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Item 7. Management’s Discussion and Analysis

2022-03-09 compared with 2021-03-25 · 123 added, 123 removed, 259 unchanged (49% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion

and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

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Targeting TGF-ß signaling pathways has been clinically proven to elicit robust changes in blood cells, muscle and bone, which we believe provides a precedent and strong rationale for our strategy.

Our lead protein therapeutic product candidate, KER-050, is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis.

We have initiated a Phase 2 clinical trial in patients with MDS and expect to report initial data from Part 1 of this trial in mid-2021.

We also plan to initiate a Phase 2 clinical trial in patients with myelofibrosis in mid-2021.

Our lead small molecule product candidate, KER-047, is being developed for the treatment of anemia resulting from iron imbalance, as well as for the treatment of fibrodysplasia ossificans progressiva, or FOP, a rare musculoskeletal disorder.

We have completed our expanded Phase 1 clinical trial of KER-047 and expect to commence two open-label Phase 2 clinical trials in the second half of 2021, one in patients with iron deficiency anemia and one in patients with iron-refractory iron deficiency anemia.

Our third product candidate, KER-012, is being developed for the treatment of disorders associated with bone loss, such as osteoporosis and osteogenesis imperfecta, and for the treatment of pulmonary arterial hypertension, or PAH.

We plan to progress KER-012 into a Phase 1 clinical trial in the second half of 2021.

Our lead protein

therapeutic product candidate, KER-050, is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis.

We have initiated a Phase 2 clinical trial in patients with MDS and reported preliminary data from Part 1 of this trial most recently in December 2021.

We expect to report additional data from this ongoing trial in mid-2022.

We have also commenced a Phase 2 clinical trial in patients with myelofibrosis and expect to report initial data from this trial by the end of 2022.

Our lead small molecule product candidate, KER-047, is being developed for the treatment of anemia resulting from iron imbalance.

We have completed our Phase 1 clinical trial of KER-047 and expect to commence two open-label Phase 2 clinical trials in the first half of 2022, one in patients with iron deficiency anemia and one in patients with iron-refractory iron deficiency anemia.

Our third product candidate, KER-012, is being developed for the treatment of pulmonary arterial hypertension and for the treatment of disorders associated with bone loss, such as osteoporosis and osteogenesis imperfecta.

We have commenced a Phase 1 clinical trial of KER-012 in healthy volunteers and expect to report initial data from Part 1 of this trial in the second quarter of 2022.

We believe KER-047 and KER-012 offer substantial opportunities for us to continue to apply our understanding of TGF-ß signaling pathways and expand our development programs in related hematological and musculoskeletal disorders with high unmet medical need.

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We have historically financed our operations primarily through the sale of convertible preferred stock and cash received from licensing agreements.

Retrospective Reverse Stock Split

On March 31, 2020, we effected a one-for-2.1703 reverse stock split of our issued and outstanding shares of common stock and convertible preferred stock, as well as a proportional adjustment to the existing conversion ratios for our convertible preferred stock.

All issued and outstanding common stock and convertible preferred stock and related share and per share amounts contained in this Annual Report on Form 10-K have been retroactively adjusted to reflect the reverse stock split for all periods presented.

Initial Public Offering

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The aggregate net proceeds to us from the public offering were approximately $140.1 million, after deducting underwriting discounts and commissions and offering expenses.

2021 ATM Sales Agreement

In May 2021, we entered into a Sales Agreement with SVB Leerink LLC, or SVB Leerink, as sales agent, which we refer to as the ATM Sale Agreement, under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $150.0 million, or the ATM Shares, through SVB Leerink, which we refer to as the ATM Offering.

Under the ATM Sales Agreement, SVB Leerink may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended.

We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering.

For the year ended December 31, 2021, we raised gross proceeds of $28.6 million pursuant to the ATM Offering through the sale of 520,000 shares of common stock at a weighted average price of $55.00 per share.

The net proceeds from the ATM Offering were approximately $28.1 million after deducting sales agent commissions of $0.4 million and offering expenses of $0.1 million.

As of December 31, 2021, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $121.4 million available under the ATM Offering.

We have incurred recurring operating losses since inception in 2015.

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As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization.

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations.

Until such time as we can generate significant revenue from product sales, if ever,

we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations.

Adequate funding may not be available to us on acceptable terms, or at all.

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As of December 31, 2021, we had cash and cash equivalents of $230.0 million.

We expect that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2023.

We expect that our existing cash and cash equivalents as of December 31, 2021, along with the net $18.0 million upfront payment pursuant to our license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., which we received in January 2022, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024.

See “—Liquidity and Capital Resources.”

COVID-19 Business Update

With the global COVID-19 pandemic continuing throughout 2021, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees, and our business operations, including our preclinical studies and clinical trials, supply chains and third-party providers.

As a result of the continuing global COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees, and our business operations, including our preclinical studies and clinical trials, supply chains and third-party providers.

We are closely monitoring the COVID-19 situation as we evolve our business, continuity plans and response strategy.

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On May 18, 2020, the governor of Massachusetts issued a new order implementing a phased re-opening of workplaces, effective May 18, 2020.

As of March 22, 2021, the Commonwealth of Massachusetts officially entered step one of the fourth phase of re-opening.

Because of the nature of our operations, we are currently considered to be an essential business so, to date, our operations have only been partially affected by these orders.

On May 29, 2021, the Commonwealth of Massachusetts permitted all industries to fully re-open and on June 15, 2021, the governor of Massachusetts signed an executive order that terminated the Commonwealth's State of Emergency.

Because of the nature of our operations, we were considered to be an essential business so our operations were only partially affected by these orders.

The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on third-party businesses and commerce, as worker shortages have occurred;

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and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

In response to the spread of COVID-19, we have closed our principal executive office, with our administrative employees continuing their work outside of our office and limited the number of staff in any given research laboratory.

We are currently preparing plans to reopen our office to allow employees to return to the office, which will be based on a phased approach that is principles-based and local in design, with a focus on continuity of preclinical studies and clinical trial activities, employee safety and optimal work environment.

While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

In response to the spread of COVID-19, we closed our principal executive office in March 2020, with our administrative employees continuing their work outside of our office, and limited the number of staff in any given research laboratory.

In July 2021, we implemented a plan to reopen our office to allow employees to return to the office, which is based on a phased approach that is principles-based and local in design, with a focus on continuity of preclinical studies and clinical trial activities, employee safety and optimal work environment.

While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, particularly in light of variant strains of the COVID-19 virus, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

Preclinical and Clinical Developments

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As the COVID-19 pandemic continues, we have experienced and expect to continue to experience an impact on our ability to enroll participants in our clinical trials.

other important agencies due to limitations in regulatory authority employee resources or otherwise.

We have experienced and expect to continue to experience an impact on the ability to supply study drug, report trial results or interact with clinicians, investigators, regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise.

In addition, we rely on contract research organizations, or CROs, or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

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We expect to have adequate supply for the development of our product candidates.

However, if the COVID-19 pandemic persists for an extended period of time and begins to impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates, which would adversely impact our ability to carry out our clinical trials.

However, if the COVID-19 pandemic continues to persist and impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates, which would adversely impact our ability to carry out our clinical trials.

Financial Impact

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If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

While we expect the COVID-19 pandemic to adversely affect our business operations, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, as a result of uncertainty regarding ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Australia and New Zealand and the effectiveness of actions taken globally to contain and treat the disease.

While we expect the COVID-19 pandemic to adversely affect our business operations, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, as a result of uncertainty regarding ultimate duration of the pandemic, particularly in light of variant strains of the COVID-19 virus, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Australia and New Zealand and the effectiveness of actions taken globally to contain and treat the disease.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, and such agreement was subsequently amended in May 2017 and February 2018.

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, which was subsequently amended in May 2017 and February 2018.

Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals.

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Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate.

We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively.

We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits.

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We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

Termination of 2017 Research Collaboration and Exclusive License Agreement with Novo Nordisk A/S

In December 2017, we entered into a research collaboration and exclusive license agreement with Novo Nordisk A/S, or Novo Nordisk.

Under the agreement with Novo Nordisk, or the Novo Nordisk Agreement, we are collaborating with Novo Nordisk on research and development of fusion molecules consisting of a ligand binder present as part of a larger

molecule, or ligand traps.

Pursuant to the Novo Nordisk Agreement, Novo Nordisk had the right to select a prespecified number of ligand traps for further development and commercialization by Novo Nordisk.

Following execution, Novo Nordisk selected one existing ligand trap to further develop and commercialize and prior to the completion of the two-year research program, selected a second ligand trap arising from the collaboration.

Under the terms of the Novo Nordisk Agreement, we received $20.0 million in 2018, $16.0 million of which represented the initial license fee and $4.0 million of which related to research funding ($2.0 million for each year of the two-year research program).

On October 26, 2020, Novo Nordisk gave written notice of termination of the Novo Nordisk Agreement, effective six months following the delivery of notice, on April 26, 2021.

Upon termination, all worldwide rights to all ligand traps selected under the Novo Nordisk Agreement, along with all rights to develop our molecules in the fields of diabetes, obesity, nonalcoholic steatohepatitis and cachexia, will revert to us.

Under the terms of the Novo Nordisk Agreement, Novo Nordisk is obligated to continue to reimburse the Company for certain research and development costs through April 26, 2021.

Upon effectiveness of the termination, such reimbursements will cease.

Neurona Therapeutics Inc., License Agreement

On June 22, 2021, we entered into a license agreement, or the Neurona Agreement, with Neurona Therapeutics, Inc., or Neurona.

Under the Neurona Agreement, we granted Neurona a non-exclusive license to use LDN-193189, an early-stage research compound, which we license from a third party, solely as a reagent in connection with the manufacturing of diagnostic and/or therapeutic products to make, have made, use, import, offer for sale and sell products and services arising therefrom, and to make, have made, acquire, transfer, import and export the compound for such use.

The license excludes Neurona from any rights to use, sell or distribute the compound for any therapeutic or diagnostic purpose.

Unless terminated by either party for breach of contract or insolvency, the Neurona Agreement will continue in perpetuity until the last patent expires.

Under the Neurona Agreement, we received a one-time, upfront license fee of $0.1 million from Neurona in July 2021.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

In December 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh.

Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from us, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Territory.

In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022.

In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $26.5 million upon the achievement of

specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory.

If a licensed product is approved for marketing in the Territory, we will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region.

During the royalty term, neither party will directly or indirectly commercialize a competing product in the Territory.

Components of Our Results of Operations

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales.

We have generated revenue solely from the Novo Nordisk Agreement.

We have generated revenue solely from research collaborations or licensing of intellectual property.

We may in the future generate revenue from other strategic collaborations.

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We expect that our research and development expenses will continue to increase for the foreseeable future as we continue ongoing and initiate new clinical trials for our product candidates and continue to discover and develop additional product candidates.

We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

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We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates.

We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

As a result of our IPO, we have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense), Net

Interest Income (Expense), Net

Interest income (expense), net primarily consists of interest earned on money market accounts and interest expense related to leasehold improvement debt amortization.

Our interest income (expense), net has not been significant to date.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements and tax returns.

Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards, using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized.

We determine whether it is more likely than not that a tax position will be sustained upon examination.

If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized.

The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

We account for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

Interest Expense, Net

Interest expense, net primarily consists of interest earned on money market accounts and interest expense related to leasehold improvement debt amortization.

Our interest expense, net has not been significant to date.

Research and Development Incentive Income

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This estimate is also reviewed by our external tax advisors on an annual basis.

Other Income, Net

Other income, net primarily consists of unrealized gains on foreign currency and dividend income earned on money market fund accounts.

Other Income (Expense), Net

Other income (expense), net primarily consists of unrealized gains on foreign currency and dividend income earned on money market fund accounts.

Change in Fair Value of Preferred Stock Tranche Obligation

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Until settlement, fluctuations in the fair value of our preferred stock tranche obligation were based on the remeasurement at each reporting period.

Other Income (Expense), Net

Income Tax (Provision) Benefit

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements and tax returns.

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized.

We determine whether it is more likely than not that a tax position will be sustained upon examination.

If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized.

We account for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

Results of Operations

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Loss before income taxes (56,733) (45,533)

Income tax benefit 172 —

Income tax (provision) benefit (2,011) 172

Net loss $ (58,744) $ (45,361)

Our revenue for the year ended December 31, 2019 consisted of earnings under the Novo Nordisk Agreement, whereby we granted Novo Nordisk an exclusive license to develop and commercialize the licensed products listed under that agreement and Novo Nordisk granted us a non-exclusive license to its applicable intellectual property so that we could perform the activities for which we are responsible.

In accordance with the pattern of our performance of the research and development activities required under the Novo Nordisk Agreement we recognized the total $20.0 million of the revenue over the two-year term of the agreement, resulting in $10.0 million of revenue being recognized for the year ended December 31, 2019.

All revenue under the Novo Nordisk Agreement was earned as of December 31, 2019.

As such, we did not recognize any revenue for the year ended December 31, 2020.

Our revenue for the year ended December 31, 2021 consisted of (i) a one-time license fee of $0.1 million under the Neurona Agreement and (ii) upfront fee of $20.0 million under the Hansoh Agreement, whereby we granted Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the Territory.

We satisfied the performance obligation under the Hansoh Agreement upon delivery of the licenses and initial know-how transfers and consequently, we recognized the upfront payment of $20.0 million in revenue for the year ended December 31, 2021.

Research and Development Expenses

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KER-012 13,072 2,954 10,118

Personnel expenses (including share-based compensation) 5,936 3,637 2,299

Preclinical and development fees 5,360 2,168 3,192

Personnel expenses (including stock-based compensation) 13,275 5,936 7,339

Professional fees 2,671 1,929 742

Facilities and supplies 741 421 320

Other expenses 374 288 86

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Research and development expenses were $55.1 million for the year ended December 31, 2021, compared to $33.9 million for the year ended December 31, 2020.

The increase of $16.5 million was primarily due to an increase in

program-related costs including (i) a net increase of $7.0 million of KER-050 related expenses driven by a $7.8 million increase in manufacturing activities to support the clinical advancement of the program, partially offset by a $0.8 million decrease in toxicology and clinical program activities due to the completion of our Phase 1 clinical trial of KER-050;

(ii) a $3.1 million increase in clinical and manufacturing costs related to the advancement of our KER-047 program;

(iii) a $3.0 million increase in manufacturing and preclinical activities to support the advancement of KER-012;

(iv) a $2.3 million increase in personnel costs, including additional share-based compensation costs driven by the increase in headcount to support the advancement of our pipeline;

and (v) $1.1 million in professional fees to support our organizational growth and the continued advancements in our pipeline.

The increase of $21.3 million was primarily due to an increase in program-related costs including (i) a net increase of $3.1 million of KER-050-related expenses, primarily driven by a $4.8 million increase in clinical and preclinical program activities due to the progression of our Phase 2 clinical trial of KER-050 in MDS, partially offset by a decrease of $1.7 million in manufacturing activities;

(ii) a net decrease of $3.6 million of KER-047-related expenses, primarily driven by a $1.5 million decrease in clinical expenses due to the completion of our Phase 1 clinical trial and a $2.0 million decrease in manufacturing and preclinical expenses;

(iii) a net increase of $10.1 million of KER-012-related

expenses, which was driven by a $6.0 million increase in manufacturing costs, a $1.8 million increase in preclinical activities and a $2.3 million increase in clinical activities due to the commencement of our Phase 1 clinical trial of KER-012;

(iv) a $3.2 million increase in preclinical pipeline and development activities;

(v) a $7.3 million increase in personnel costs, including additional stock-based compensation costs driven by the increase in headcount to support the advancement of our pipeline;

(vi) a $0.7 million increase in professional fees to support our organizational growth and the continued advancements in our pipeline;

and (vii) a $0.4 million increase in facilities and other expense due to the growth of our organization.

We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

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General and administrative expenses were $21.3 million for the year ended December 31, 2021, compared to $12.8 million for the year ended December 31, 2020.

The increase of $9.6 million was primarily due to (i) a $4.6 million increase in personnel expenses, which includes additional share-based compensation costs, to support our organizational growth and achievement of our corporate goals;

(ii) a $2.5 million increase in director and officer insurance premiums recognized since our IPO;

and (iii) a $2.0 million increase in professional fees to support our transition to a public company.

The increase of $8.5 million was primarily due to (i) a $6.3 million increase in personnel expenses, which includes additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals;

(ii) a $1.0 million increase in director and officer insurance premiums;

(iii) a $0.7 million increase in professional fees primarily attributable to legal expenses related to data privacy law compliance and the maintenance and expansion of our intellectual property portfolio;

and (iv) a $0.5 million increase in facilities and other office expense due to growth of our organization.

Other Income (Expense), Net

Other income (expense), net was $(0.4) million for the year ended December 31, 2021, compared to $1.1 million for the year ended December 31, 2020.

The increase of $2.9 million is related to (i) a $1.1 million increase related to the change in fair value of the preferred stock tranche obligation upon remeasurement in March 2020, prior to settlement;

and (ii) a $1.9 million increase in R&D Incentive income due to an increase in research and development spending in Australia.

This increase was partially offset by a $0.1 million expense related to unrealized gains and losses on our money market funds.

Income Tax Benefit

Income taxes benefit was $0.2 million for the year ended December 30, 2020, compared to $— for the year ended December 29, 2019.

The increase was due to the carry back of our 2019 net operating loss to claim a refund for prior federal tax liabilities under the Coronavirus Aid, Relief, and Economic Security Act

The decrease of $1.5 million is related to (i) a decrease of $2.5 million in R&D Incentive income in Australia in 2020, and (ii) a decrease of $0.5 million primarily related to foreign currency unrealized gains and losses and dividend income, which was partially offset by an increase of $1.5 million related to the change in fair value of the preferred stock tranche obligation upon remeasurement in March 2020, prior to settlement.

Income Tax (Provision) Benefit

Income tax provision was $2.0 million for the year ended December 31, 2021, compared to $0.2 million tax benefit for the year ended December 31, 2020.

The increase in income tax provision consists primarily of withholding taxes related to the taxable income generated from the Hansoh Agreement.

Liquidity and Capital Resources

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We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years.

Since our inception, we have funded our operations primarily through equity financings and through the Novo Nordisk Agreement.

Since our inception, we have funded our operations primarily through equity financings and through research collaborations or licensing of intellectual property.

In March 2020, we sold 4,169,822 shares of Series C Preferred Stock for aggregate net proceeds of approximately $55.8 million.

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In November 2020, we completed a public offering of our common stock, whereby we sold an aggregate of 2,990,000 shares of our common stock for aggregate net proceeds of approximately $140.1 million after deducting underwriting discounts and commissions and offering expenses.

On May 3, 2021, we filed a shelf registration statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or SEC, which was automatically effective upon filing.

The Shelf permits us to offer, from time to time, an unspecified amount of common stock, preferred stock, debt securities and warrants.

We simultaneously entered into a sales agreement with SVB Leerink, as agent, to provide for the issuance and sale by us of the ATM Shares from time to time in “at the market” offerings under the Shelf.

As of December 31, 2021, we sold a total of 520,000 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $28.1 million after deducting sales agent commissions and estimated offering expenses.

As of December 31, 2021, we had cash and cash equivalents of $230.0 million.

We expect that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2023.

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

Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may

enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

We expect that our existing cash and cash equivalents as of December 31, 2021, along with the net $18.0 million upfront payment pursuant to our license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh, which we received in January 2022, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024.

We have based this estimate on

assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements, both near and long-term, will depend on many factors, including:

▪ the progress, timing and completion of preclinical studies and clinical trials for our current or any future product candidates, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other causes;

▪ the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreement with The General Hospital Corporation;

▪ the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreements with each of The General Hospital Corporation and Hansoh;

▪ the number of potential new product candidates we identify and decide to develop;

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Net cash provided by financing activities 28,550 296,044

Net increase (decrease) in cash and cash equivalents, and restricted cash $ 258,856 $ (16,255)

Net (decrease) increase in cash and cash equivalents, and restricted cash $ (34,622) $ 258,856

Operating Activities

Net cash used in operating activities was $36.9 million for the year ended December 31, 2020, which was driven by a net loss of $45.4 million, offset by non-cash charges, including $4.1 million of stock-based compensation expense and $1.5 million related to the change in the fair value of our preferred stock tranche liability prior to settlement.

Cash used in operating activities was partially offset by $2.3 million in changes in operating assets and liabilities, including an increase in accrued expenses of $2.6 million to support the advancement of our programs and a $0.9 million decrease in our R&D Incentive receivable related to the recognition and cash received in 2020, partially offset by a $1.5 million decrease in prepaid expenses and other assets due to the timing of expense recognition for our research and development costs.

The change in operating assets and liabilities was also driven by a $0.6 million decrease in deferred IPO costs in connection with the recognition of these IPO costs.

During the year ended December 31, 2019, cash used in operating activities was $16.0 million, which was driven by a net loss of $12.3 million, offset by non-cash charges including a $10.0 million decrease in deferred revenue for the portion of the Novo Nordisk payment recognized as revenue in 2019, as well as a $0.6 million increase in our R&D Incentive receivable.

Cash used in operating activities was also partially offset by a $2.5 million increase in operating assets and liabilities, a $2.6 million increase in fair value of our preferred stock tranche obligation, and a $1.9 million decrease in prepaid and other current assets.

Net cash used in operating activities was $62.1 million for the year ended December 31, 2021, which was driven by a net loss of $58.7 million and $16.1 million in cash used in operating assets and liabilities, partially offset by non-cash charges, including $11.7 million of stock-based compensation expense and $0.4 million in depreciation.

The $16.1 million of cash used in operating assets and liabilities was primarily comprised of (i) an $18.0 million increase in accounts receivable from the

$20.0 million upfront payment pursuant to the Hansoh Agreement, net of $2.0 million in withholding tax;

and (ii) a $1.5 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs, which was partially offset by a $4.1 million increase in accounts payable and accrued expenses to support the advancement of our programs.

During the year ended December 31, 2020, net cash used in operating activities was $36.9 million, which was driven by a net loss of $45.4 million, offset by non-cash charges, including $4.1 million of stock-based compensation expense and $1.5 million related to the change in the fair value of our preferred stock tranche liability prior to settlement.

Cash used in operating activities was partially offset by $2.3 million in changes in operating assets and liabilities, including (i) an increase in accrued expenses of $2.6 million to support the advancement of our programs, (ii) a $0.9 million decrease in our R&D Incentive receivable and (iii) a $0.6 million decrease in deferred IPO costs in connection with the recognition of these IPO costs, partially offset by a $1.5 million increase in prepaid expenses and other assets due to the timing of expense recognition for our research and development costs.

Investing Activities

Net cash used in investing activities was $0.3 million for each of the years ended December 31, 2020 and 2019.

Net cash used in investing activities was $1.0 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively.

The cash used in investing activities in both periods was due to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $28.6 million for the year ended December 31, 2021, which was primarily related to (i) net proceeds of $28.2 million received from sales of our common stock under the ATM Sales Agreement, after deducting sales agent commissions and before deducting offering expenses;

and (ii) proceeds of $0.4 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $296.0 million for the year ended December 31, 2020, which was primarily related to (i) the net proceeds of $55.8 million from our March 2020 issuance and sale of Series C Preferred Stock;

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and (iii) the net proceeds of $140.1 million from our November 2020 public offering, net of underwriters’ discounts and commissions and offering expenses payable by us.

Net cash provided by financing activities of less than $0.1 million during the year ended December 31, 2019 was related to exercises of options to purchase common stock.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations at December 31, 2020 and the effects of such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

The following table summarizes our contractual obligations as of December 31, 2021 and the effects of such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

PAYMENTS DUE BY PERIOD

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Total $ 1,212 $ 978 $ 234 $ — $ —

We have entered into an operating lease for rental space in Lexington, Massachusetts.

In March 2017, we entered into a lease agreement for our current headquarters located in Lexington, Massachusetts.

In July and August 2019, we executed the first and second amendments to our lease, respectively, to expand the rental space to 10,417 square feet.

In August 2021, we entered into a third amendment to our lease to extend the lease term through March 31, 2023 and to expand the rental space to 15,622 square feet.

The table above includes future minimum lease payments under the non-cancelable lease arrangement.

A portion of the contractual obligations and commitments is related to the loan we received from the landlord of $0.2 million for leasehold improvements.

This will be repaid in full by December 2022 when the lease expires, but principal payments became due in monthly installments beginning 18 months after the commencement of the lease, which was March 2017.

This will be repaid in full by December 2022, but principal payments became due in monthly installments beginning 18 months after the commencement of the lease, which was March 2017.

We have entered into a new lease for rental space in Lexington, Massachusetts, which will serve as our new principal executive office and includes laboratory space, which has not yet commenced.

We expect to pay $21.6 million over the lease term of eight years and four months, which we expect to begin in the fourth quarter of 2022.

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we are required to make under the MGH Agreement pursuant to which we have in-licensed certain intellectual property.

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Following the commencement of commercial sales of the licensed products, we will pay designated amounts when certain milestone events occur.

The development milestones and commercial milestones range from $50,000 to $10.0 million depending upon the significance of the particular milestone.

We are also required to pay MGH royalties on all sales of licensed products,

with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted.

The development milestones and commercial milestones

range from $50,000 to $10.0 million depending upon the significance of the particular milestone.

We are also required to pay MGH royalties on all sales of licensed products, with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted.

In conjunction with the execution of the MGH Agreement, we issued MGH five percent of our outstanding fully diluted capital on April 15, 2016, or 358,674 shares of common stock, for proceeds of less than $0.1 million.

Critical Accounting Policies and Significant Judgments and Estimates

Critical Accounting and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.

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Revenue Recognition

To date, our revenues have consisted solely of payments received related to the Novo Nordisk Agreement.

To date, our revenues have consisted solely of payments received related to research collaborations or licensing of intellectual property.

We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Subtopic 606, Revenue from Contracts with Customers, or ASC 606, which was adopted January 1, 2018 using the full retrospective method.

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If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and

timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Preferred Stock Tranche Obligation

The initial fair value of the preferred stock tranche obligation recognized in connection with our issuances of convertible preferred stock in April 2016, August 2016, and November 2018 was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The initial fair value of the obligation was estimated based on results of a third-party valuation performed in connection with the initial issuances.

This obligation is remeasured prior to the issuance of subsequent tranches, and at each subsequent reporting period.

See Note 8 to our annual consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our issuances of preferred stock.

The tranche obligation was determined using the binomial pricing model, which takes into account the probability of both achievement and failure to achieve the tranche milestones and issue the subsequent shares.

The binomial pricing model calculates the tranche obligation as the difference between the expected value of the Series B-1/B-2 Preferred Stock at the time the tranche milestone is met and the contractual purchase price for the tranche shares, and then discounts this value back to the initial issuance date.

In determining the fair values of the tranche obligations, estimates and assumptions impacting fair value include the estimated future values of our Series B-1/B-2 Preferred Stock, discount rates, estimated time to liquidity, and probability of each tranche closing.

We determined the per share future value of the Series B-1/B-2 Preferred Stock by back-solving to the initial proceeds of the financings.

We remeasured each tranche obligation at each reporting period and prior to settlement.

The purchase price of the preferred stock at initial issuance, and all subsequent issuances was higher than the fair value of our common stock.

Stock-Based Compensation

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The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis.

Our Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected volatility of the price of our common stock and the expected term of the award.

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

If factors change and these assumptions either increase or decrease, our stock-based compensation expense could materially differ in the future.

Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided.

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The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

Determination of the Fair Value of Common Stock

Prior to our initial public offering, the estimated fair value of our common stock was determined by management and approved by our board of directors, utilizing our enterprise value determined by a third-party valuation expert, and in accordance with the guidance outlined in the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Our management considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

▪ the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

▪ the progress of our research and development programs, including the status and results of preclinical studies for our product candidates;

▪ our stage of development and commercialization and our business strategy;

▪ external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;

▪ our financial position, including cash on hand, and our historical and forecasted performance and operating results;

▪ the lack of an active public market for our common stock and our preferred stock;

▪ the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions;

▪ the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment.

As a result, if we had used different assumptions or

estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined by applicable SEC rules and regulations, such as relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recently Issued Accounting Pronouncements

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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