by payment for offering costs of $853 thousand and payment of current portion of long-term debts for $22 thousand.

Funding Requirements

Our primary use of cash is to fund operating expenses, most significantly research and development expenditures.

Our primary use of cash is to fund our operating expenses, which primarily consist of research and development expenditures.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

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● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

● the extent to which we encounter increased costs as a result of global and macroeconomic conditions, including heightened inflation and rising interest rates, supply chain disruptions, fluctuating exchange rates, and increases in commodity, energy and fuel prices ;

● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities.

We will need additional funding to meet our operational needs and capital requirements for our preclinical studies and clinical trials, other research and development expenditures, and business development activities.

Because of the numerous risks and uncertainties associated with the development of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.

We believe that with our existing cash and cash equivalents, as of December 31, 2021, which include the net proceeds of $40.5 million from our IPO will enable us to fund our operating expenses and capital expenditure requirements up to the second half of 2023.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, government or private party grants, collaborations, strategic alliances and licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a common stockholder.

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We may not be able to obtain additional funds through equity or debt financings when needed on favorable terms or at all, including as a result of rising interest rates, volatility in the capital markets and related market uncertainty.

If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Critical Accounting Policies and Use of Estimates

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We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, pension obligations and share-based compensation.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, defined benefit pension liability, share-based compensation and recognition of research grants.

Our actual results may differ from these estimates under different assumptions or conditions.

During the year ended December 31, 2022, there were no material changes to our critical accounting policies.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Research grants

Under the terms of the research and development grants awarded, we are entitled to receive reimbursement of our allowable direct expenses.

Contributions from research and development activities under the grants are recorded based on management’s best estimate of the periods in which the related expenditures are incurred and activities performed and are classified in the statement of operations as a reduction to research and development expenses.

Research and Development Expenses

Several of our activities and related costs are designated research and development expenses, which primarilyinclude salary and benefits payments to our direct employees, employee stock-based compensation expenses, preclinical activities, outside services, material and supplies and contracted services.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date.

and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time at the date of the preparation of the financial statements.

This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

We make estimates of our accrued expenses as of each balance sheet date based on facts and

circumstances known to us at that time at the date of the preparation of the financial statements.

There may be instances in which payments made to our vendors exceed the level of services provided, and result in a prepayment reported under other current assets, which are subsequently expensed in the statement of operations when the related activity has been performed.

To date, there have been no material differences between our estimates of accrued expenses reported at each balance sheet date and the amounts actually incurred.

Effective January 1, 2018, we adopted Accounting Standards Codification 842, Leases (‘‘ASC 842’’) using the additional transition method option provided by ASU 2018-11.

Under this transition method, we applied the new accounting guidance as of the date of adoption.

Upon adoption, a cumulative effect adjustment was not required.

Subsequent to the adoption, we determine if an arrangement contains a lease at inception based on whether or not we have the right to control the asset during the contract period and other facts and circumstances.

We are the lessee in a lease contact when it obtains the right to control the asset.

Operating lease right of use (‘‘ROU’’) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

Leases with a term of 12 months or less at inception are expensed on a straight-line basis over the lease term in the statement of operations.

We determine the lease termby assuming the exercise of renewal options that are reasonably certain.

Pension obligations

We operate defined benefit pension plans and defined contribution pension plans in accordance with local regulations and practices.

These plans are funded by regular contribution made by the employer and the employees to a third-party.

These plans are funded by regular contributions made by the employer and the employees to a third-party.

For defined benefit pension plans, the liability recognized in the balance sheets is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets.

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Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in ‘‘Accumulated Other Comprehensive Income (Loss)’’ in the statements of equity and are charged or credited to income over the employees’ expected average remaining working lives.

The measurement date used for our employee benefit plan is December 31.

Equity-based compensation

The measurement date used for our employee defined benefit plan is December 31.

Share-based compensation

We recognize compensation costs related to equity based compensation granted to employees, consultants and directors, based on the estimated fair value of the awards as of the grant date.

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Certain assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of assumptions and the application of management’s judgment, as they are inherently subjective.

Research Grants

Under the terms of the research and development grants awarded, we are entitled to receive reimbursement of our allowable direct expenses.

We qualify as an “emerging growth company”, as defined in the JOBS Act.

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These provisions include, but are not limited to:

being permitted to report only two years audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial conditions and results of operations disclosure;

being permitted to report only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial conditions and results of operations disclosure;

an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act;

reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements;

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.

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If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the market price of our common stock may be more volatile.

We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) December 31, 2026, (iii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iv) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700 million of outstanding equity securities held by non-affiliates.

have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iv) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700 million of outstanding equity securities held by non-affiliates.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K.

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 in the rules and regulations of the SEC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this Annual Report

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