What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-26 · 160 added, 192 removed, 166 unchanged (68% of the section changed)

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and its subsidiaries.

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 are a clinical-stage biopharmaceutical company with a pipeline of selective oral immunology therapies focused on treating chronic inflammatory and autoimmune diseases, including relapsing multiple sclerosis (“RMS”), ulcerative colitis (“UC”), Crohn’s disease (“CD”) and psoriasis.

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

We currently have approximately 55 employees.

We are currently pursuing three development programs.

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

the IMU-935 program, which is focused on an inverse agonist of retinoic acid receptor-related orphan nuclear receptor gamma truncated (“RORγt”), an immune cell-specific isoform of RORγ;

and the IMU-856 program, which involves the development of a drug targeting the restoration of intestinal barrier function and regeneration of bowel epithelium.

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

We have incurred net losses since inception of $196.9 million through December 31, 2021.

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Recent Events

$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 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.

CALDOSE-1 Baseline Characteristics

On February 18, 2022, we announced the main blinded baseline characteristics of our CALDOSE-1 trial of vidofludimus calcium in moderate-to-severe UC, including:

• 263 moderate-to-severe UC patients were enrolled in 78 study sites with the Ukraine and Poland representing the countries with highest number of patients and U.S.

sites contributing 12.5% of the overall enrollment.

• Of the 263 patients, 148 (56.3%) were male and 115 (43.7%) were female patients.

The mean age at baseline was 41.7 (18-77) years.

• All patients had to have failed at least one prior therapy option.

Of the 263 patients, 83% were biologically naïve and 17% were biologically experienced (received at least 1 prior treatment with any biological agent approved in the UC indication).

• Enrolled patients had to show evidence of active moderate-to-severe UC disease.

This is reflected in their baseline characteristics for patient-reported outcomes:

◦ The baseline Mayo stool frequency scores were:

(i) score of 3 for 59% of patients, (ii) score of 2 for 36% of patients and (iii) score of 1 for 5% of patients.

◦ The Mayo rectal bleeding scores were:

(i) score of 3 in 10% of patients, (ii) score of 2 for 54% of patients and (iii) score of 1 for 31% of patients.

◦ The average value for fecal calprotectin at baseline was approximately 1,320 μg/g for currently available, yet incomplete data.

• The trial employed a central independent reader to evaluate the endoscopic eligibility criteria and the following modified Mayo endoscopic scores were assessed at baseline:

◦ 55% of patients with a score of 3;

◦ 45% of patients with a score of 2.

• At week 10 (the time point of the primary efficacy analysis), an adjudication procedure was used for endoscopy assessments.

In the case of disagreement between two independent readers, a third independent reader was used for adjudication.

We believe that these blinded baseline characteristics of randomized patients and the methodology regarding endoscopic assessments contributes to ensuring an optimized study read-out.

IMU-935 Composition-of-Matter patents Granted

On February 2, 2022, we received a Notice of Allowance from the U.S.

Patent and Trademark Office (USPTO) for patent application 16/644581, entitled, “IL-17 and IFN-gamma inhibition for the treatment of autoimmune diseases and chronic inflammation”.

We also received notice of allowance of patent application EP18762111.5 in Europe, and notice of grant of patent application 2018330633 in Australia.

All three patents cover composition-of-matter of IMU-935 and related formulations, and are expected to provide protection into at least 2038, without accounting for potential Patent Term Extension (PTE) in the United States or Supplementary Protection Certificates (SPC) in Europe, respectively.

Other Product updates

For status updates on our product candidates in development, please see "Business - Key Status Updates."

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.

July 2021 Public Equity Offering

On July 15, 2021, we entered into an underwriting agreement with Piper Sandler & Co., as representative of the several underwriters listed on Schedule A thereto, in connection with our public offering of 4,500,000 shares of our common stock, $0.0001 par value per share, at a public offering price of $10.00 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 675,000 shares of Common Stock at the public offering price, less underwriting discounts and commissions.

On July 19, 2021, we closed the offering.

The net proceeds to us from the offering were approximately $42.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

The underwriters did not exercise the option to purchase additional shares.

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.

On December 29, 2020, we entered into a sales agreement with SVB Leerink LLC under which we may issue and sell up to $50 million of our common stock from time to time, through SVB Leerink as our sales agent, in what is deemed to be an “at the market offering” under applicable securities rules (the “December 2020 ATM”).

In the year ended December 31, 2021, we raised gross proceeds of $0.8 million pursuant to the December 2020 ATM through the sale of 73,221 shares of common stock at a weighted average price of $10.27 per share.

The net proceeds in 2021 from the December 2020 ATM were $0.7 million after deducting underwriter commissions of $22,555.

To date in 2022, we have raised gross proceeds of $16.7 million pursuant to the December 2020 ATM through the sale of 1,568,487 shares of common stock at a weighted average price of $10.62 per shared.

The net proceeds were $16.2 million after deducting underwriter commissions of $0.5 million.

As of February 18, 2022, $32.6 million in capacity remains under the December 2020 ATM.

License Agreement with the University Medical Center Goettingen

On September 22, 2021, we announced the execution of an in-license agreement with the University Medical Center Goettingen, Germany, covering the combination of DHODH inhibitors and nucleoside analogues to treat viral infections (COVID-19 and Influenza).

Terms of the agreement were not disclosed.

Preclinical research completed by the parties and their collaborators has shown that certain DHODH inhibitors, including vidofludimus calcium, strongly synergize with selected nucleoside analogues to inhibit SARS-CoV-2 replication in vitro .

For instance, in an in vitro test system, vidofludimus calcium alone showed an up to 99.9% reduction in viral RNA at concentrations of 5 μM, which is well within the exposure levels seen in prior clinical trials.

Likewise, NHC, the active metabolite of molnupiravir, alone, was associated with an up to 99% reduction in viral RNA at concentrations of 100 nM.

Compared to single agent activity, the combination of vidofludimus calcium and NHC achieved an extra-ordinary reduction in viral RNA, down to the limit of detection, reducing SARS-CoV-2 RNA by up to seven log units (corresponding to 0.00001% viral RNA remaining).

This powerful reduction of virus replication in vitro was demonstrated across multiple SARS-CoV-2 variants, including alpha, beta and delta, highlighting the independence of this approach to mutant virus forms.

In addition to molnupiravir, we are exploring alternate nucleoside analogues, some of which have shown very promising antiviral activity in vitro .

Recalling vidofludimus calcium’s clinical activity against COVID-19 in our Phase 2 CALVID-1 trial published in February 2021, and in light of recent exacerbations in COVID-19 worldwide, we are very excited to have in-licensed this technology to incorporate into our pandemic preparedness effort.

However, with the extra-ordinary wealth of activity already ongoing at the company in other programs, we intend to evaluate and pursue the best possible strategic option for this program, including potential partnership, collaboration or external funding.

Settlement Agreement with 4SC AG

On March 31, 2021, Immunic AG, our wholly-owned subsidiary, and 4SC AG entered into a settlement agreement, pursuant to which Immunic AG settled its remaining obligation of the 4.4% royalty on net sales for $17.25 million.

The payment was made 50% in cash and 50% in shares of our common stock.

Pursuant to the Agreement, we filed a resale shelf registration statement on Form S-3 covering the resale of the shares.

With the execution of the agreement, no further payment obligations remain between Immunic AG and 4SC AG.

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.

Appointment of Inderpal Singh as General Counsel

On June 1, 2021, we announced the appointment of Inderpal Singh as our General Counsel.

In his role, Mr.

Singh is responsible for legal and compliance matters and has become part of our executive management team.

Appointment of Patrick Walsh as Chief Business Officer

On October 14, 2021, we announced the appointment of Patrick Walsh as Chief Business Officer.

In this newly created role, Mr.

Walsh is responsible for business development, including strategic partnering opportunities, and has become part of our executive management team.

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.

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

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.

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

Nash serves as Executive Chairman and contemplated a term that ends on October 15, 2020, which was subsequently extended to April 15, 2021.

On April 15, 2021, we and Dr.

Nash entered into an addendum to extend the term of the Executive Chairman Agreement to April 15, 2022.

In connection with the Agreement, we made a one-time award to Dr.

Nash of an option to purchase 90,000 shares of Company common stock, which vest monthly commencing on May 15, 2021, and increased Dr.

Nash’s monthly base salary to $27,960 from $25,417.

Critical Accounting Policies and Estimates

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Foreign Currency Translation and Presentation

The Company’s reporting currency is US dollars.

Our reporting currency is US dollars.

During the twelve months ended December 31, 2021 and 2020, Immunic AG’s operations were located in Germany with the euro being its functional currency.

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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.

("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, celiac disease 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.

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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 (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.

We measure 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 (i) at the date of grant based on the award’s fair value for equity classified awards and (ii) at the 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.

We estimate 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 our common stock, the expected volatility of the price of our 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 U.S., Germany and Australia.

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

We are 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.

We utilize 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.

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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Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or the entire deferred tax asset will not be realized.

As of December 31, 2020, and December 31, 2019, the Company maintained a full valuation allowance against the balance of deferred tax assets.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

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

As of December 31, 2021, and December 31, 2020, we maintained a full valuation allowance against the balance of deferred tax assets.

It is our policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Components of Results of Operations

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Since our inception in March 2016, we have spent a total of approximately $143.5 million in research and development expenses through December 31, 2021.

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.

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

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

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

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.

Since the inception of the grant, we have recorded $356,000, $178,000 and $159,000 of which were recorded in 2021 and 2020, respectively, and which were classified in Other Income in the accompanying consolidated statement of operations.

Our research and development expenses may increase in 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.

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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), 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.

Other income (expense) consists primarily of a research and development tax incentive related to clinical trials performed in Australia, foreign currency transaction gains and losses related to long-term intercompany loans that are payable in the foreseeable future and the recognition of deferred revenue related to research and development expenses in connection with our option and licensing agreement with Daiichi Sankyo Co., Ltd.

Results of Operations

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General and administrative 13,300 10,334 2,966 29 %

4SC royalty settlement (see note 4) 17,250 — 17,250 NM

Total operating expenses 91,665 48,971 42,694 87 %

Loss from operations (91,665) (48,971) (42,694) 87 %

Total other income 4,954 2,099 2,855 136 %

Total other income (expense) (1,280) 4,954 (6,234) (126) %

Net loss (92,945) (44,017) (48,928) 111 %

Research and development expenses increased by $22.5 million during the twelve months ended December 31, 2021, as compared to the twelve months ended December 31, 2020.

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.

The increase reflects (i) a $10.2 million increase in external development costs related to the Phase 3 program of vidofludimus calcium in relapsing multiple sclerosis, (ii) a $7.4 million increase in external development costs related to the Phase 2 trial of vidofludimus calcium in progressive multiple sclerosis, (iii) a $4.7 million increase in external development costs related to the Phase 2 clinical trial of vidofludimus calcium in ulcerative colitis, (iv) a $2.4 million increase in personnel expense in research and development, $1.0 million of which is related to non-cash stock compensation expense and the remainder of which is related to an increase in headcount, (v) a $1.6 million increase in external development costs related to the Phase 1 clinical trial of IMU-935, (vi) a $1.8 million increase in external costs for IMU-856, (vii) a $2.1 million increase in preclinical and drug supply costs related to vidofludimus calcium and (viii) $1.1 million related to increased costs across numerous categories.

The increases were partially offset by (i) a $6.9 million decrease in external development costs related to the Phase 2 clinical trial of vidofludimus calcium in COVID-19 and (ii) a decrease of $1.9 million in drug supply costs for IMU-856.

General and administrative expenses increased by $3.0 million during the twelve months ended December 31, 2021, as compared to the twelve months ended December 31, 2020.

The increase was primarily due to (i) a $2.2 million increase related to non-cash stock compensation expense and (ii) a $0.8 million increase across numerous categories.

On March 31, 2021, Immunic AG and 4SC AG entered into a Settlement Agreement, pursuant to which Immunic AG settled its remaining obligation of the 4.4% royalty on net sales for $17.25 million (Tranche III of the Agreement).

The payment was made 50% in cash and 50% in shares of Immunic’s common stock.

No further payment obligations remain between Immunic and 4SC AG.

Other income decreased by $6.2 million during the twelve months ended December 31, 2021, as compared to the twelve months ended December 31, 2020.

The decrease was primarily attributable to (i) a $6.9 million change in other income (loss) as a result of a $4.3 million foreign exchange loss in 2021 on a $52.0 million intercompany loan between Immunic, Inc.

Immunic AG combined with a $2.5 million foreign exchange gain in 2020 on this intercompany loan and (ii) a $1.0 million decrease in recognized deferred income attributable to reimbursements of research and development expenses in connection with the Daiichi Sankyo Agreement realized in 2020.

The decrease was partially offset by (i) a $1.2 million research allowance received from the German Federal Ministry of Finance and (ii) a $0.5 million increase in research and development tax incentives for clinical trials in Australia as a result of increased spending on clinical trials in Australia.

Liquidity and Capital Resources

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We have never been profitable and have incurred operating losses in each year since our inception in 2016.

Our net losses were approximately $44.0 million and $34.9 million for the year ended December 31, 2020 and 2019, respectively.

Our net losses were approximately $92.9 million and $44.0 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of approximately $196.9 million.

Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

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.

We expect to incur significant expenses and increasing operating losses for the foreseeable future as we initiate and continue the preclinical 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 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.

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As of December 31, 2021, we had cash and cash equivalents of approximately $86.9 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 at-the-market sales agreement 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, 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.

We are dependent on financing activities to fund ongoing operations, and due to the inherent uncertainties in successfully completing financing transactions, and with our forecasted cash reach through the first quarter of 2023, these are indicators of an inability to continue as a going concern.

However, we have the ability to manage the amount and timing of expenditures to reduce costs, have limited required fixed spend, and can manage working capital as needed and that coupled with the $16.2 million of cash raised so far in 2022 under our At The Market ("ATM") facility alleviates any uncertainty that we will have adequate liquidity to meet our obligations for at least the next 12 months from the financial statement release date.

In November 2020, we filed a shelf registration statement on Form S-3 (the "2020 Shelf Registration Statement").

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 at-the-market sales agreement with SVB Leerink as agent (the "December 2020 ATM").

We intend to use the net proceeds from the December 2020 ATM 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 sales agreement for the December 2020 ATM or (ii) termination of the December 2020 ATM as otherwise permitted thereby.

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

The net proceeds from the December 2020 ATM were $0.7 million after deducting underwriter commissions of $22,555.

To date in 2022, we have raised gross proceeds of $16.7 million pursuant to the December 2020 ATM through the sale of 1,568,487 shares of common stock at a weighted average price of $10.62 per share.

The net proceeds were $16.2 million after deducting underwriter commissions of $0.5 million.

As of February 18, 2022, $32.6 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.

On October 19, 2020, we and Immunic AG entered into a Finance Contract (the “Loan Agreement”) 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 product candidate, IMU-838, in moderate coronavirus disease 2019 (“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.

Effective October 20, 2021 we terminated this agreement with the EIB and no funds were drawn under this arrangement.

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.

July 2021 Public Equity Offering

Under the terms of the underwriting agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of common stock at the public offering price, less underwriting discounts and commissions.

This option was not exercised.

On July 19, 2021, we closed the offering.

The net proceeds to us from the offering were approximately $42.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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, 2021, operating activities used $83.2 million of cash.

The use of cash related to our net loss of $92.9 million adjusted for non-cash charges of $8.6 million related to common stock issued for the 4SC AG transaction, $5.9 million related to stock-based compensation and a $4.3 million unrealized foreign currency loss as well as a $9.3 million net change in our operating assets and liabilities.

Changes in our operating assets and liabilities consisted primarily of an increase of $12.8 million in prepaid expenses and other current assets partially offset by $3.5 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 and an increased receivable for the Australian research and development credit.

The increase in liabilities is primarily due to an increase in clinical costs as a result of the start of our Phase 3 clinical studies for RMS and Phase 2 clinical studies for PMS.

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 $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, 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, 2021, net investing activities used $67,000 of cash, primarily due to purchase of equipment.

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, 2021, financing activities provided $42.8 million of cash of consisting of net cash proceeds from the sale of common stock under the July 2021 equity offering and the December 2020 ATM.

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.

Our future capital requirements are difficult to forecast and will depend on many factors, including, but not limited to:

Our future expenses and capital requirements are difficult to forecast and will depend on many factors, including, but not limited to:

• the timing and structure of any strategic options and transactions, if any;

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• personnel-related expenses, including salaries, benefits, stock-based compensation expense and other compensation expenses related to retention and termination of personnel;

• the scope, progress, results and costs of research and development and any future clinical trials;

• the scope, progress, results and costs of research and development and ongoing clinical trials;

• the cost and timing of future regulatory submissions;

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• our ability to establish new collaborations, licensing or other arrangements and the financial terms of such agreements;

• the number and characteristics of any future product candidates we pursue, if any;

• the number and characteristics of any future product candidates we pursue;

• the costs involved with being a public company;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation;

• the timing, receipt and amount from the sales of, or royalties on any future product candidates, if any.

• the timing, receipt and amount from the sales of, or royalties on any future products.

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

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 other than the Loan Agreement with the EIB.

We do not have any committed external source of funds.

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

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Other Commitments and Obligations

In May 2016, the Company entered into a purchase agreement (the “Agreement”) with 4SC whereby the Company acquired certain assets, including the rights to patents and patent applications, trademarks and know-how.

In May 2016, the Company entered into a purchase agreement with 4SC whereby the Company acquired certain assets, including the rights to patents and patent applications, trademarks and know-how.

This transaction was accounted for as an asset acquisition under Accounting Standards Update 2017-01 - Business Combinations (Topic 805):

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The Agreement included payments (Tranches III and IV) that were contingent upon the occurrence of certain events and required the Company to pay royalties equal to 4.4% of the aggregated net sales for a certain period as defined in the Agreement (Tranche III) upon commercialization of the acquired assets.

Effective April 12, 2019, the parties agreed to settle Tranche IV by issuing 120,070 shares of the Company’s common stock, immediately following the Transaction, to 4SC while keeping the obligation to pay Tranche III in effect.

Effective April 12, 2019, the parties agreed to settle

Tranche IV by issuing 120,070 shares of the Company’s common stock to 4SC at the time, while keeping the obligation to pay Tranche III in effect.

Approximately $1.5 million of expense was recorded as a result of the issuance of these shares on April 12, 2019.

No royalties are payable as of December 31, 2020 or December 31, 2019 as sales have not commenced.

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 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

Total Less Than

Years More Than

(In thousands)

Operating lease obligations $ 1,080 $ 348 $ 670 $ 62 $ —

Purchase obligations 1,234 1,234 — — —

Total contractual obligations $ 2,314 $ 1,582 $ 670 $ 62 $ —

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

On March 31, 2021, Immunic AG, a wholly-owned subsidiary of the Company, and 4SC AG entered into a Settlement Agreement, pursuant to which Immunic AG settled its remaining obligation of the 4.4% royalty on net sales for $17.25 million (Tranche III of the purchase agreement).

The payment was made 50% in cash and 50% in shares of Immunic’s common stock.

Pursuant to the Agreement, the Company filed a resale shelf registration statement on Form S-3 covering the resale of the Shares.

With the execution of the Agreement, no further payment obligations remain between Immunic AG and 4SC AG.

See Note 4 of Notes to the Financial Statements 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 .

Maturities of the operating lease obligation are as follows as of December 31, 2021 (in thousands):

Thereafter $ —

Total lease payments $ 1,113

interest portion $ 95

Present value of lease obligation $ 1,018

Contractual Obligations

As of December 31, 2021, the Company has non-cancelable contractual obligations under certain agreements related to its development programs for vidofludimus calcium, IMU-935 and IMU-856 totaling approximately $2.8 million, all of which is expected to be paid in 2022.

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.

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 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 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.

There are no recently issued accounting standards that would have a significant impact on the company's consolidated financial statements.

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