What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-12 · 179 added, 462 removed, 432 unchanged (60% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020

Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021 and 2020

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2022 and 2021

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

Notes to Condensed Consolidated Financial Statements

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Other Information

As previously disclosed, on May 28, 2020, Zafgen, Inc., a Delaware corporation (“Zafgen”), completed a Merger with Chondrial Therapeutics, Inc., a Delaware corporation (“Chondrial”), in accordance with the terms of the Agreement and Plan of Merger (the “Merger Agreement”) entered into on December 17, 2019.

Pursuant to the Merger Agreement, (i) a subsidiary of Zafgen merged with and into Chondrial, with Chondrial continuing as a wholly owned subsidiary of Zafgen and the surviving corporation of the merger and (ii) Zafgen was renamed as “Larimar Therapeutics, Inc.”

(the “Merger”).

For accounting purposes, the Merger has been treated as a “reverse asset acquisition”

under generally accepted accounting principles in the United States (“U.S.

GAAP”) and Chondrial was considered the accounting acquirer.

Accordingly, Chondrial’s historical results of operations replace Larimar’s historical results of operations for all periods prior to the Merger and, for all periods following the Merger, the results of operations of the combined company are included in the Company’s condensed, consolidated financial statements.

Unless the context otherwise requires, references to the “Company,”

the “combined company”

“we,”

“our”

or “us”

in this report refer to Larimar Therapeutics, Inc.

and its subsidiaries, references to “Larimar”

refer to the Company following the completion of the Merger, and references to “Zafgen”

refer to the Company prior to the completion of the Merger.

PART I-FINANCIA L INFORMATION

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(In thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Marketable debt securities

Prepaid expenses and other current assets

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5,000,000 shares authorized

as of September 30, 2021 and December 31, 2020;

as of March 31, 2022 and December 31, 2021;

no shares issued and

outstanding as of September 30, 2021 and December 31, 2020

outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.001 par value per share;

115,000,000 shares

authorized as of September 30, 2021 and December 31, 2020;

17,710,450 and 15,367,730 shares issued and outstanding as of

September 30, 2021 and December 31, 2020, respectively

authorized as of March 31, 2022 and December 31, 2021;

17,710,450 shares issued and outstanding as of

March 31, 2022 and December 31, 2021

Additional paid-in capital

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(In thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating expenses:

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Other income (expense), net

Net loss and Total comprehensive loss

Net loss per share, basic and diluted

Weighted average common shares outstanding, basic and diluted

Comprehensive loss:

Other comprehensive loss:

Unrealized gain (loss) on marketable debt securities

Total other comprehensive loss

Total comprehensive loss

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Balances as of March 31, 2022

Stock-based compensation expense

Balances as of June 30, 2021

Stock-based compensation expense

Issuance of Common Stock, net

Unrealized gain on marketable debt securities

Balances as of September 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’

EQUITY (CONTINUED)

(In thousands, except share data)

Comprehensive

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Balances as of December 31, 2020

Capital contributions from related party

Stock-based compensation expense

Balances as of March 31, 2021

Capital contributions from related party

Merger with Zafgen Inc.

Private Placement of common shares and pre-funded warrants, net of transaction costs

Stock-based compensation expense

Unrealized loss on marketable debt securities

Balances as of June 30, 2020

Stock-based compensation expense

Unrealized gain on marketable debt securities

Balances as of September 30, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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Stock-based compensation expense

Loss on disposal of fixed asset

Depreciation expense

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Cash flows from investing activities:

Purchase of property and equipment

Purchase of marketable debt securities

Maturities and sales of marketable debt securities

Cash, cash equivalents, and restricted cash acquired in connection with the Merger

Merger transaction costs

Net cash provided by investing activities

Cash flows from financing activities:

Capital contribution from related party

Proceeds from issuance of equity securities, net of issuance costs

Net cash provided by financing activities

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Supplemental disclosure of non-cash investing and financing activities:

Fair value of net assets acquired in the Merger, including $ 1.0 million of marketable debt securities and excluding cash acquired

Property and equipment included in accounts payable and accrued expenses

Merger transaction costs included in accounts payable and accrued expenses

Leased assets obtained in exchange for new operating lease liabilities

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLID ATED FINANCIAL STATEMENTS

Organization, Clinical Development, Nature of the Business, COVID-19 Risk and Basis of Presentation

Larimar Therapeutics, Inc., together with its subsidiaries (the “Company”

Organization, Clinical Development, Nature of the Business, COVID-19, Clinical Hold and Basis of Presentation

Larimar Therapeutics, Inc., together with its subsidiary (the “Company”

or “Larimar”), is a clinical-stage biotechnology company focused on developing treatments for patients suffering from complex rare diseases using its novel cell penetrating peptide technology platform.

Larimar’s lead product candidate, CTI-1601, is a subcutaneously administered, recombinant fusion protein intended to deliver human frataxin ("FXN"), an essential protein, to the mitochondria of patients with Friedreich’s ataxia.

Larimar's lead product candidate, CTI-1601, is a subcutaneously administered, recombinant fusion protein intended to deliver human frataxin ("FXN") an essential protein, to the mitochondria of patients with Friedreich’s ataxia.

Friedreich’s ataxia is a rare, progressive and fatal disease in which patients are unable to produce sufficient FXN due to a genetic abnormality.

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There were no serious adverse events, ("SAEs"), associated with either the MAD or SAD trials.

On May 25, 2021 the United States Food and Drug Administration ("FDA") placed a clinical hold on the CTI-1601 clinical program following the Company’s notification to the FDA of mortalities which occurred at the highest dose levels in an ongoing 180-day non-human primate ("NHP") toxicology study, which is designed to support extended dosing of patients with CTI-1601.

In the clinical hold letter, the FDA stated that it needs a full study report from the ongoing NHP study and that Larimar may not initiate additional clinical trials until the company has submitted the report and received notification from the FDA that additional clinical trials may commence.

At the time of the FDA clinical hold, the Company had no interventional clinical trials with patients enrolled or enrolling.

In July 2021, the Company completed dosing in the NHP toxicology study discussed above.

The Company is currently collecting and analyzing data from the study.

There is no way to predict the timing of the FDA’s response (which the Company anticipates will not be received prior to the first quarter of 2022) or whether the FDA will require additional data or testing before lifting the clinical hold on CTI-1601 in full or in part.

While the Company expects to initiate its Jive open-label extension and pediatric MAD trials in the first half of 2022, the timing of these trials could be delayed or modified depending on the results of the NHP toxicology study and/or the FDA's response to these results and any other data the Company will provide in its complete response to the clinical hold.

In May 2021, the FDA placed a clinical hold on the Company's CTI-1601 clinical program after the Company notified the agency of mortalities at the highest dose levels of the 26-week non-human primate toxicology study that was designed to support extended dosing of patients with CTI-1601.

At the time the hold was placed, Larimar had no interventional clinical trials with patients enrolling or enrolled.

In February 2022, in response to the Company submitting a complete response to the FDA, the Agency stated that it was maintaining the clinical hold and that additional data are needed to resolve the clinical hold.

Larimar subsequently submitted a request for an FDA Type C meeting.

This meeting request has been granted and is scheduled for early in the third quarter of 2022.

Throughout the course of the interactions associated with the Type C meeting, Larimar intends to work with the Agency to enable resolution of the clinical hold and to agree on the study design and timing of the next proposed clinical trial.

Larimar does not know when, or if the clinical hold will be lifted.

The Company is subject to risks and uncertainties common to pre-commercial companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations, failure to secure regulatory approval for its drug candidates or any other product candidates and the ability to secure additional capital to fund its operations.

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These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities.

Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

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

In March 2020, the World Health Organization ("WHO"), declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

The pandemic resulted in the temporary stoppage of the Company’s CTI-1601 Phase 1 clinical trials in patients with Friedreich’s ataxia in March 2020.

In July 2020, the Company resumed these clinical trials, and has since completed dosing of both its single ascending dose and multiple ascending dose clinical trials.

In July 2020, the Company resumed these clinical trials, and has since completed both of the Company's SAD and MAD clinical trials.

Since being discovered, new variants of COVID-19 have emerged.

In November 2021, the Omicron variant was identified in South Africa, and has been deemed a variant of concern by the WHO.

In addition to the Omicron variant, the WHO has deemed four other variants to be variants of concern:

the Alpha variant, the Beta variant, the Gamma variant, and the Delta variant.

All of the aforementioned variants have at least one of the following characteristics resulting in the WHO deeming them variants of concern:

an increase in transmissibility or detrimental change in COVID-19 epidemiology, an increase in virulence or change in clinical disease presentation, or a decrease in effectiveness of public health and social measures or available diagnostics, vaccines, or therapeutics.

Vaccines manufactured by Moderna, Pfizer and Johnson & Johnson were introduced late in the fourth quarter of 2020 and became widely available by the end of the first quarter of 2021.

While the vaccines have proven effective in reducing the severity and mortality of COVID-19 including the variants that have evolved to date, the overall vaccination rate in the United States has not reached the level required for herd immunity in some states, particularly in some regions of the country.

The incidence of variants of COVID-19, has been increasing particularly among unvaccinated individuals and the recent delta variant is proving to be more easily spread than earlier variants.

The low vaccination rate, the spread of variants, the evolution of additional mutations against which the current vaccines may prove ineffective could again result in major disruptions to businesses and markets worldwide.

Furthermore, the incidence of "breakthrough" infections even among vaccinated individuals have been increasing resulting in the need for additional booster doses which could make COVID-19 a long-term infectious disease concern.

While the vaccines have proven effective in reducing the severity and mortality of COVID-19, including the variants that have evolved to date, the overall vaccination rate has not reached the level required for herd immunity in some areas of the country.

Further, additional doses of vaccines have been and may continue to be required and individuals may refuse or fail to receive one or more such doses.

The incidence of variants of COVID-19 has been increasing, particularly among unvaccinated individuals, and the Omicron variant has proven to be more easily spread than earlier variants.

The low vaccination rate, the spread of the variants and the evolution of additional mutations against which the current vaccines may prove ineffective could again result in major disruptions to businesses and markets worldwide.

Furthermore, the incidence of "breakthrough" infections even among vaccinated individuals have been increasing, resulting in the need for booster doses which could make COVID-19 a long-term infectious disease concern.

The Company’s business, results of operations, financial condition and cash flows could be materially and adversely affected.

Specifically, the Company could experience additional delays in future clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic which may be imposed or could experience supply shortages or manufacturer shutdowns impacting the manufacture of drug substance or drug product, which could also impact clinical trial timelines.

The financial statements do not reflect any adjustments as a result of the pandemic.

Merger with Zafgen

On December 17, 2019, Zafgen, Inc.

(“Zafgen”), Chondrial Therapeutics Inc.

(“Chondrial”), Zordich Merger Sub, Inc.

(“Merger Sub”) and Chondrial Holdings, LLC (“Holdings”), the sole stockholder of Chondrial, entered into an Agreement and Plan of Merger, as amended on March 9, 2020 (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Chondrial, with Chondrial surviving as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”).

The transaction was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Under this method of accounting, Chondrial was deemed to be the accounting acquirer for financial reporting purposes.

This determination was primarily based on the facts that, immediately following the Merger:

(1) former shareholders of Chondrial owned a substantial majority of the voting rights of the combined company;

(2) the majority of the board of directors of the combined company was composed of directors designated by Chondrial under the terms of the Merger Agreement;

and (3) existing members of Chondrial management constituted the management of the combined company.

Because Chondrial has been determined to be the accounting acquirer in the Merger, but not the legal acquirer, the Merger is deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .

As a result, the historical financial statements of Chondrial are the historical financial statements of the combined company.

As the Merger has been accounted for as an asset acquisition, goodwill has not been recorded within the condensed consolidated balance sheet.

The Merger was completed on May 28, 2020 pursuant to the terms of the Merger Agreement.

In addition, immediately prior to the closing of the Merger, Zafgen effected a 1-for-12 reverse stock split (the “Reverse Stock Split”) of Zafgen’s common stock, par value $ 0.001 per share (the “Zafgen Common Stock”).

At the effective time of the Merger (the “Effective Time”), each share of Chondrial’s common stock, par value $ 0.001 per share (“Chondrial Common Stock”), outstanding immediately prior to the Effective Time was converted into the right to receive shares of Zafgen Common Stock based on an exchange ratio set forth in the Merger Agreement.

At the Effective Time following the Reverse Stock Split, the exchange ratio was determined to be 60,912.5005 shares of Zafgen Common Stock for each share of Chondrial Common Stock (the “Exchange Ratio”).

At the closing of the Merger on May 28, 2020, Zafgen issued an aggregate of 6,091,250 shares of its common stock to Holdings (the “Merger Shares”), based on the Exchange Ratio after giving effect to the Reverse Stock Split described below.

Holdings subsequently distributed the Merger Shares to its members.

In addition, all outstanding options exercisable for common units of Holdings became options exercisable for the shares of common stock of Zafgen based on the conversion factor discussed within the Merger Agreement.

In connection with the Merger, Zafgen changed its name to Larimar Therapeutics, Inc.

Following the closing of the Merger, Chondrial Therapeutics, Inc.

became a wholly owned subsidiary of the Company.

In December 2020, Chondrial Therapeutics was legally merged into Larimar Therapeutics, Inc.

As used herein, the words “the Company”

refers to, for periods following the Merger, Larimar, together with its subsidiaries, and for periods prior to the Merger, Chondrial Therapeutics Inc., and its direct and indirect subsidiaries, as applicable.

Specifically, the Company could experience additional delays in future clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic and the efforts to mitigate it which may be imposed or could experience supply shortages or manufacturer shutdowns impacting the manufacture of drug substance or drug product, which could also impact clinical trial timelines.

The condensed consolidated financial statements do not reflect any adjustments as a result of the pandemic.

Basis of Presentation

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The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP.

Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the Exchange Ratio.

Reverse Stock Split

On May 28, 2020, immediately prior to the closing of the Merger, Zafgen effected the Reverse Stock Split.

Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated

financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split.

No fractional shares were issued in connection with the Reverse Stock Split.

Going Concern Assessment

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

As of the issuance date of these condensed consolidated financial statements, the Company expects that its cash, cash equivalents and marketable debt securities will be sufficient to fund its forecasted operating expenses and capital expenditure requirements for at least the next twelve months from the issuance date of these financial statements.

The Company has funded its operations to date primarily with proceeds from sales of common stock, prefunded warrants for the purchase of common stock and, prior to the merger with Zafgen described above, contributions from Holdings.

In June 2020, the Company completed the Merger and acquired $ 42.9 million of cash, cash equivalents, restricted cash and marketable debt securities that were held by Zafgen immediately prior to the Merger.

The Company also raised $ 75.4 million, net of offering costs, through a private offering of common stock and prefunded warrants to purchase shares of common stock in connection with and immediately after the closing of the Merger in June 2020.

The Company’s condensed consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Since its inception, the Company has incurred significant recurring operating losses and negative cash flows from operations.

The Company has incurred net losses of $ 8.9 million and $ 12.1 million for the three months ended March 31, 2022 and 2021, respectively.

In addition, as of March 31, 2022, the Company had an accumulated deficit of $ 125.2 million .

The Company expects to continue to generate operating losses for the foreseeable future.

As of March 31, 2022, the Company had approximately $ 62.6 million of cash and cash equivalents available for use to fund its operations and capital requirements.

In August 2020, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with an investment bank in connection with the establishment of an “at-the-market”

offering program under which the Company could sell up to an aggregate of $ 50,000,000 of shares of its common stock from time to time through this investment bank as sales agent.

In July 2021, the Company sold 2,342,720 shares pursuant to the ATM Agreement for gross proceeds of $ 20.5 million.

As of November 10, 2021, $ 29.2 million of additional shares of common stock remained available for sale by the Company under the ATM Agreement.

In 2021, the Company sold 2,342,720 shares pursuant to the ATM Agreement for gross proceeds of $ 20.5 million.

As of May 10, 2022, $ 29.2 million of additional shares of common stock remained available for sale by the Company under the ATM Agreement.

See Note 7 for a further discussion of the ATM Agreement.

Since its inception, the Company has incurred significant operating losses and negative cash flows from operations.

The Company has incurred recurring losses since inception, including net losses of $ 41.5 million and $ 28.3 million for nine months ended September 30, 2021 and 2020, respectively.

In addition, as of September 30, 2021, the Company had an accumulated deficit of $ 107.1 million .

The Company expects to continue to generate operating losses for the foreseeable future.

As of September 30, 2021, the Company had approximately $ 78.0 million of cash and cash equivalents available for use to fund its operations.

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of the issuance date of these condensed consolidated financial statements, the Company expects its cash and cash equivalents will be sufficient to fund its forecasted operating expenses and capital expenditure requirements, for at least the next twelve months from the issuance of these financial statements.

If the timing of our clinical assumptions were delayed or if there were other forecasted assumption changes that negatively impact our operating plan, the Company could reduce expenditures in order to further extend cash resources.

The Company has not yet commercialized any products and does not expect to generate revenue from the commercial sale of any products for several years, if at all.

The Company expects that its research and development and general and administrative expenses will continue to increase and, as a result, will need additional capital to fund its future operations, which it may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements.

If the Company is unable to obtain future funding when needed, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or pre‑commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Management is currently evaluating different strategies to obtain the required funding for future operations.

Until the Company can generate substantial revenue, if ever, the Company expects to seek additional funding through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

The incurrence of indebtedness would result in increased fixed payment obligations and the Company may be required to agree to certain restrictive covenants, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact the Company's ability to conduct our business.

Any additional fundraising efforts may divert the Company's management from their day-to-day activities, which may adversely affect its ability to develop and commercialize our product candidates.

There can be no assurance that the Company will be able to raise sufficient additional capital on acceptable terms or at all.

If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, or the Company does not have sufficient authorized shares, the Company may be required to delay, limit, or eliminate the development of business opportunities and its ability to achieve its business objectives, its competitiveness, and its business, financial condition, and results of operations will be materially adversely affected.

The Company could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and it may be required to relinquish rights to some of its technologies or product candidates or otherwise agree to terms unfavorable to it, any of which may have a material adverse effect on the Company's business, operating results and prospects.

In addition, geopolitical unrest including the potential impact of the Russian invasion of Ukraine, the possibility that the conflict could expand beyond eastern Europe, the impact of the COVID-19 pandemic and/or other health crises on the global financial markets may reduce the Company's ability to access capital, which could negatively affect its liquidity and ability to continue as a going concern.

If the Company is unable to obtain funding when needed and/or on acceptable terms, the Company may be required to significantly curtail, delay or discontinue one or more of its research and development programs, the manufacture of clinical and commercial supplies, product portfolio expansion or pre commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

Summary of Significant Accounting Policies

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The condensed consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for interim financial statements.

The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for interim financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

However, the Company believes that the disclosures are adequate to

make the information presented not misleading.

However, the Company believes that the disclosures are adequate to make the information presented not misleading.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed on March 25, 2022.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of September 30, 2021 and condensed consolidated results of operations and cash flows for the three and nine months ended September 30, 2021 and 2020 have been made.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021 .

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of March 31, 2022 and condensed consolidated results of operations and cash flows for the three months ended March 31, 2022 and 2021 have been made.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022 .

Use of Estimates

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On an ongoing basis, the Company evaluates its estimates and assumptions.

Concentrations of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable debt securities.

The Company generally maintains cash balances in various operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits.

The Company has not experienced losses related to its cash, cash equivalents or marketable debt securities.

The Company is highly dependent on third-party manufacturers to supply products for research and development activities in its programs, to scale and optimize their manufacturing processes and, ultimately, to provide commercial supply.

The Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for drug substance and formulated drugs related to these programs.

The drug substance which is in frozen liquid form for CTI-1601 is currently manufactured for the Company by a third-party manufacturer, and the frozen liquid form of drug product is made at another manufacturer.

The Company is undertaking a program with a third manufacturer to begin to produce a lyophilized version of the drug product from the same drug substance, that, once available, the Company intends to use in certain of its future planned clinical trials.

The Company’s research and development programs could be adversely affected by a significant interruption in these manufacturing services or in the supply of drug substance and formulated drugs.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.

At September 30, 2021 and December 31, 2020, cash equivalents consisted of commercial paper and corporate bonds with maturity dates of less than three months at the date of acquisition and money market funds.

Marketable debt securities

Marketable debt securities consist of debt investments with original maturities greater than ninety days.

The Company classifies its marketable debt securities as available-for-sale.

Accordingly, these investments are recorded at fair value, which is based on quoted market prices.

When the fair value is below the amortized cost, the amount of the expected credit loss is estimated.

The credit-related impairment amount is recognized in net income;

the remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive income in stockholders’

Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account.

If the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is recorded in net income.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Depreciation expense is recognized using the straight-line method over a five or seven-year estimated useful life for equipment, furniture and fixtures and office equipment.

Leasehold improvements are amortized over the shorter of the asset life or the term of the lease agreement.

Expenditures for repairs and maintenance of assets are charged to expense as incurred.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment, net¸

and the net operating lease asset.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value.

Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Segment Information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

The Company’s focus is on the research, development, and commercialization of novel therapeutics for the treatment of rare diseases.

Research and Development Costs

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Prior to May 28, 2020, the Company had been a private company and lacked company-specific historical and implied volatility information for its common stock.

Therefore, the Company estimates its expected common stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so

until it has adequate historical data regarding the volatility of its own traded stock price.

Therefore, the Company estimates its expected common stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price.

The expected term of the Company’s stock options has been determined utilizing the “simplified”

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Expected dividend yield considers the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in the Company’s tax returns.

Deferred tax assets and liabilities are determined based on the difference 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.

Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.

Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.

First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.

If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements.

The amount of the benefit that may be recognized is the largest amount that has a greater than 50 % likelihood of being realized upon ultimate settlement.

The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Net Loss Per Share

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Basic shares outstanding includes the weighted average effect of the Company’s prefunded warrants issued in June 2020, the exercise of which requires little or no consideration for the delivery of shares of common stock.

Basic and diluted weighted average shares of common stock outstanding for the three and nine months ended September 30, 2021 and 2020 includes the weighted average effect of 628,403 prefunded warrants for the purchase of shares of common stock, for which the remaining unfunded exercise price is $ 0.01 per share.

Basic and diluted weighted average shares of common stock outstanding for the three months ended March 31, 2022 and 2021 includes the weighted average effect of 628,403 prefunded warrants for the purchase of shares of common stock, for which the remaining unfunded exercise price is $ 0.01 per share.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares, including potentially dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted common shares, as determined using the treasury stock method.

For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is antidilutive.

The Company excluded 2,545,962 and 1,957,584 common stock equivalents, outstanding as of September 30, 2021 and 2020, respectively, from the computation of diluted net loss per share for the three and nine months ended September 30, 2021 and 2020 because they had an anti-dilutive impact due to the net loss incurred for the periods presented.

Prior to the Merger the Company did not have options to purchase common stock or unvested restricted common stock to exclude from the calculation of earnings per share as all outstanding options were for common units of Holdings that upon the Merger converted into options exercisable for the shares of common stock of the Company.

The Company excluded 3,078,511 and 2,397,152 common stock equivalents outstanding as of March 31, 2022 and 2021, respectively, from the computation of diluted net loss per share for the three months ended March 31, 2022 and 2021 because they had an anti-dilutive impact due to the net loss incurred for the periods presented.

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The FASB subsequently issued amendments to ASU 2016-13.

This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks.

For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

The Company adopted the standard on January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

This standard modifies certain disclosure requirements on fair value measurements.

This standard became effective for the Company and was adopted by the Company, on January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s disclosures.

Merger Accounting

On May 28, 2020, the Company completed its merger with Zafgen.

Based on the Exchange Ratio, immediately following the Merger, former Zafgen stockholders, Zafgen option holders and other persons holding securities or other rights directly or indirectly convertible, exercisable or exchangeable for Zafgen Common Stock (collectively, the “Zafgen Securityholders”) owned approximately 34 % of the outstanding capital stock of the combined company, and Holdings, the former Chondrial stockholder, owned approximately 66 % of the outstanding capital stock of the combined company.

At the closing of the Merger, all shares of Chondrial Common Stock were exchanged for an aggregate of 6,091,250 shares of Zafgen Common Stock, after giving effect to the Reverse Stock Split.

In addition, pursuant to the terms of the Merger Agreement, the Company assumed all outstanding stock options to purchase shares of Zafgen common stock at the closing of the Merger.

At the closing of the Merger, such stock options became options to purchase an aggregate of 328,770 shares of the Company’s common stock after giving effect to the Reverse Stock Split.

The total purchase price paid in the Merger was allocated to the tangible and intangible assets acquired and liabilities assumed of Zafgen based on their fair values as of the completion of the Merger.

Transaction costs primarily included bank fees and professional fees associated with legal counsel, auditors, and printers.

The following summarizes the purchase price paid in the Merger (in thousands, except share and per share amounts):

Number of shares of the combined organization owned by Zafgen stockholders (1)

Multiplied by the fair value per share of Zafgen common stock (2)

Fair value of consideration issued in effect of the Merger

Transaction costs

Purchase price:

(1) The number of shares of 3,124,337 represents the historical 37,492,044 shares of Zafgen common stock outstanding immediately prior to the closing of the Merger, adjusted for the Reverse Stock Split.

(2) Based on the last reported sale price of Zafgen common stock on the Nasdaq Global Market on May 28, 2020, the closing date of the Merger, and after giving effect to the Reverse Stock Split.

The allocation of the purchase price for the Merger was based on estimates of the fair value of the net assets acquired, which was then adjusted for the difference between the purchase price and the fair value of the assets acquired.

The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired (in thousands):

Cash and cash equivalents

Marketable debt securities

Other current and noncurrent assets

Property and equipment, net

Restricted cash

Right-of-use asset

Current liabilities

Lease liability, net of current portion

Purchase price

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by us as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date.

We have assessed the recently issued guidance that is not yet effective and believe the new guidance will not have a material impact on the condensed consolidated results of operations, cash flows or financial position.

Fair Value Measurements and Marketable Debt Securities

Fair Value Measurements

The Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are measured in accordance with the standards of ASC 820, Fair Value Measurements and Disclosures , which establishes a three-level valuation hierarchy for measuring fair value and expands financial statement disclosures about fair value measurements.

The Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are measured in accordance with the standards of ASC 820, Fair Value Measurements and Disclosures , which establishes a three-level valuation hierarchy for measuring fair value and expands financial statement disclosures about fair value measurements.

The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date.

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The Company’s financial instruments consist primarily of cash, cash equivalents, marketable debt securities, accounts payable and accrued liabilities.

For accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of September 30, 2021 and December 31, 2020 were considered representative of their fair values due to their short term to maturity.

The following tables summarize the Company’s cash equivalents and marketable debt securities as of September 30, 2021 and December 31, 2020:

For accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of March 31, 2022 and December 31, 2021 were considered representative of their fair values due to their short term to maturity.

The following tables summarize the Company’s cash equivalents as of March 31, 2022 and December 31, 2021:

(in thousands)

September 30, 2021

March 31, 2022

Cash equivalents:

Money market funds

Commercial paper

Total cash equivalents

Marketable debt securities:

Commercial paper

Total marketable debt securities

Total cash equivalents and marketable debt securities

December 31, 2021

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Total cash equivalents

Marketable debt securities:

Government securities

Commercial paper

Total marketable debt securities

Total cash equivalents and marketable debt securities

Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities as of September 30, 2021 and December 31, 2020.

(in thousands)

September 30, 2021

Commercial paper

December 31, 2020

Government securities

Commercial paper

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

September 30,

(in thousands)

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Fixed assets, net consisted of the following:

September 30,

(in thousands)

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Accumulated depreciation

Depreciation expense during the three and nine months ended September 30, 2021 was $ 0.1 million and $ 0.2 million, respectively.

Depreciation expense during the three and nine months ended September 30, 2020 was less than $ 0.1 million and $ 0.1 million, respectively.

Depreciation expense during the three months ended March 31, 2022 and 2021 was $ 0.1 million, respectively.

Accrued Expenses

September 30,

(in thousands)

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Accrued payroll and related expenses

Accrued professional fees

Accrued other

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Common Stock and Prefunded warrants

As of September 30, 2021 , the Company’s Certificate of Incorporation, as amended and restated, authorized the Company to issue up to 115,000,000 shares of $ 0.001 par value common stock, of which 17,710,450 shares were issued and outstanding, and up to 5,000,000 shares of $ 0.001 par value undesignated preferred stock, of which no shares were issued or outstanding.

As of March 31, 2022 , the Company’s Certificate of Incorporation, as amended and restated, authorized the Company to issue up to 115,000,000 shares of $ 0.001 par value common stock, of which 17,710,450 shares were issued and outstanding, and up to 5,000,000 shares of $ 0.001 par value undesignated preferred stock, of which no shares were issued or outstanding.

The voting, dividend, and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers, and preferences of the holders of the preferred stock.

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No cash dividends have been declared or paid to date.

On May 28, 2020, the Company entered into a securities purchase agreement with certain accredited investors (the “Purchasers”) for the sale by the Company in a private placement of 6,105,359 shares of the Company’s common stock and prefunded warrants to purchase an aggregate of 628,403 shares of the Company’s common stock, for a price of $ 11.88 per share of the common stock and $ 11.87 per prefunded warrant.

The prefunded

warrants are exercisable at an exercise price of $ 0.01 and are exercisable indefinitely.

The Purchasers may exercise the prefunded warrants on a cashless basis in the event that there is no effective registration statement covering the resale of the shares of common stock underlying the prefunded warrants on the date in which the Company is required to deliver the shares.

The private placement closed on June 1, 2020.

The aggregate gross proceeds for the issuance and sale of the common stock and prefunded warrants were $ 80.0 million;

transaction costs totaled $ 4.6 million and resulted in net proceeds of $ 75.4 million.

The Company’s Registration Statement on Form S-3, filed with the SEC on June 26, 2020, registered the resale of 6,105,359 shares of common stock sold and the 628,403 shares of common stock underlying the prefunded warrants.

MTS Health Partners served as placement agent to the Company in connection with the private placement.

As partial compensation for these services, the Company issued MTS Health Partners 35,260 shares of common stock.

Equity Distribution Agreement

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The Company has no obligation to sell any of the ATM Shares and may at any time suspend offers under the ATM Agreement .

In July 2021, the Company sold 2,342,720 shares under the ATM Agreement for net proceeds of $ 19.9 million.

As of September 30, 2021 , 2,354,244 shares of Common Stock have been sold under the ATM Agreement for net proceeds of $ 20.1 million.

As of November 10, 2021, approximately $ 29.2 million shares of common stock remained available for sale by the Company under the ATM Agreement.

Summary of Plans

Upon completion of the Merger with Zafgen, Zafgen’s 2014 Stock Option and Incentive Plan (the “2014 Plan”) and Zafgen’s 2006 Stock Option Plan (the “2006 Plan”

and together with the 2014 Plan the “Prior Plans”) were assumed by the Company.

As described below, the Company adopted a new equity incentive plan in July 2020 that was approved by the stockholders in September 2020.

These three plans are administered by the Board or, at the discretion of the Board, by a committee of the Board.

In 2021, the Company sold 2,342,720 shares under the ATM Agreement for net proceeds of $ 19.9 million.

As of March 31, 2022 , 2,354,244 shares of Common Stock have been sold under the ATM Agreement for net proceeds of $ 20.1 million.

As of May 10, 2022, approximately $ 29.2 million shares of common stock still remained available for sale by the Company under the ATM Agreement.

2020 Equity Incentive Plan

The Board adopted the 2020 Equity Incentive Plan (the "2020 Plan") on July 16, 2020 and the stockholders of the Company approved the 2020 Plan on September 29, 2020.

The 2020 Plan replaces the 2014 Plan.

Option outstanding under the Prior Plans will remain outstanding, unchanged, and subject to the terms of the Prior Plans and the respective award agreements, and no further awards will be made under the 2014 Plan.

The 2020 Plan replaces the predecessor plans (the "Prior Plans") that the Company assumed following its merger with Zafgen, Inc.

("Zafgen") in May 2020.

Options outstanding under the Prior Plans will remain outstanding, unchanged, and subject to the terms of the Prior Plans and the respective award agreements, and no further awards will be made under the Prior Plans.

However, if any award previously granted under the Prior Plans, expires, terminates, is canceled, or is forfeited for any reason after the approval of the 2020 Plan, the shares subject to that award will be added to the 2020 Plan share pool so that they can be utilized for new grants under the 2020 Plan.

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The maximum number of shares that may be issued in respect of any awards under the 2020 Plan is the sum of:

(i) 1,700,000 shares plus (ii) an annual increase on January 1, 2021 and each anniversary of such date thereafter through January 1, 2030, equal to the lesser of (A) 4 % of the shares issued and outstanding on the last day of the immediately preceding fiscal year, and (B) such smaller number of shares as determined by the Board (collectively,

the “Plan Limit”).

As permitted by the 2020 Plan, the Company added 614,709 shares available for grant to the 2020 Plan on January 1, 2021 increasing the maximum number of shares of the Company’s common stock that may be issued under the 2020 Plan to 2,314,709 shares.

The maximum aggregate number of shares that may be issued under the 2020 Plan in respect of ISOs is 8,000,000 over the ten-year term of the 2020 Plan.

On May 28, 2021, options to purchase 38,090 shares issued under the 2014 Plan were cancelled and became available for grant under the 2020 Plan.

As of September 30, 2021 , 971,349 shares of common stock were available for grant under the 2020 Plan.

2014 Stock Option and Incentive Plan and 2006 Stock Option Plan

In 2014, the Board and stockholders of Zafgen adopted the 2014 Plan.

The 2014 Plan provided for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance-share awards, cash-based awards and dividend equivalent rights to employees, members of the Board and consultants of the Company.

The number of shares initially reserved for issuance under the 2014 Plan was 180,685 shares of common stock.

As the 2020 Plan was adopted by the Company and approved by the Company’s stockholders, no further awards will be made under the Prior Plans.

2016 Equity and Incentive Plan

Under the 2016 Equity Plan adopted by Holdings on November 30, 2016, (the “2016 Equity Incentive Plan”), the Board of Managers of Holdings (the “Board of Managers”) or a committee thereof was authorized to issue 122,133 Common Units of Holdings or combination of Common Units, Common Unit options or profit interest units.

On March 23, 2018, the Board of Managers increased the number of Common Units reserved for grant and issuance pursuant to the 2016 Plan from 122,133 to 138,133 and on April 29, 2019 increased the number of Common Units reserved for grant and issuance pursuant to the 2016 Plan by an additional 101,500 to 239,633 .

The Company has recorded costs incurred as stock-based compensation with a corresponding capital contribution from Holdings.

From January 1, 2020 through the Merger date Holdings did no t issue options to purchase Common Units to employees of the Company.

The Company assumed all of the outstanding and unexercised options to purchase units of Holdings upon consummation of the Merger.

Pursuant to the terms of the Merger Agreement, options to purchase 330,818 shares of the Company’s common stock at a weighted average exercise price of $ 12.14 per share were substituted for the 202,392 options to purchase Common Units, with a weighted average exercise price of $ 10.36 per Common Unit, that were outstanding immediately prior to the Merger.

The Company treated the conversion as a modification pursuant to ASC 718, Compensation—Stock Compensation, and calculated the pre- and post-modification value of the options.

The increase in fair value of the options was calculated to be $ 1.2 million.

As $ 0.7 million related to vested options the expense was recognized immediately on the Merger date, the remaining $ 0.5 million is recognized over the remaining vesting term with the original grant date fair value remaining of $ 0.1 million.

The maximum aggregate number of shares that may be issued under the 2020 Plan is 8,000,000 over the ten-year term of the 2020 Plan.

In 2022 and 2021, respectively, options to purchase 450 and 56,966 shares issued under the Prior Plans were cancelled and became available for grant under the 2020 Plan.

As permitted by the 2020 Plan, the Company added 708,418 shares available for grant under the 2020 Plan on January 1, 2022.

As of March 31, 2022 , 1,114,743 shares of common stock were available for grant under the 2020 Plan.

Stock Valuation

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees:

September 30,

Risk-free interest rate

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Stock Options

The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2021 (amounts in millions, except for share and per share data):

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2022 (amounts in millions, except for share and per share data):

Weighted Average

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Forfeited/Expired

Outstanding as of September 30, 2021

Exercisable as of September 30, 2021

Vested and expected to vest as of September 30, 2021

(a) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at September 30, 2021 .

Outstanding as of March 31, 2022

Exercisable as of March 31, 2022

Vested and expected to vest as of March 31, 2022

2022 Option Grants

During the nine months ended September 30, 2021 , the Company granted options to purchase 617,150 shares of common stock to employees and directors of the Company under the 2020 Plan.

During the three months ended March 31, 2022 , the Company granted options to purchase 600,950 shares of common stock to employees of the Company under the 2020 Plan.

The options have an exercise price equal to the closing stock price as of the grant date.

Of the 617,150 options granted in 2021, 567,350 vest over four years , with 25 % vesting on the first anniversary of the grant and the remainder vesting in equal monthly installments thereafter.

These options vest over four years with 25 % vesting on the first anniversary of the grant and the remainder vesting in equal monthly installments thereafter.

The weighted-average grant date fair value of options granted during three months ended March 31, 2022 was $ 6.61 .

In May 2022, the Company granted options to purchase 251,500 shares of common stock to employees and directors of the Company under the 2020 Plan.

The options have an exercise price equal to the closing stock price as of the grant date.

Of the 251,500 options granted in May 2022, 210,000 were granted to employees and vest over four years with 25 % vesting on the first anniversary of the grant and the remainder vesting in equal monthly installments thereafter.

The remaining 41,500 options were annual grants to the Company's directors and vest one year from the grant date.

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Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Three Months Ended March 31,

Research and development

General and administrative

As of September 30, 2021 , total unrecognized compensation expense related to unvested stock options and restricted stock units was $ 16.2 million, which is expected to be recognized over a weighted average period of 2.88 years.

As of March 31, 2022 , total unrecognized compensation expense related to unvested stock options and restricted stock units was $ 16.9 million, which is expected to be recognized over a weighted average period of 2.68 years.

Commitments and Contingencies

Intellectual Property Licenses

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In the event that the Company is required to pay WFUHS consideration, then the Company may deduct 60 % of such WFUHS consideration on a dollar-for-dollar basis from the consideration due to IU.

During the three and nine months ended September 30, 2021 , no milestones were achieved and no milestone expense was recognized.

During the three months ended March 31, 2022 , no milestones were achieved and no milestone expense was recognized.

Both agreements continue from their effective date through the last to expire of the licensed patents unless earlier terminated by either party in accordance with their terms.

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Due to required tenant improvements to be completed by the landlord, the Company did not take immediate possession of the leased property and the lease term commenced on February 15, 2020 .

In the quarter ended March 31, 2020, the Company recorded an operating lease right-of-use asset and operating lease liability of $ 0.4 million.

On May 28, 2020, as part of the Merger with Zafgen, the Company acquired a non-cancellable operating lease for approximately 17,705 square feet of office space (the “Premises”).

On May 28, 2020, the Company acquired a non-cancellable operating lease for approximately 17,705 square feet of office space (the “Premises”).

The lease expires on October 30, 2029 .

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right-of-use assets or lease liabilities.

Starting in 2021, the right-of-use asset is being amortized to other income/(expense), over the remaining lease term as a result of the sublease described below.

The right-of-use asset is being amortized to other income/(expense) over the remaining lease term as a result of the sublease described below.

On October 27, 2020, the Company entered into a sublease agreement (the “Sublease”) with Massachusetts Municipal Association, Inc.

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The Company has determined this lease extension qualifies as a short-term lease and have applied the accounting policy election to not record the related right-of-use asset and lease liabilities.

Expense arising from operating leases was $ 0.1 million and $ 0.2 million during the three and nine months ended September 30, 2021 , respectively, and $ 0.3 million and $ 0.4 million during the three and nine months ended September 30, 2020, respectively.

For operating leases, the weighted-average remaining lease term for leases at September 30, 2021 and December 31, 2020 was 7.9 and 8.6 years, respectively.

For operating leases, the weighted average discount rate for leases at September 30, 2021 and December 31, 2020 was 11.0 %.

Expense arising from operating leases was $ 0.1 million during the three months ended March 31, 2022 and 2021, respectively.

For operating leases, the weighted-average remaining lease term for leases at March 31, 2022 and December 31, 2021 was 7.4 and 7.6 years, respectively.

For operating leases, the weighted average discount rate for leases at March 31, 2022 and December 31, 2021 was 11.0 %.

The Company has not entered into any financing leases.

Maturities of lease liabilities due under these lease agreements as of September 30, 2021 are as follows:

Maturities of lease liabilities due under these lease agreements as of March 31, 2022 are as follows:

(in thousands)

Three months ending December 31, 2021

Nine months ending December 31, 2022

Year ended December 31, 2023

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Present value of lease liabilities

Legal Proceedings

The Company is not currently a party to any litigation, nor is management aware of any pending or threatened litigation against the Company, that it believes would materially affect the Company's business, operating results, financial condition or cash flows.

Related Party Transactions

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Payne which extended the term of the Consulting Engagement for a four-year term beginning on January 1, 2021.

During the three and nine months ended September 30, 2021 and 2020 the Company recognized less than $ 0.1 million and $ 0.1 million, respectively, related to this consulting agreement, recorded as research and development expense in the Condensed, Consolidated Statements of Operations.

The funding to the Company originated from Holdings’

sale of Series A Preferred Units and Series B convertible preferred units (the “Units”) with Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P.

and Deerfield Health Innovations Fund, L.P.

(together, the “Deerfield Funds”), and certain other purchasers, from inception through May 28, 2020 and the contribution of the proceeds received by Holdings on such sales to the Company in order to fund the Company’s operations

Under a November 30, 2016 Series A Preferred Unit Purchase Agreement, as amended on September 8, 2017, November 15, 2017, November 14, 2018 and April 29, 2019, Holdings sold Series A Preferred Units for gross proceeds of $ 35.6 million.

The gross proceeds of $ 35.6 million were contributed to the Company.

On November 21, 2019 (as amended on December 20, 2019), Holdings entered into a Second Amended and Restated LLC Agreement and entered into a Series B Bridge Unit Purchase Agreement with the Deerfield Funds and certain other purchasers to sell Series B convertible preferred units (“Series B Bridge Units”) for gross proceeds of up to $ 10.0 million.

The gross proceeds of $ 10.0 million were contributed to the Company.

On January 16, 2020, Holdings entered into a Third Amended and Restated LLC Agreement and entered into a Second Series B Bridge Unit Purchase Agreement with the Deerfield Funds and certain other purchasers to sell Second Series B convertible preferred units (“Second Series B Bridge Units”) for gross proceeds of up to $ 15.0 million.

The gross proceeds of $ 11.4 million were contributed to the Company.

During the nine months ended September 30, 2020 , Holdings provided the Company non-interest bearing, permanent funding from the above Series A and Series B preferred unit transactions, totaling $ 18.0 million, which were recorded as capital contributions with the balance of combined equity and additional paid in capital on the condensed consolidated balance sheets and condensed consolidated statements of changes in stockholders’

equity for each respective period.

During 2021, the Company purchased a piece of laboratory equipment and lab supplies for a cumulative $ 0.1 million from a supplier that one of our Board members is also a member of this supplier’s board of directors.

The purchases were billed at market rates with market payment terms.

During the three months ended March 31, 2022 and 2021 the Company recognized less than $ 0.1 million related to this consulting agreement, recorded as research and development expense in the Condensed Consolidated Statements of Operations.

During 2021, the Company purchased a piece of laboratory equipment and lab supplies for a cumulative $ 0.1 million from a supplier of which one of the Company's directors is also a current director.

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

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You should read the “Risk Factors”

section included in our Annual Report on Form 10-K filed with the SEC on March 4, 2021 and our subsequently filed Quarterly Reports on Form 10-Q for the periods ended March 31, 2021 and June 30, 2021, respectively, in addition to the "Risk Factors" and “Forward-Looking Statements”

section included in our Annual Report on Form 10-K filed with the SEC on March 25, 2022, in addition to the "Risk Factors" and “Forward-Looking Statements”

sections of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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There is currently no effective therapy for FA.

We have received orphan drug designation, fast track designation and rare pediatric disease designation, from the U.S.

We have completed two Phase 1 clinical trials in patients with FA.

We have received an orphan drug designation, fast track designation and rare pediatric disease designation, from the U.S.

Food and Drug Administration (the "FDA") for CTI‑1601.

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We intend to use our proprietary platform to target additional orphan indications characterized by deficiencies in or alterations of intracellular content or activity.

Since our inception, we have devoted substantially all of our resources to developing CTI-1601, building our intellectual property portfolio, developing third-party manufacturing capabilities, business planning, raising capital, and providing general and administrative support for such operations.

CTI-1601 Program Update

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Data from these trials demonstrate proof-of-concept by showing that daily subcutaneous injections of CTI-1601 for up to 13 days resulted in dose-dependent increases in FXN levels from baseline compared to placebo in all evaluated tissues (buccal cells, skin, and platelets).

FXN levels achieved in peripheral tissues (buccal cells) following daily 50 mg and 100 mg subcutaneous injections of CTI-1601 were at or in excess of FXN levels that would be expected in phenotypically normal heterozygous carriers.

FXN levels achieved in peripheral tissues (buccal cells) following daily 50 mg and 100 mg subcutaneous injections of CTI-1601 were at or in excess of FXN levels that

would be expected in phenotypically normal heterozygous carriers.

There were no serious adverse events ("SAEs") associated with either the MAD or SAD trials.

On May 25, 2021 the FDA placed a clinical hold on the CTI-1601 clinical program following our notification to the FDA of mortalities which occurred at the highest dose levels in an ongoing 180-day non-human primate ("NHP") toxicology study, which is designed to support extended dosing of patients with CTI-1601.

In the clinical hold letter, the FDA stated that it needs a full study report from the ongoing NHP study and that we may not initiate additional interventional clinical trials until we have submitted the report and received notification from the FDA that additional clinical trials may commence.

At the time of the FDA clinical hold, we had no interventional clinical trials with patients enrolled or enrolling and as of the date of this report, do not have interventional clinical trials with patients enrolled or enrolling.

In July 2021, we completed dosing in the NHP toxicology study discussed above.

We are currently collecting and analyzing data from the study.

There is no way to predict the timing of the FDA’s response (which we anticipate will not be received prior to the first quarter of 2022) or whether the FDA will require additional data or testing before lifting the clinical hold on CTI-1601in full or in part.

While we expect to initiate our Jive open-label extension and pediatric MAD trials in the first half of 2022, the timing of these trials could be delayed or modified depending on the results of the NHP toxicology study and/or the FDA's response to these results and any other data we will provide in our complete response to the clinical hold.

Financial Overview and Liquidity

We have never generated any revenue and have, to date, incurred net losses.

We incurred net losses of approximately $41.5 million and $28.3 million for the nine months ended September 30, 2021, and 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $107.1 million.

Our losses have resulted principally from costs incurred in connection with research and development activities, and general and administrative costs associated with our operations.

We expect to incur significant expenses and operating losses for the foreseeable future.

We expect to continue to incur expenses in connection with our ongoing activities, if and as we:

continue to advance the development of CTI-1601 through additional clinical trials;

seek to identify and advance development of additional product candidates into clinical development and identify additional indications for our product candidates;

seek to obtain regulatory approvals for our product candidates;

identify, acquire or in-license other product candidates and technologies;

maintain, leverage, and expand our intellectual property portfolio;

expand our operational, financial, commercial and management systems and personnel, including personnel to support our clinical development and future commercialization efforts and our operations as a public company.

As a result, we will need additional financing to support our continuing operations.

Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies or product candidates.

In addition, we may never successfully complete development of any of our product candidates, obtain adequate patent protection for our technology, obtain necessary regulatory approvals for our product candidates, or achieve commercial viability for any approved product candidates.

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

Our failure to raise capital as and when needed would have a negative impact on our financial condition and ability to pursue our business strategy.

We will need to generate significant revenue to achieve profitability and may never do so.

At September 30, 2021, we had cash, cash equivalents and marketable debt securities totaling $78.0 million.

In July 2021, we sold 2,342,720 shares of common stock for net proceeds of $19.9 million under the ATM

Agreement (as defined below) (See “Liquidity and Capital Resources and "Operating Capital Requirements”).

We believe that, based on our current operating plan, our cash, cash equivalents and marketable debt securities as of the filing date of this Quarterly Report on Form 10-Q will enable us to fund operations for at least twelve months from the issuance of our interim financial statements for the quarterly period ended September 30, 2021.

In May 2021, the FDA placed a clinical hold on our CTI-1601 clinical program after we notified the agency of mortalities at the highest dose levels of the 26-week non-human primate toxicology study that was designed to support extended dosing of patients with CTI-1601.

At the time the hold was placed, we had no interventional clinical trials with patients enrolling or enrolled.

In February 2022, in response to the complete response we submitted to the FDA, the Agency stated that it was maintaining the clinical hold and that additional data are needed to resolve the clinical hold.

We subsequently submitted a request for an FDA Type C meeting.

This request was granted and is scheduled for early in the third quarter of 2022.

Throughout the course of the interactions associated with the Type C meeting, we intend to work with the Agency to enable resolution of the clinical hold and to agree on the study design and timing of the next proposed clinical trial.

We do not know when, or if the clinical hold will be lifted.

Financing Activities

We have funded our operating and capital requirements to date primarily with proceeds from sales of common stock and prefunded warrants for the purchase of common stock and, prior to our May 2020 merger with Zafgen, with capital contributions from Chondrial Holdings, LLC ("Holdings").

In August 2020, we entered into an Equity Distribution Agreement ("the ATM Agreement") with an investment bank in connection with the establishment of an “at-the-market”

offering program under which we could sell up to an aggregate of $50,000,000 of shares of our common stock from time to time through this investment bank as sales agent.

In July 2021, we sold 2,342,720 shares pursuant to the ATM Agreement for net proceeds of $19.9 million, after issuance costs.

As of May 10, 2022, $29.2 million of additional shares of common stock remained available for sale by us under the ATM Agreement.

COVID-19 Update

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

In March 2020, the World Health Organization ("WHO") declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

The pandemic resulted in the temporary stoppage of our CTI-1601 Phase 1 clinical trials in patients with Friedreich’s ataxia in March 2020.

In July 2020, we resumed these clinical trials, and have since completed dosing of both our SAD and MAD clinical trials.

In July 2020, we resumed these clinical trials, and have since completed both the SAD and MAD clinical trials.

Since being discovered, new variants of COVID-19 have emerged, including the Omicron variant, the Alpha variant, the Beta variant, the Gamma variant, and the Delta variant.

Vaccines manufactured by Moderna, Pfizer and Johnson & Johnson were introduced late in the fourth quarter of 2020 and became widely available by the end of the first quarter of 2021.

While the vaccines have proven effective in reducing the severity and mortality of COVID-19, including the variants that have evolved to date, the overall vaccination rate in the United States has not reached the level required for herd immunity in some states, particularly in some regions of the country.

The incidence of variants of COVID-19, has been increasing particularly among unvaccinated individuals and the recent delta variant is proving to be more easily spread than earlier variants.

The low vaccination rate, the spread of the variants, the evolution of additional mutations against which the current vaccines may prove ineffective could again result in major disruptions to businesses and markets worldwide.

Further, additional doses of vaccines have been and may be required in the future, and individuals may refuse or fail to receive one or more of such doses.

The incidence of variants of COVID-19 has been increasing, particularly among unvaccinated individuals, and the Omicron variant has proven to be more easily spread than earlier variants.

Our business, results of operations, financial condition and cash flows could be materially and adversely affected.

Specifically, we could experience additional delays in future clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic which may be imposed or could experience supply shortages or manufacturer shutdowns impacting the manufacture of drug substance or drug product which could also impact clinical trial timelines.

Specifically, we could experience additional delays in future clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic and the efforts to mitigate it which may be imposed or could experience supply shortages or manufacturer shutdowns impacting the manufacture of drug

substance or drug product, which could also impact clinical trial timelines.

The financial statements do not reflect any adjustments as a result of the pandemic.

Merger with Zafgen

On December 17, 2019, we entered into an Agreement and Plan of Merger, (the “Merger Agreement”) with Zordich Merger Sub, Inc.

(“Merger Sub”), our wholly owned subsidiary, Chondrial Therapeutics Inc.

(“Chondrial”), and Chondrial Holding, LLC (“Holdings”) pursuant to which the Merger Sub merged with and into Chondrial, with Chondrial surviving the merger as our wholly owned subsidiary (the “Merger”).

The Merger was completed on May 28, 2020 pursuant to the terms of the Merger Agreement.

Pursuant to the terms of the Merger Agreement, upon closing of the Merger, all of Chondrial’s outstanding common stock was exchanged for our common stock and all outstanding options exercisable for units of Holdings were exchanged for options to purchase our common stock.

In addition, immediately prior to the closing of the Merger, we effected a 1 for 12 reverse stock split and changed our name from Zafgen, Inc.

to Larimar Therapeutics, Inc.

Following the Merger, the business conducted by Chondrial became our primary business.

The business combination was accounted for as a reverse acquisition in accordance with U.S.

generally accepted accounting principles (“GAAP”).

Under this method of accounting, Chondrial was deemed to be the accounting acquirer for financial reporting purposes.

This determination was primarily based on the facts that, immediately following the merger:

(i) former Chondrial stockholders owned a substantial majority of the voting rights in the combined company, (ii) the majority of the board of directors of the combined company was composed of directors designated by Chondrial under the terms of the Merger Agreement and (iii) existing members of Chondrial management became the management of the combined company.

Accordingly, for accounting purposes, the business combination was treated as the equivalent of Chondrial issuing stock to acquire Zafgen’s net assets.

As a result, as of the closing date of the Merger, Zafgen’s net assets were recorded at their acquisition-date fair values, which were then adjusted for the difference between the purchase price and the fair value of the assets acquired, in the financial statements of Chondrial and the reported operating results prior to the business combination are those of Chondrial.

As the Merger has been accounted for as an asset acquisition, goodwill has not been recorded within the condensed combined balance sheet.

Private Placement

On May 28, 2020, we entered into a Securities Purchase Agreement with certain accredited investors for the sale by us in a private placement (the "Private Placement") of 6,105,359 shares of our common stock (the “Private Placement Shares”), and pre-funded warrants to purchase an aggregate of 628,403 shares of our common stock (the

“Pre-funded Warrants”).

The Pre-Funded Warrants were immediately exercisable at an exercise price for $0.01 and are exercisable indefinitely.

As of September 30, 2021, none of these Pre-Funded Warrants have been exercised.

The Private Placement closed on June 1, 2020.

The aggregate gross proceeds for the issuance and sale of the Private Placement Shares and Pre-Funded common stock Warrants were $80.0 million and, after deducting certain of our expenses, the net proceeds we received in the Private Placement were $75.4 million.

We are using the net proceeds from the Private Placement for research and development of our product candidates, working capital and general corporate purposes.

Financial Operations Overview

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Results of Operations

Comparison of three months ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

(in thousands)

Statement of Operations Data:

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense), net

Research and development expenses

Research and development expenses for the three months ended September 30, 2021 increased $7.1 million compared to the three months ended September 30, 2020.

The increase in research and development expenses compared to the prior year period was primarily driven by higher clinical supply manufacturing costs of $6.4 million, higher non-clinical and internal laboratory costs of $1.3 million, an increase of $0.3 million in personnel related costs due to headcount additions in our research and development functions, and an increase of $0.3 million in stock-based compensation expense associated with stock option grants made in the second half of 2020 and thus far in 2021, partially offset by a decrease of $1.4 million in clinical trial costs.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2021 decreased $0.7 million compared to the three months ended September 30, 2020.

The decrease in general and administrative expenses as compared to the prior year period was primarily driven by a decrease of $1.1 million in professional fees primarily associated with accounting, legal and consulting fees, partially offset by an increase of $0.8 million in stock-based compensation expense associated with stock option grants made in the second half of 2020 and thus far in 2021.

General and administrative expenses for the third quarter of 2020 included certain costs related to the Reverse Merger discussed above.

Results of Operations

Comparison of nine months ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

Comparison of three months ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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Research and development expenses

Research and development expenses for the nine months ended September 30, 2021 increased $11.3 million compared to the nine months ended September 30, 2020.

The increase in research and development expenses compared to the prior year period was primarily driven by higher clinical supply manufacturing costs of $4.5 million, higher non-clinical and internal laboratory costs of $2.9 million, an increase of $1.7 million in personnel related costs due to increased headcount in our research and development functions, an increase of $1.1 million in stock-based compensation expense associated with stock option grants made in the second half of 2020 and thus far in 2021, and an increase of $0.9 million in clinical trial costs.

Research and development expenses for the three months ended March 31, 2022 decreased $3.2 million compared to the three months ended March 31, 2021.

The decrease in research and development expenses as

compared to the prior year period was primarily driven by lower clinical supply manufacturing costs of $2.2 million and a decrease of $1.9 million in clinical trial costs, partially offset by an increase of $0.3 million in personnel related costs due to headcount additions in our research and development functions, higher non-clinical costs of $0.2 million, an increase of $0.2 million in professional fees primarily related to consulting services and an increase of $0.2 million in stock-based compensation expense associated with stock option grants made in 2021 and 2022.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2021 increased $1.7 million compared to the nine months ended September 30, 2020.

The increase in general and administrative expenses as compared to the prior year period was primarily driven by an increase of $1.8 million in stock-based compensation expense associated with stock option grants made in the second half of 2020 and thus far in 2021, and an increase of $1.2 million in costs required to function as a public company (nine months as a publicly-held company in 2021 compared to four months as a publicly-held company in 2020), an increase of $0.5 million in personnel related costs due to increased headcount, partially offset by a decrease of $1.4 million in professional fees primarily associated with accounting, legal and consulting fees.

General and administrative expenses for the third quarter of 2020 included certain costs related to the Reverse Merger discussed above.

General and administrative expenses for the three months ended March 31, 2022 decreased $0.1 million compared to the three months ended March 31, 2021.

The decrease in general and administrative expenses as compared to the prior year period was primarily driven by a decrease of $0.3 million in professional fees primarily associated with reduced recruiting and consulting services performed in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, partially offset by an increase of $0.2 million in stock-based compensation expense associated with stock option grants made in 2021 and 2022 and an increase of $0.1 million in personnel related costs due to salary adjustments made in the three months ended March 31, 2022.

Liquidity and Capital Resources

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The following table summarizes our sources and uses of cash for each of the periods presented below:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Net cash used in operating activities

During the nine months ended September 30, 2021, operating activities used $34.2 million of cash, resulting from our net loss of $41.5 million, adjusted for noncash expenses of $4.2 million.

Our net loss was primarily attributable to research and development activities related to our CTI-1601 program and our general and administrative expenses as described above.

During the three months ended March 31, 2022, operating activities used $7.5 million of cash, resulting from our net loss of $8.9 million, adjusted for noncash expenses of $1.7 million and changes in our operating assets and liabilities of $0.3 million.

Our net loss was primarily attributed to research and development activities related to our CTI-1601 program and our general and administrative expenses as described above.

Noncash expenses primarily include stock-based compensation expense.

For the nine months ended September 30, 2021 the change in operating assets and liabilities resulted in a source of cash of $3.1 million.

During the nine months ended September 30, 2020, operating activities used $32.3 million of cash, resulting from our net loss of $28.3 million, adjusted for noncash expenses of $1.3 million and changes in our operating assets and liabilities of $5.3 million.

The change in operating assets and liabilities was primarily due to a decrease in accrued expenses and offset by an increase in accounts payable and prepaid expenses.

During the three months ended March 31, 2021, operating activities used $11.2 million of cash, resulting from our net loss of $12.1 million, adjusted for noncash expenses of $1.2 million and changes in our operating assets and liabilities of $0.4 million.

Our net loss was primarily attributed to research and development activities related to our CTI-1601 program and our general and administrative expenses as described above.

Noncash expenses primarily include stock-based compensation expense.

The change in operating assets and liabilities was primarily due to a decrease in accounts payable following the payment of Merger-related expenses and certain other expenses that were accrued as of December 31, 2019.

The change in operating assets and liabilities was primarily due to a decrease in accrued expenses and offset by an increase in accounts payable and prepaid expenses due to the growth in our operating activities.

Net cash provided by investing activities

During the nine months ended September 30, 2021, investing activities provided $17.7 million of cash, resulting from a $26.3 million increase from maturities of marketable debt securities, which was partially offset by $1.7 million in purchases of new marketable debt securities.

During the nine months ended September 30, 2020, investing activities used $40.6 million of cash, resulting from a $41.9 million increase from our Merger, which was offset by transaction costs associated with the Merger of $1.2 million and $0.1 million from the purchase of equipment.

During the three months ended March 31, 2022, there were no investing activities.

During the three months ended March 31, 2021, investing activities provided $5.3 million of cash, resulting from a $7.0 million increase from maturities of marketable debt securities, which was partially offset by $1.7 million in purchases of new marketable debt securities.

Net cash provided by financing activities

During the nine months ended September 30, 2021, financing activities provided $19.9 million of net cash, from sale of common stock under the ATM Agreement, after issuance costs.

During the nine months ended September 30, 2020, financing activities provided $93.3 million of net cash, consisting of proceeds from the sale of common stock and prefunded common stock warrants, after issuance costs, from the Private Placement discussed above of $75.4 million and contributions from Holdings of $18.0 million.

During the three months ended March 31, 2022 and 2021 there were no financing activities.

Operating Capital Requirements

CTI-1601 is currently in clinical development.

We recently completed the dosing of two phase 1 clinical trials and, subject to resolution of the clinical hold with the FDA, and expect to initiate additional interventional studies of CTI-1601 in Friedreich ataxia in the first half of 2022;

therefore, we expect to continue to incur significant expenses and operating losses for the foreseeable future.

We anticipate that we will continue to incur expenses, if and as we seek to:

advance the development of CTI-1601 through additional clinical trials, including the cost of clinical materials as well as manufacturing scale up costs;

identify and advance development of additional product candidates into clinical development and identify additional indications for our product candidates;

obtain regulatory approvals for our product candidates;

We have not yet commercialized any products and do not expect to generate revenue from the commercial sale of any products for several years, if at all.

We have to date incurred net losses.

We incurred net losses of approximately $8.9 million and $12.1 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $125.2 million and cash and cash equivalents of $62.6 million, excluding restricted cash of $1.3 million.

Losses have resulted principally from costs incurred in connection with research and development activities, and general and administrative costs associated with the development of CTI-1601 and our operations.

We expect to incur significant expenses and operating losses for the foreseeable future as we expect to continue to incur expenses in connection with our ongoing activities, if and as we:

continue to advance the development of CTI-1601 through additional clinical trials;

seek to identify and advance development of additional product candidates into clinical development and identify additional indications for our product candidates;

seek to obtain regulatory approvals for our product candidates;

identify, acquire or in-license other product candidates and technologies;

maintain, leverage and expand our intellectual property portfolio;

expand our operational, financial, management and commercial systems and personnel, including personnel to support our clinical development and future commercialization efforts and our operations as a public company.

We expect to continue to generate operating losses for the foreseeable future.

We completed the Merger on May 28, 2020 which, upon closing, provided cash, cash equivalents, restricted cash, and marketable debt securities of $42.9 million concurrent with the Private Placement which provided additional net proceeds of $75.4 million.

In August 2020, we entered into an Equity Distribution Agreement (the "ATM Agreement") with an investment bank, in connection with the establishment of an “at-the-market”

offering program under which we can sell up to an aggregate of $50,000,000 of shares of our common stock from time to time through this investment bank, as sales agent.

In July 2021, we sold 2,342,720 shares under the ATM Agreement for net proceeds of $19.9 million.

As of September 30, 2021, 2,354,244 shares of common stock have been sold under the Agreement for net proceeds of $20.1 million.

As of September 30, 2021 and the date of this report, $29.2 million of common stock remains available for sale under the ATM Agreement.

We believe that, based on our current operating plan, our cash, cash equivalents and marketable debt securities as of the filing date of this Quarterly Report on Form 10-Q, will enable us to fund operations for at least twelve months from the issuance of our interim financial statements for the quarterly period ended September 30, 2021.

Until such time, if ever, as we can generate substantial revenue, we expect to seek additional funding through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing arrangements.

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

The terms of any financing may adversely affect the holdings or our existing stockholders’

If we are unable to obtain additional funding, we will be forced to delay, reduce, or eliminate some or all of our

research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business, or we may be unable to continue operations.

We believe that based on our current operating plan our cash and cash equivalents will be able fund operating expenses and capital expenditure requirements for at least the next twelve months.

If we encounter unexpected delays in our clinical trials or if there are other unanticipated changes to our operating plan from our current assumptions that negatively impact our operations, we may reduce expenditures in order to further extend our existing cash resources.

Until we can generate substantial revenue, if ever, we expect to seek additional funding through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all.

If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, or we do not have sufficient authorized shares, we may be required to delay, limit, or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition, and results of operations will be materially adversely affected.

We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

In addition, geopolitical unrest including the potential impact of the Russian invasion of Ukraine and the possibility that the conflict could expand beyond eastern Europe, the impact of the COVID-19 pandemic and/or other health crises on the global financial markets may reduce our ability to access capital, which could negatively affect our liquidity and ability to continue as a going concern.

If we are unable to obtain funding when needed and/or on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research and development programs, the manufacture of clinical and commercial supplies, product portfolio expansion or pre commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 1. Financial Statements