What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-03-16 · 204 added, 145 removed, 154 unchanged (69% of the section changed)

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and its subsidiaries.

Immunic, Inc.

IMUX) is a clinical-stage biopharmaceutical company developing a pipeline of selective oral immunology therapies aimed at treating chronic inflammatory and autoimmune diseases, including relapsing-remitting multiple sclerosis, ulcerative colitis, Crohn’s disease and psoriasis.

We are developing three small molecule products:

IMU-838 is a selective immune modulator that inhibits the intracellular metabolism of activated immune cells by blocking the enzyme DHODH;

IMU-935 is an inverse agonist of RORgt;

and IMU-856 targets the restoration of the intestinal barrier function.

Our lead development program, IMU-838, is in Phase 2 clinical development for relapsing-remitting multiple sclerosis (“RRMS”) and ulcerative colitis (“UC”), with an additional Phase 2 trial considered in Crohn’s disease (“CD”).

An investigator-sponsored proof-of-concept clinical trial for IMU-838 in primary sclerosing cholangitis (“PSC”) is ongoing at the Mayo Clinic.

IMU-935 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in September 2019.

We are a clinical-stage biopharmaceutical company developing a pipeline of selective oral immunology therapies aimed at treating chronic inflammatory and autoimmune diseases, including relapsing-remitting multiple sclerosis ("RRMS"), ulcerative colitis ("UC"), Crohn’s disease ("CD") and psoriasis.

We are headquartered in New York with our main operations in Gräfelfing, Germany.

We currently have 28 employees.

We are currently pursuing three development programs, all orally available small molecule inhibitors in the clinical development phase.

These include the IMU-838 program, which is focused on the development of oral formulations of small molecule inhibitors of the enzyme dihydroorotate dehydrogenase (“DHODH”);

the IMU-935 program, which is focused on an inverse agonist of RORγt, an immune cell-specific isoform of retinoic acid receptor-related orphan nuclear receptor gamma (“RORγ”), and the IMU-856 program, which involves the development of a drug targeting the restoration of intestinal barrier function.

These product candidates are being developed to address diseases such as RRMS, UC, CD, and psoriasis.

In addition to these large markets, these products are also being developed to address certain rare diseases with high unmet medical needs, such as primary sclerosing cholangitis (“PSC”), and Guillain-Barré syndrome (“GBS”).

We are also investigating IMU-838 as a potential treatment option for coronavirus disease 2019 (“COVID-19”).

We have incurred net losses since inception of $103.9 million through December 31, 2020.

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Recent Events

Reverse Acquisition

On April 12, 2019, pursuant to the terms of the Agreement, the holders of Immunic ordinary shares exchanged all of their outstanding shares for shares of Vital common stock, resulting in Immunic becoming a wholly-owned subsidiary of Vital.

Immediately following the Transaction, Vital Therapies, Inc.

changed its name to “Immunic, Inc.” and its ticker symbol to “IMUX”.

At the closing of the Transaction, (i) each Immunic preferred share was converted into one Immunic ordinary share, and (ii) each Immunic ordinary share was converted into the right to receive 17.17 shares of Vital’s common stock, after giving effect to the Reverse Stock Split.

The exchange ratio was determined through arm’s-length negotiations between Vital and Immunic.

The aggregate consideration issuable in the Transaction, after giving effect to the Reverse Stock Split, was 8,927,130 shares of Vital’s common stock.

Following the Transaction and after giving effect to the Reverse Stock Split, the former shareholders of Immunic AG owned approximately 88.25% of the common stock of the Company, and the shareholders of Vital immediately prior to the Transaction owned 1,059,269 shares (plus 127,500 RSUs, all of which have been issued to date) of the common stock of the Company, approximately 11.75%.

The issuance of shares of Vital’s common stock in the Transaction was registered with the Securities and Exchange Commission on a Registration Statement on Form S-4 (Registration No.

Immediately prior to the closing of the Transaction, Immunic AG issued, in the Financing, an aggregate of 2,197,742 common shares to certain of its shareholders for aggregate consideration of €26.7 million (approximately $29.9 million), pursuant to the terms of the Subscription Agreement.

The Transaction has been accounted for as a reverse acquisition under the purchase method of accounting.

Because Immunic AG’s pre-Transaction owners held an 88.25% economic and voting interest in the combined company immediately following the closing of the Transaction, Immunic AG is considered to be the acquirer of Vital for accounting purposes.

$50M At-the-Market Offering

In December 2020, we filed a Prospectus Supplement for the offering, issuance and sale of up to a maximum aggregate offering price of $50.0 million of common stock that may be issued and sold under an additional at-the-market sales agreement with SVB Leerink LLC (“SVB Leerink”) as agent (the "December 2020 ATM").

We intend to use the net proceeds from the offering to continue to fund the ongoing clinical development of our product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates.

The December 2020 ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through SVB Leerink on the terms and subject to the conditions set forth in the December 2020 ATM or (ii) termination of the December 2020 ATM as otherwise permitted thereby.

The December 2020 ATM may be terminated at any time by either party upon ten days’ prior notice, or by SVB Leerink at any time in certain circumstances, including the occurrence of a material adverse effect on us.

As of December 31, 2020, $50.0 million in capacity remains under the December 2020 ATM.

The prior at-the-market sales agreement between the Company and SVB Leerink, dated as of July 17, 2019, which provides for the offer and sale of common stock from time to time having an aggregate offering price of up to $40.0 million (the “July 2019 ATM”), remains in effect.

Shelf Registration Statement

In July 2019, we terminated our “at-the-market” sales agreement (the “ATM”) with Cantor Fitzgerald & Co.

and filed a Prospectus Supplement to our shelf registration statement on Form S-3 which became effective in June 2018, for the offering, issuance and sale of up to a maximum aggregate offering price of $40.0 million of common stock that may be issued and sold under an ATM with SVB Leerink LLC (“SVB Leerink”) as agent.

We intend to use the net proceeds from the offering to

continue to fund the ongoing clinical development of our product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates.

The ATM will terminate upon the earlier of (i) the issuance and sale of all of the shares through SVB Leerink on the terms and subject to the conditions set forth in the ATM or (ii) termination of the ATM as otherwise permitted thereby.

The ATM may be terminated at any time by either party upon ten days’ prior notice, or by SVB Leerink at any time in certain circumstances, including the occurrence of a material adverse effect on the Company.

We have agreed to pay SVB Leerink a commission equal to 3.0% of the gross proceeds from the sales of common shares pursuant to the ATM and have agreed to provide SVB Leerink with customary indemnification and contribution rights.

For the year ended December 31, 2019, the Company raised gross proceeds of $5.4 million pursuant to the ATM through the sale of 630,907 shares of common stock at a weighted average price of $8.49 per share.

The net proceeds from the ATM were $4.9 million after deducting underwriter commissions of $161,000 and estimated offering expenses of $305,000.

At December 31, 2019, there was $34.6 million available under the ATM.

In November 2020, we filed a shelf registration statement on Form S-3 (the “2020 Shelf Registration Statement”), which became effective in November 2020.

The 2020 Shelf Registration Statement permits the offering, issuance and sale of up to $250.0 million of common stock, preferred stock, warrants, debt securities, and/or units in one or more offerings and in any combination of the foregoing.

Loan Agreement with The European Investment Bank

On October 19, 2020, we and Immunic AG entered into a Finance Contract with the European Investment Bank (“EIB”), pursuant to which EIB agreed to provide Immunic AG with a term loan in an aggregate amount of up to €24.5 million to

support the development of our lead asset, IMU-838, in moderate COVID-19, to be made available to be drawn in three tranches, with the second and third tranches subject to the completion of certain pre-defined milestones.

We have the right to defer payment of principal and interest on the first and second tranches until five years after the respective borrowing dates, at which point such tranches must be repaid in full.

The third tranche is repayable in annual installments commencing one year after its respective borrowing date and must be repaid in full no later than five years after such date.

Any outstanding borrowings under the Loan Agreement will accrue interest as provided in the Loan Agreement.

From January 1, 2021 until December 31, 2030, we and Immunic AG are also obligated to pay EIB a very low single digit percentage of our revenue, as set forth in the Loan Agreement, subject to certain conditions and limitations tied to the total amount drawn under the Loan Agreement and subject to a cap of €8.6 million if only the first tranche is drawn and subject to a cap of €30 million if the full loan amount is drawn.

The Loan Agreement also includes certain prepayment penalties that may be triggered by certain prepayments prior to the maturity date.

We will guarantee Immunic AG’s obligations to EIB pursuant to a Guarantee Agreement to be executed by us, Immunic AG and EIB.

As of December 31, 2020, no funds have been drawn down under the Loan Agreement.

Equity Financings

August 2020 Offering

On August 4, 2020, we entered into an underwriting agreement (the “Underwriting Agreement”) with SVB Leerink, as representative of the several underwriters, relating to our public offering of 5,000,000 shares of our common stock, at a public offering price of $18.00 per share.

Under the terms of the Underwriting Agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 750,000 shares of common stock (the “Option Shares”) at the public offering price, less underwriting discounts and commissions, which was exercised in full on August 6, 2020.

On August 7, 2020, we closed the offering.

The net proceeds to us from this offering, after giving effect to the exercise in full by the underwriters of their option to purchase the Option Shares, was approximately $96.5 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

June 2020 Offering

On June 10, 2020, we entered into a placement agency agreement with ROTH Capital Partners, LLC ("RCP") and Ladenburg Thalmann & Co.

relating to our public offering of 2,175,000 shares of our common stock.

Pursuant to this agreement, we agreed to pay the placement agents a cash fee of 6.5% of the gross proceeds from the offering raised from investors and to reimburse the placement agents for certain costs incurred in connection therewith.

In addition, on June 10, 2020, we and certain institutional investors entered into securities purchase agreements relating to the issuance and sale of an aggregate of 2,175,000 shares of our common stock.

The purchase price per share in this offering was $11.40 for aggregate gross proceeds of approximately $25.0 million.

The net proceeds to us from this offering, after deducting our offering expenses, were approximately $23.0 million.

April 2020 Registered Direct Offering

On April 23, 2020, we entered into an engagement letter with RCP relating to our registered direct offering of common stock to select institutional investors.

Pursuant to this agreement, we agreed to pay RCP a cash fee of 6.5% of the gross proceeds from the offering raised from investors and to reimburse RCP for certain costs incurred in connection therewith.

In addition, on April 23, 2020, we and the investors entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 1,764,706 shares of our common stock.

The purchase price per share was $8.50 for aggregate gross proceeds to us of approximately $15.0 million.

The net proceeds to us from this offering, after deducting our offering expenses, were approximately $13.9 million.

ATM Issuances

For the year ended December 31, 2020, we raised gross proceeds of $11.3 million pursuant to the July 2019 ATM through the sale of 733,728 shares of common stock at a weighted average price of $15.42 per share.

The net proceeds from the July

2019 ATM were $11.0 million after deducting underwriter commissions of $339,356.

As of December 31, 2020, there was $23.3 million available under the July 2019 ATM and $50.0 million available under the December 2020 ATM.

Immunic Joins the NASDAQ Biotech Index

We were selected for addition to the NASDAQ Biotechnology Index (Nasdaq:

NBI), effective prior to market open on December 21, 2020 .

The NASDAQ Biotechnology Index is designed to track the performance of a set of securities listed on The Nasdaq Stock Market Ⓡ that are classified as either biotechnology or pharmaceutical according to the Industry Classification Benchmark.

The NASDAQ Biotechnology Index is re-ranked annually.

All securities in the index must be listed on the NASDAQ Global Market or the NASDAQ Global Select Market and meet minimum market value and share volume requirements, among other criteria.

Immunic Joins the Nasdaq Global Select Market

Effective October 7, 2020, we transferred the listing of our common stock from the Nasdaq Capital Market to the Nasdaq Global Select Market.

The Global Select Market is the most selective of Nasdaq’s three market tiers.

I mmunic Joins the Russell 3000 Index

At the conclusion of the 2020 Russell indexes annual reconstitution effective June 29, 2020, we joined the Russell 3000 Ⓡ Index.

Membership in the U.S.

all-cap Russell 3000 Index, which remains in place for one year, means automatic inclusion in the large-cap Russell 1000 Index or small-cap Russell 2000 Index as well as the appropriate growth and value style indexes.

FTSE Russell determines membership for its Russell indexes primarily by objective, market-capitalization rankings and style attributes.

Changes to Executive Team

Separation Agreement with Sanjay S.

On April 17, 2020, our former Chief Financial Officer, Sanjay S.

Patel, resigned and entered into a Confidential Severance Agreement and Full and General Release with the Company (the “Separation Agreement”).

Pursuant to the terms of the Separation Agreement, Mr.

Patel’s employment terminated on April 17, 2020.

Executive Chairman Agreement with Duane Nash

On April 15, 2020, the compensation committee of our Board independently reviewed and approved entering into an employment agreement with our current Chairman of the Board, Duane Nash, MD, JD, MBA (the “Executive Chairman Agreement”) and pursuant to such approval, on April 17, 2020, we and Mr.

Nash entered into the Executive Chairman Agreement.

The Executive Chairman Agreement establishes an “at will” employment relationship pursuant to which Mr.

Nash serves as Executive Chairman and contemplated a term that ends on October 15, 2020.

On October 15, 2020, we and Mr.

Nash entered into an addendum to the Executive Chairman Agreement, pursuant to which the term of the agreement was extended to April 15, 2021.

In connection therewith, we agreed to make a one-time award of 120,000 stock options to Mr.

Nash, which began to vest monthly starting on November 15, 2020.

All other terms of the employment agreement remain the same.

Promotion of Glenn Whaley

On April 17, 2020, Glenn Whaley, the Company’s Principal Accounting Officer and Controller, was promoted to the position of Vice President Finance, Principal Financial and Accounting Officer.

Whaley has assumed day-to-day financial management responsibilities, and reports directly to Daniel Vitt, Ph.D., Chief Executive Officer and President of the Company.

Daiichi Sankyo Option Exercise

On January 5, 2020, Immunic AG, under the terms of the Daiichi Sankyo Agreement, exercised its option to obtain the exclusive worldwide right to commercialization of IMU-856.

Among other things, the option exercise grants Immunic AG the rights to Daiichi Sankyo’s patent application related to IMU-856.

In connection with the option exercise, we paid a one-time upfront licensing fee to Daiichi Sankyo.

Under the Daiichi Sankyo Agreement, Daiichi Sankyo is also eligible to receive future development, regulatory and sales milestone payments, as well as royalties related to IMU-856.

Critical Accounting Policies and Estimates

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During the twelve months ended December 31, 2020 and 2019, Immunic AG’s operations were located in Germany with the euro being its functional currency.

Immunic Australia Pty Ltd.’s functional currency is the Australian dollar and Vital Therapies (Beijing) Company Limited’s functional currency is the yuan.

Immunic Australia Pty Ltd.’s functional currency is the Australian dollar.

All amounts in the financial statements where the functional currency is not the US dollar are translated into US dollar equivalents at exchange rates as follows:

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• components of equity at historical rates.

Gains and losses from translation of the financial statements into US dollars are recorded in stockholders’ equity (deficit) as a component of accumulated other comprehensive income (loss).

Gains and losses from translation of the financial statements into US dollars are recorded in stockholders’ equity net of the anticipated income tax effects as a component of accumulated other comprehensive income (loss).

Realized and unrealized gains and losses resulting from foreign currency transactions denominated in currencies other than the functional currency are reflected as general and administrative expenses in the Consolidated Statements of Operations.

Foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future are recorded in Other Income.

The Consolidated Statements of Cash Flows were prepared by using the average exchange rate in effect during the reporting period which reasonably approximates the timing of the cash flows.

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The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform step 1 of the two-step goodwill impairment test.

If we perform step 1 and the carrying amount of the reporting unit exceeds its fair value, we would perform step 2 to measure such impairment.

Impairment testing for goodwill is done at the reporting unit level.

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Research and Development Expenses

Research and development expenses have principally been related to the two development programs, IMU-838 and IMU-935.

These two programs include an orally available, small molecule inhibitor of DHODH (IMU-838 program) and an inverse agonist of RORgt (IMU-935 program) aimed at treating multiple sclerosis, UC, CD, and psoriasis.

IMU-838 is currently being tested in two Phase 2 clinical trials in patients with RRMS and UC.

The Company is also considering conducting a Phase 2 clinical trial in CD.

An investigator-sponsored proof-of-concept clinical trial for IMU-838 in PSC is ongoing at the Mayo Clinic.

IMU-935 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in September 2019.

Research and development expenses consist of expenses incurred in research and development activities including clinical trials, contract research services, salaries and related employee benefits, allocated facility costs and other outsourced services.

Research and development expenses consist of expenses incurred in research and development activities, which include clinical trials, contract research services, certain milestone payments, salaries and related employee benefits, allocated facility costs and other outsourced services.

Research and development expenses are charged to operations as incurred.

The Company enters into agreements with CROs to provide clinical trial services for individual studies and projects by executing individual work orders governed by a Master Service Arrangement (“MSA”).

The MSAs and associated work orders provide for regular recurrent payments and payments upon the completion of certain milestones.

The Company regularly assesses the timing of payments against actual costs incurred to ensure a proper accrual of related expenses in the appropriate accounting period.

Collaboration Arrangements

The Company enters into agreements with CROs to provide clinical trial services for individual studies and projects by executing individual work orders governed by master service arrangements (“MSAs”).

The MSAs and associated work orders are designed such that certain payments are to be made upon completion of certain milestones.

The Company regularly assesses the timing of payments against actual costs incurred and ensures a proper accrual of related expenses in the appropriate accounting period.

Certain collaboration and license agreements might include payments to or from the Company of one or more of the following:

Certain collaboration and license agreements may include payments to or from the Company of one or more of the following:

non-refundable or partially refundable upfront or license fees;

development, regulatory and commercial milestone payments;

manufacturing supply services;

payment for manufacturing supply services;

partial or complete reimbursement of research and development costs;

and royalties on net sales of licensed products.

The Company assesses whether such contracts are within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“Topic 606”) and ensures proper accounting treatment.

Currently, the Company has entered into an option agreement with a Daiichi Sankyo which grants the Company the right to license a group of compounds, designated by the Company as IMU-856, a potential new oral treatment option for diseases such as inflammatory bowel disease, irritable bowel syndrome with diarrhea, immune checkpoint inhibitor induced colitis and other barrier function associated diseases.

During the option period, the Company performed the agreed upon research and development activities.

The related research and development expenses were reimbursed by Daiichi Sankyo up to a maximum agreed-upon limit.

The Company assesses whether such contracts are within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Update (“ASU”) 2014-09 “ Revenue from Contracts with Customers ” and ASU No.

2018-18, “ Collaborative Arrangements”, ("ASU 2018-18").

ASU 2018-18, clarifies that certain elements of collaborative arrangements could qualify as transactions with customers in the scope of ASC 606.

In October 2018, the Company entered into an option and license agreement (the "Daiichi Sankyo Agreement") with Daiichi Sankyo Co., Ltd.

("Daiichi Sankyo") which granted the Company the right to license a group of compounds, designated by the Company as IMU-856, as a potential new oral treatment option for diseases such as inflammatory bowel disease, irritable bowel syndrome with diarrhea, immune checkpoint inhibitor induced colitis and other barrier function associated diseases.

During the option period, the Company performed agreed upon research and development activities for which it was reimbursed by Daiichi Sankyo up to a maximum agreed-upon limit.

Such reimbursement is recorded as other income.

The Company exercised its option right on January 5, 2020 and made a one-time option execution payment.

On January 5, 2020, the Company exercised its option to obtain the exclusive worldwide right to commercialization of IMU-856.

Among other things, the option exercise grants Immunic AG the rights to Daiichi Sankyo’s patent application related to IMU-856.

In connection with the option exercise, the Company paid a one-time upfront licensing fee to Daiichi Sankyo.

Under the Daiichi Sankyo Agreement, Daiichi Sankyo is also eligible to receive future development, regulatory and sales milestone payments, as well as royalties related to IMU-856.

See Note 12 - Subsequent Events.

Stock-Based Compensation

The Company measures the cost of employee and non-employee services received in exchange for equity awards based on the grant-date fair value of the award recognized generally as an expense (i) on a straight-line basis over the requisite service period for those awards whose vesting is based upon a service condition, and (ii) on an accelerated method for awards whose vesting is based upon a performance condition, but only to the extent it is probable that the performance condition will be met.

Stock-based compensation is estimated at the date of grant based on the award’s fair value for equity classified awards and upon final measurement date for liability classified awards and forfeitures are recorded in the period in which they occur.

The Company estimates the fair value of stock options using the Black-Scholes-Merton ("BSM"), option-pricing model, which requires the use of estimates.

The BSM option-pricing model requires the input of subjective assumptions, including the risk-free interest rate, the fair value of the underlying common stock, the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option.

Stock-based compensation is estimated (i) at the date of grant based on the award’s fair value for equity classified awards and (ii) final measurement date for liability classified awards.

Forfeitures are recorded in the period in which they occur.

The Company estimates the fair value of stock options using the Black-Scholes-Merton option-pricing model, which requires the use of estimates and subjective assumptions, including the risk-free interest rate, the fair value of the underlying common stock, the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option.

These estimates involve inherent uncertainties and the application of management’s judgment.

If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future.

The Company is subject to corporate income tax laws and regulations in the US, Germany and Australia.

The Company is subject to corporate income tax laws and regulations in the U.S., Germany and Australia.

Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment in their application.

The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the audited consolidated financial statements.

consolidated financial statements.

Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

We are subject to U.S.

federal or state income tax examination by tax authorities for tax returns filed for the years 2003 through 2018 due to the carryforward of net operating losses ("NOL’s").

Tax years 2016 through 2018 are subject to audit by German and Australian tax authorities.

The Company is not currently under examination by any tax jurisdictions.

Components of Results of Operations

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Our research and development expenses include:

• external research and development expenses incurred under arrangements with third parties, such as CROs, contract manufacturing organizations, consultants, and our scientific advisors;

• external research and development expenses and milestone payments incurred under arrangements with third parties, such as CROs, contract manufacturing organizations, collaborations with partners, consultants, and our scientific advisors;

• internal personnel expenses.

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Since our inception in March 2016, we have spent a total of approximately $82.4 million in research and development expenses through December 31, 2020.

These costs primarily include external development expenses and internal personnel expenses for two development programs IMU-838 and IMU-935.

We have spent the majority of our research and development resources on IMU-838, our lead development program.

We initiated a Phase 2 clinical trial in patients with UC in the first quarter of 2018 and a Phase 2 clinical trial in patients with RRMS in the first quarter of 2019.

In addition, we are considering the initiation of a third Phase 2 clinical trial in patients with CD.

An investigator-sponsored proof-of-concept clinical trial for IMU-838 in PSC was initiated at the Mayo Clinic in August 2019.

These costs primarily include external development expenses and internal personnel expenses for the three development programs, IMU-838, IMU-935 and IMU-856.

We have spent the majority of our research and development resources on IMU-838, our lead development program for clinical trials in RRMS, UC, COVID-19 and PSC.

IMU-935 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in September 2019.

In August 2019, our subsidiary Immunic AG received a grant of up to approximately $730,000 from the German Federal Ministry of Education and Research, in support of the InnoMuNiCH (Innovations through Munich-Nippon Cooperation in Healthcare) project.

The grant funds will be used to fund a three-year research project relating to autoimmune diseases by the Company and its partners.

We expect our research and development expenses to increase for the foreseeable future as we continue to conduct ongoing regulatory and development activities, initiate new pre-clinical and clinical trials and build our pipeline.

The process of commercialization, conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval is costly and time consuming.

We may never succeed in achieving marketing approval for any of our product candidates.

IMU-856 is currently being tested in a Phase 1 clinical trial in healthy volunteers, which was initiated in August 2020.

In August 2019, Immunic AG received a grant of up to approximately $730,000 from the German Federal Ministry of Education and Research, in support of the InnoMuNiCH (Innovations through Munich-Nippon Cooperation in Healthcare) project.

The grant funds will be used to fund a three-year research project relating to autoimmune diseases by us and our three project partners.

Since the inception of the grant, we have received $101,000 which was recorded in other income in the accompanying consolidated statement of operations.

We expect our research and development expenses to increase for the foreseeable future as we continue to conduct ongoing regulatory and development activities, initiate new preclinical and clinical trials and build our pipeline.

The process of commercialization, conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming.

We may never succeed in achieving regulatory approval for any of our product candidates.

Successful development of product candidates is highly uncertain and may not result in approved products.

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General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, professional fees for legal, auditing, tax and business consulting services, insurance premiums, significant one-time costs associated with the Transaction including stock-based compensation for our executives, key employees and board members and success fees for our investment bank.

We expect that our general and administrative expenses will decrease in the future as the one-time costs related to the Transaction will not recur.

However, we also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor relations expenses associated with being a public company.

General and administrative expenses consist primarily of personnel expenses, professional fees for legal, accounting, tax and business consulting services, insurance premiums and stock-based compensation.

Other Income (Expense), Net

Interest Income

Interest income consists of interest earned on our money market funds which are a portion of our cash and cash equivalents balance.

Interest income consists of interest earned on our money market funds and bank accounts which are a portion of our cash and cash equivalents balance.

Our interest income has not been significant due to low interest rates earned on invested balances.

Other Income (Expense), Net

Other income consists primarily of reimbursement of research and development expenses in connection with our option and licensing agreement with Daiichi Sankyo Co., Ltd., the gain on the settlement of a note receivable in connection with the sale of ELAD Assets (See Note 4) and a research and development tax incentive related to clinical trials performed in Australia.

Other income consists primarily of reimbursement of research and development expenses in connection with our option and licensing agreement with Daiichi Sankyo Co., Ltd., the gain on the settlement of a note receivable in connection with the sale of ELAD Assets (See Note 4), a research and development tax incentive related to clinical trials performed in Australia and foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future.

Results of Operations

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The following table summarizes our operating expenses for the years ended December 31, 2020 and 2019 (dollars in thousands):

Year Ended December 31, Change

Years Ended December 31, Change

2020 2019 $ %

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Net loss (44,017) (34,933) (9,084) 26 %

Research and development expenses increased by $12.9 million during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The increase is primarily due to (i) higher external development costs for our IMU-838 program for the Phase 2 clinical trials in patients with relapsing-remitting multiple sclerosis and ulcerative colitis and preparation costs related to our Phase 2 clinical trial for patients with Crohn’s disease totaling $8.3 million, (ii) an increase of drug supply costs to support our clinical trials of IMU-838 of totaling $1.5 million, (iii) a contingent payment under the asset purchase agreement with 4SC AG settled in stock valued at $1.5 million, (iv) external R&D costs related to our IMU-856 program of $1.1 million and (v) $0.5 million related to increases across numerous categories.

General and administrative expenses increased by $12.1 million during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The increase is primarily due to (i) one-time costs related to the Transaction including $6.4 million of stock-based compensation for our executives, key employees and members of the board and $1.7 million of costs for investment banking and legal fees, (ii) $2.6 million related to becoming a public company, including directors and officers liability insurance, audit and legal fees and personnel costs for executives and staff in the US corporate headquarters, (iii) $0.5 million related to travel and (iv) $0.9 million related to increases across numerous categories.

Other income increased by $1.6 million during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The increase is primarily attributable to a $0.9 million year-over-year increase in reimbursement of research and development expenses in connection with the option and license agreement with Daiichi Sankyo Co., Ltd., the $0.3 million as a result of the sale of the ELAD Assets, $0.3 million related to research and development tax incentives for clinical trials in Australia and $0.1 million related to interest income.

Going Concern and Capital Resources

Research and development expenses increased by $16.1 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019.

The increase reflects (i) a $9.6 million increase in external development costs for IMU-838 related to the Phase 2 clinical trial in patients with COVID-19 since the trial was started in 2020, (ii) a $5.0 million increase in license fees, drug supply and Phase 1 costs related to IMU-856 since these trials have ramped up in 2020, (iii) a $2.1 million increase in drug supply, Phase 1 and preclinical costs related to IMU-935 since these trials have ramped up in 2020, (iv) a $1.5 million increase in personnel expenses, (v) a $0.7 million increase in drug supply costs related to IMU-838, and (vi) a $0.7 million increase for a bioequivalence study related to IMU-838.

The increases were partially offset by (i) a $2.0 million decrease related to the Phase 2 clinical trial of IMU-838 in patients with RRMS as the clinical trial came to an end in 2020, and (ii) a $1.5 million decrease in costs related to a Phase 2 clinical trial in patients with Crohn’s disease.

General and administrative expenses decreased by $4.2 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019.

The decrease is primarily due to (i) $5.1 million lower stock compensation expense as a result of non-recurring costs recorded in 2019 related to the Transaction, (ii) $0.9 million of decreased legal, accounting and consultancy costs, and (iii) a $0.7 million decrease in travel costs due to worldwide travel

restrictions in connection with the COVID-19 pandemic.

The decrease was partially offset by (i) a $2.2 million increase in personnel expenses, and (ii) $0.3 million of increased costs across numerous categories.

Total other income increased by $2.9 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019.

The increase is primarily attributable to (i) a $2.5 million foreign exchange gain on a $68.0 million intercompany loan between Immunic, Inc.

and Immunic AG, and (ii) a $0.9 million increase in research and development tax incentives for clinical trials in Australia as a result of increased spending on clinical trials in Australia.

This increase was partially offset by (i) the $0.4 million difference between the face value and fair value of the promissory note collected in full in September 2019 in connection with the sale of ELAD Assets, offset by the $0.1 million write-off of the investment in VTL China included in the ELAD Assets sale, and (ii) a $0.2 million decrease of recognized income attributable to reimbursements of research and development expenses in connection with the Daiichi Sankyo Agreement.

Liquidity and Capital Resources

We have no products approved for commercial sale and have not generated any revenue from product sales.

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We expect to incur significant expenses and increasing operating losses for the foreseeable future as we initiate and continue the pre-clinical and clinical development of our product candidates and add personnel necessary to operate as a company with an advanced clinical pipeline of product candidates.

To the extent additional funds are necessary to meet long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds, although we can provide no assurance that these sources of funding will be available on reasonable terms.

From inception through December 31, 2019, Immunic has raised net cash of approximately $72.3 million from private and public offerings of preferred and common stock.

As of December 31, 2019, Immunic had cash and cash equivalents of approximately $29.4 million.

With these funds, Immunic expects to be able to fund its operations into but not beyond the first quarter of 2021 based on its available working capital as of the date of this evaluation.

The ability of the Company to continue its operations through the first quarter of 2021 and beyond is dependent on management’s ability to raise capital, which likely

includes an equity-based financing.

However, there is no assurance that the Company will be successful in raising sufficient capital.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

To the extent additional funds are necessary to meet long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of indebtedness, additional equity financings or a combination of these potential sources of funds, although we can provide no assurance that these sources of funding will be available on reasonable terms.

From inception through December 31, 2020, we have raised net cash of approximately $216.8 million from private and public offerings of preferred and common stock.

As of December 31, 2020, we had cash and cash equivalents of approximately $127.5 million.

With these funds, we expect to be able to fund our operations beyond twelve months from the date of the issuance of the accompanying consolidated financial statements.

We currently have an effective shelf registration statement on Form S-3 on file with the SEC which expires in June 2021.

The shelf registration statement currently permits the offering, issuance and sale by us of up to an aggregate offering price of $200.0 million of common stock, preferred stock, warrants, debt securities or units in one or more offerings and in any combination, of which $40.0 million may be offered, issued and sold under an ATM with SVB Leerink.

We may use the net proceeds from the offering to continue to fund the ongoing clinical development of our product candidates and for other general corporate purposes, including funding existing and potential new clinical programs and product candidates.

In the year ended December 31, 2019, the Company raised gross proceeds of $5.4 million pursuant to the ATM through the sale of 630,907 shares of common stock at a weighted average price of $8.49 per share.

The net proceeds from the ATM were $4.9 million after deducting underwriter commissions of $161,000 and estimated offering expenses of $305,000.

At December 31, 2019, there was $34.6 million available under the ATM.

In the year ended December 31, 2020, we raised gross proceeds of $11.3 million pursuant to the July 2019 ATM through the sale of 733,728 shares of common stock at a weighted average price of $15.42 per share.

The net proceeds from the July 2019 ATM were $11.0 million after deducting underwriter commissions of $339,356.

As of December 31, 2020, there was $23.3 million available under the July 2019 ATM.

In November 2020, we filed a shelf registration statement on Form S-3.

As of December 31, 2020, $50.0 million in capacity remains under the December 2020 ATM.

Debt Financing

On October 19, 2020, Immunic, Inc.

and Immunic AG entered into the Loan Agreement with EIB, pursuant to which EIB agreed to provide Immunic AG with a term loan in an aggregate amount of up to €24.5 million to support the development of our lead asset, IMU-838, in moderate COVID-19, to be made available to be drawn in three tranches, with the second and third tranches subject to the completion of certain pre-defined milestones.

The third tranche is repayable in annual installments commencing one year after its respective borrowing date and must be repaid in full no later than five years after such date.

Any outstanding borrowings under the Loan Agreement will accrue interest as provided in the Loan Agreement.

The Loan Agreement also includes certain prepayment penalties that may be triggered by certain prepayments prior to the maturity date.

Immunic, Inc.

will guarantee Immunic AG’s obligations to EIB pursuant to a Guarantee Agreement to be executed by Immunic, Inc., Immunic AG and EIB.

As of December 31, 2020, no funds have been drawn down under the Loan Agreement.

Public Equity Offerings

August 2020 Offering

On August 4, 2020, we entered into an Underwriting Agreement with SVB Leerink, as representative of the several underwriters, relating to our public offering of 5,000,000 shares of our common stock, at a public offering price of $18.00 per share.

Under the terms of the Underwriting Agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 750,000 shares of common stock at the public offering price, less underwriting discounts and commissions, which option was exercised in full on August 6, 2020.

On August 7, 2020, we closed the offering.

June 2020 Offering

On June 10, 2020, we entered into a placement agency agreement with RCP and Ladenburg Thalmann & Co.

relating to our public offering of 2,175,000 shares of our common stock.

The purchase price per share in this offering was $11.40 for aggregate gross proceeds of approximately $25.0 million.

The net proceeds to us from this offering, after deducting our offering expenses, were approximately $23.0 million.

April 2020 Registered Direct Offering

On April 23, 2020, we entered into an engagement letter with RCP relating to our registered direct offering of common stock to select institutional investors.

In addition, on April 23, 2020, we and certain institutional investors entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 1,764,706 shares of our common stock.

The purchase price per share was $8.50 for aggregate gross proceeds to us of approximately $15.0 million.

The net proceeds to us from this offering, after deducting our offering expenses, were approximately $13.9 million.

The following table shows a summary of our cash flows for the years ended December 31 (in thousands):

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During the year ended December 31, 2020, operating activities used $46.1 million of cash.

The use of cash related to our net loss of $34.9 million adjusted for non-cash charges of $8.1 million primarily related to stock-based compensation and a $1.4 million net change in our operating assets and liabilities.

The use of cash related to our net loss of $44.0 million adjusted for non-cash charges of $2.7 million related to stock-based compensation and was partially offset by a $2.5 million unrealized foreign currency gain as well as a $2.4 million net change in our operating assets and liabilities.

Changes in our operating assets and liabilities during the year ended December 31, 2019 consisted primarily of an increase of $2.8 million in prepaid expenses and other current assets partially offset by $0.4 million increase in other current liabilities, accrued expenses and accounts payable.

The increase in prepaid expenses and other current assets is primarily due to higher prepaid clinical costs, prepaid insurance related to the U.S.

entity, higher VAT receivable and other miscellaneous items.

The increase in liabilities is primarily due to an increase in clinical costs as a result of more Phase 2 clinical studies than in the prior year.

The increase in prepaid expenses and other current assets is primarily due to higher prepaid clinical costs, increased receivable for the Australian research and development credit and other miscellaneous items.

The increase in liabilities is primarily due to an increase in clinical costs as a result of more Phase 2 clinical studies than in the prior year, the timing of year-end 2020 bonus payments partially offset by lower deferred income related to Daiichi Sankyo at year-end 2020.

Net cash used in investing activities

During the year ended December 31, 2019, net investing activities provided $10.5 million of cash, primarily due to $8.2 million of cash received in connection with the Transaction and $2.5 million of proceeds from the sale of the ELAD Assets.

During the year ended December 31, 2020, net investing activities used $0.1 million of cash, primarily due to purchase of equipment.

Net cash provided by financing activities

During the year ended December 31, 2019, financing activities provided $34.9 million of cash of which $30.0 million was related to the issuance of common stock in the Financing in connection with the Transaction and $4.9 million was related to the public offering of common stock under our ATM facility.

During the year ended December 31, 2020, financing activities provided $144.4 million of cash of consisting of net cash proceeds from the sale of common stock under the July 2019 ATM and the April 2020, June 2020, and August 2020 equity offerings.

Our forecast of the period of time through which our financial resources will support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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We do not expect to achieve revenue from product sales prior to the use of the net proceeds from our public and private offerings to date.

We do not have any committed external source of funds.

We do not have any committed external source of funds other than the Loan Agreement with the EIB.

Additional funds may not be available on acceptable terms, if at all.

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See Note 6 regarding the Company’s obligations under the option agreement with Daiichi Sankyo, which includes the potential payment of future development, regulatory and sales milestone payments, as well as royalties related to IMU-856 .

The following table summarizes our contractual obligations at December 31, 2019 and the effect such obligations are expected to have on our cash flows in future periods:

The following table summarizes our contractual obligations as of December 31, 2020 and the effect such obligations are expected to have on our cash flows in future periods:

Payments Due by Period

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The purchase obligations above represent non-cancelable contractual obligations under certain agreements related to our development programs IMU-838, IMU-935 and IMU-856.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Update No.

2016-02, “Leases.

” ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the balance sheet.

The Company has elected to adopt ASU 2016-02 retrospectively at January 1, 2019 using a simplified transition option that allows companies to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company also elected to adopt the package of practical expedients permitted in Accounting Standards Codification Topic 842 ("ASC 842").

Accordingly, the leases outstanding at January 1, 2019 continue to be classified as operating leases under the new guidance, without reassessing whether the contracts contain a lease under ASC 842 or whether classification of the operating leases would be different under ASC Topic 842.

All of the Company’s leases at the adoption date were operating leases for facilities and included both lease and non-lease components.

As a result of the adoption of ASU 2016-02, on January 1, 2019, the Company recognized (a) a lease liability of approximately $80,000, which represents the present value of the remaining lease payments using an estimated incremental borrowing rate of 6% and (b) a right-of-use asset of approximately $80,000.

(The cumulative-effect adjustment was immaterial.) Due to the adoption of the standard using the retrospective cumulative-effect adjustment method, there are no changes to the Company’s previously reported results prior to January 1, 2019.

Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms.

Lease expense has not changed materially as a result of the adoption of ASU 2016-02.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

ASU 2016-18 is effective for the Company for fiscal years beginning after December 15, 2018.

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

In June 2018, the FASB issued ASU No.

2018-07, “Improvements to Non-Employee Share-Based Payment Accounting,” or ASU 2018-07.

ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions, specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, and early adoption is permitted.

The Company adopted ASU 2018-07 in the first quarter of 2019.

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

Recently Adopted Accounting Standards

In January 2017, the FASB issued ASU 2017-04, " Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

This guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.

This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted.

This guidance must be applied on a prospective basis.

The Company does not believe the adoption of ASU 2017-04 will have a significant the impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, “ Fair Value Measurement - Disclosure Framework,” ("ASU 2018-13").

ASU 2018-13, modifies the disclosure requirements for fair value measurements.

Simplifying the Test for Goodwill Impairment ." This guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.

The Company adopted this ASU, as required, in the quarter ended March 31, 2020 on a prospective basis.

The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “ Fair Value Measurement - Disclosure Framework” ("ASU 2018-13.") ASU 2018-13 modifies the disclosure requirements for fair value measurements.

The amendments relate to disclosures regarding unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty, and are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted.

The Company does not believe the adoption of ASU 2018-18 will have a significant impact on its consolidated financial statements.

In November 2018, the FASB issued ASU No.

2018-18, “ Collaborative Arrangements” (" ASU 2018-18").

All other amendments must be applied retrospectively to all periods presented upon their effective date.

The Company adopted this ASU, as required, in the quarter ended March 31, 2020.

The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, “ Collaborative Arrangements” ("ASU 2018-18").

ASU 2018-18, clarifies that elements of collaborative arrangements could qualify as transactions with customers in the scope of ASC 606.

The new guidance is effective for public business entities for fiscal years beginning after December 15, 2019.

The Company does not believe the adoption of ASU 2018-18 will have a significant impact on its consolidated financial statements.

The Company adopted this ASU, as required, in the quarter ended March 31, 2020.

The Company does not have any agreements that meet the definition of a collaboration arrangement at this time.

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