Oruka Therapeutics, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Examples of these statements include, but are not limited to, statements regarding the following: potential future development plans for rNAPc2 (AB201) and Gencaro, including the potential for rNAPc2 to treat COVID-19, our ability to secure sufficient financing to support any clinical trials of rNAPc2 and Gencaro, the likelihood that any Phase 3 clinical trial results for Gencaro will satisfy the requirements of our Special Protocol Assessment agreement, the expected features and characteristics of Gencaro, including the potential for genetic variations to predict individual patient response to Gencaro, Gencaro’s potential to treat atrial fibrillation, or AF, future vaccines and treatment options for patients with COVID-19, future treatment options for patients with AF, the potential for Gencaro to be the first genetically-targeted AF prevention treatment, statements regarding potential Phase 3 development plans for Gencaro, including the timing and results thereof, and the ability of ARCA’s financial resources to support its operations at the current levels through at least the end of fiscal year 2023, the sufficiency of our current capital to reach certain of our corporate objectives, our ability to obtain additional funding when needed or enter into a strategic or other transaction, including our ability to raise sufficient capital to fund any clinical trials for rNAPc2 and Gencaro and our other operations, the extent to which our issued and pending patents may protect our products and technology, the potential of such product candidates to lead to the development of safe or effective therapies, our ability to enter into collaborations, our ability to maintain listing of our common stock on a national exchange, our future operating expenses, our future losses, our future expenditures, and the sufficiency of our cash resources to maintain operations. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed herein and elsewhere. These and other factors are identified and described in more detail in ARCA’s filings with the U.S. Securities and Exchange Commission, or the SEC, including without limitation our annual report on Form 10-K for the year ended December 31, 2021, and subsequent filings. Forward-looking statements may be identified by words including “will,” “plan,” “anticipate,” “believe,” “intend,” “estimates,” “expect,” “should,” “may,” “potential” and similar expressions. We disclaim any intent or obligation to update these forward-looking statements. The terms “ARCA,” “the Company,” “we,” “us,” “our” and similar terms refer to ARCA biopharma, Inc. Overview We are a clinical-stage biopharmaceutical company applying a precision medicine approach to the development and commercialization of targeted therapies for cardiovascular diseases. Precision medicine refers to the tailoring of medical treatment to the individual characteristics of patients, using genomic, non-genomic biomarker and other information that extends beyond routine diagnostic categorization. We believe that when implemented correctly precision medicine can enhance therapeutic response, improve patient outcomes, and reduce healthcare costs. Our lead product candidates are rNAPc2 (AB201) as a potential treatment for COVID-19, the disease syndrome caused by the SARS-CoV-2 virus, and potentially other viral diseases and Gencaro™ (bucindolol hydrochloride) for the treatment of atrial fibrillation, or AF, in patients with chronic heart failure, or HF. rNAPc2 targets COVID-19 patients with biomarker evidence of coagulopathy, while Gencaro is being developed for patients who have a genotype that identifies a drug target associated with heightened efficacy. In April 2022, the Board of Directors established a Special Committee and, in May, retained Ladenburg Thalmann & Co. Inc. to evaluate strategic options, including transactions involving the merger or sale of all or part of our assets, and other alternatives with the goal of maximizing stockholder value. We believe there are multiple potential opportunities to enhance value for our shareholders. We do not have a defined timeline for the strategic review process and the review may not result in any specific action or transaction. rNAPc2 (AB201) for treatment of COVID-19 Recombinant Nematode Anticoagulant Protein c2, or rNAPc2 (AB201), is a protein therapeutic in clinical development as a potential treatment for patients with COVID-19. Based on its unique mechanism of action, development history and the clinical evidence from the SARS-CoV-2 pandemic, we believe rNAPc2 has potential to be a beneficial therapy for patients with this serious viral disease. We initiated a Phase 2b clinical trial of rNAPc2 as a potential treatment for patients hospitalized with COVID-19 in the fourth quarter of 2020 and completed patient enrollment in the fourth quarter 2021. In the clinical trial, both doses of rNAPc2 demonstrated a treatment benefit for patients, however, neither dose achieved statistical significance for the primary efficacy endpoint of change in D-dimer level from Baseline to Day 8 compared to standard of care heparin. Certain patients with severe COVID-19 disease exhibit thrombotic complications and other inflammatory responses suggesting potential dysregulation of the coagulation and immune systems. rNAPc2 is a potent inhibitor of tissue factor, or TF, a cellular receptor responsible for initiation of the primary coagulation pathway and appears to be the major activator of the coagulation cascade during viral infection. TF is also implicated in the immune system inflammatory response to viral infections and in the process of viral dissemination during infection. We believe that evidence from the pandemic implicates tissue factor pathways as an important part of 14 the COVID-19 disease process, and provides a rationale to test rNAPc2 as a potential therapeutic for COVID ‑19 for its anticoagulant and potential anti-inflammatory properties. rNAPc2 was originally developed for potential use as an anticoagulant due to its inhibition of the TF-initiated coagulation process. It was evaluated for the prevention of thrombosis in Phase 1 and Phase 2 clinical studies involving over 800 subjects and demonstrated both safety and efficacy in these studies. rNAPc2 has also been investigated as a potential therapeutic for severe viral infections other than COVID-19. Research has shown that viral infections can provoke dysregulated activation of the TF pathway, resulting in abnormal systemic coagulation and related inflammation, leading to potential organ failure and mortality. For this reason, rNAPc2 was tested as a therapeutic in non-human primates, or NHPs, in studies against lethal doses of the Ebola and Marburg viruses, where it showed evidence of efficacy in the form of mortality reduction, decreases in inflammatory biomarkers and, evidence of reduced disseminated intravascular coagulation, a serious condition that causes abnormal blood clotting throughout the body's blood vessels. SARS-CoV-2 is a new coronavirus identified in late 2019 that belongs to a family of enveloped RNA viruses that include Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS-CoV-1), both of which caused serious human infections of the respiratory system. The disease caused by the SARS-CoV-2 virus has been designated COVID-19. According to the World Health Organization, since this outbreak was first reported in late 2019, there have been over 620 million confirmed cases of COVID-19 and over 6 million deaths worldwide attributed to the virus (as of October 2022). COVID-19 is associated with a high incidence of both arterial and venous coagulation-related adverse events in large and small blood vessels. These include, stroke, myocardial infarction, or MI, (i.e., heart attack) and pulmonary emboli; as well as, blockage of the smaller peripheral blood vessels in the fingers/toes (COVID-digit). This syndrome is so frequently observed in COVID-19 that it has received the name of COVID-19 Associated Coagulopathy, or CAC. The underlying pathology of CAC is believed to result from thrombo-inflammatory processes triggered by the viral infection. A commonly used biomarker for assessing the presence of abnormal coagulation is a D-dimer test, which is elevated (greater than 0.5) in approximately 40% to 75% of hospitalized COVID-19 patients and is associated with adverse clinical outcomes. Some researchers believe that this and other evidence points to dysregulation of TF pathways in COVID-19 patients that result in the development of thrombotic complications. As a result of the observed role of coagulation disorders in COVID-19, patients who are hospitalized with the disease are commonly giving anti-coagulant therapy, in particular heparin. We believe that there is a medical need for a COVID-19 therapy that provides anticoagulation therapy and directly inhibits the TF pathway and the inflammatory and viral dissemination processes that may be initiated by TF. rNAPc2 has shown potential in addressing the coagulation disorder caused by severe viral infections. In preliminary, non-human studies in NHPs against lethal doses of the Ebola and Marburg virus, rNAPc2 lowered D-dimer levels, reduced mortality and exhibited anti-inflammatory effects. We believe more recent research supports our belief that rNAPc2 has the ability to inhibit the activity of TF in multiple processes that contribute to severe viral disease. Taken together, we believe this evidence suggests that rNAPc2 may have therapeutic benefits for patients with serious COVID-19 infections and the accompanying high risk of thrombosis. To our knowledge, rNAPc2 is the only New Molecular Entity anticoagulant, and the only tissue factor inhibitor, currently under evaluation for COVID-19. As a therapeutic aimed at a host response to a disease syndrome, we believe rNAPc2 potentially could be used in combination with other antiviral drugs. We believe its potential efficacy is not linked to a specific viral genome and may not be diminished by the development of new strains of the SARS-CoV-2 virus through mutation, such as the Delta variant that is now widespread. As a therapeutic addressing a disease, we believe rNAPc2 may have broad spectrum potential against multiple pathogens that have disease elements in common with COVID‑19, such as other coronaviruses and other RNA viruses. Therefore, we believe that rNAPc2 has therapeutic potential for future viral outbreaks beyond the current pandemic. rNAPc2 is a single-chain, 85 amino acid, recombinant protein administered subcutaneously, that has previously been evaluated under three U.S. Food and Drug Administration, or FDA, Investigational New Drug, or IND, applications in six Phase 1 and three Phase 2 clinical studies in the United States and Europe. These clinical trials primarily examined the safety, dosing and anticoagulation effects of rNAPc2 in patients with acute coronary syndromes, in patients undergoing knee replacement surgery and in patients undergoing percutaneous coronary interventions. In these trials, involving more than 800 human patients with over 700 exposed to drug, rNAPc2 was generally well-tolerated with a safety profile comparable to commercially available anticoagulants. rNAPc2 is manufactured in an engineered yeast strain by an established methodology following current Good Manufacturing Practices, or cGMP, and we believe this process can be readily scaled to commercial quantities. FDA granted rNAPc2 Orphan Drug Designation status in 2014 for the treatment of viral hemorrhagic fever post-exposure to Ebola virus, but human clinical trials were not conducted. In October 2020, FDA approved the IND application for rNAPc2 as a potential treatment for patients hospitalized with COVID-19 and it received a Fast-Track designation in November 2020. We initiated the Phase 2b clinical trial of rNAPc2 (AB201), ASPEN-COVID-19, in patients hospitalized with COVID-19 in the fourth quarter of 2020. In July 2021, we increased the ASPEN-COVID-19 clinical trial target enrollment from 100 to 160 patients in an effort to increase the sample size for determining if there are differences in the two rNAPc2 dose regimens being investigated, to decrease variance in the standard of care heparin control arm, in recognition of the study being conducted in different geographic regions and to potentially account for evolving changes in the clinical course of 15 COVID-19. In October 2021, the Data and Safety Monitoring Committee, or DSMC, completed a pre-specified interim analysis and, based on the DSMC’s review of approximately 75% of the projected final efficacy and safety data, recommended completion of the clinical trial with no modifications to the clinical trial design. We evaluated rNAPc2 as a treatment for patients hospitalized with COVID-19 who are at high risk for thrombotic complications, as indicated by elevated D-dimer levels. The Phase 2b clinical trial was designed to be a randomized comparison of two-dose regimens of rNAPc2 versus heparin prescribed per local standard of care. The primary endpoint of the clinical trial was the change in D-dimer level from baseline to Day 8 relative to standard of care heparin. Secondary endpoints include time to recovery for eligibility of hospital discharge, and the clinical composite of all-cause mortality, thrombosis, need for organ support or re-hospitalization within 30 days from randomization. This clinical trial used a 1:1:2 randomization between lower dose rNAPc2, higher dose rNAPc2 and standard of care heparin that was delivered in prophylactic doses in 93% of the patients. rNAPc2 patients received three sub-cutaneous, or SC, doses on days 1, 3 and 5 and then received heparin beginning on day 8. This Phase 2b study was designed to understand the safety of the doses selected relative to standard of care, and to provide efficacy data that might support further study in a pivotal Phase 3 program. For the entire cohort for pooled rNAPc2 versus heparin, in the intention to treat, or ITT, population, rNAPc2 was associated with a change in D-dimer of -16.8 (-45.7, 36.8) %, P=0.41 compared to -11.2 (-36, 34.4) %, P=0.91 in the Heparin group (between groups P=0.47). For the per protocol analysis (N=81) of the 38 rNAPc2 patients who received all three doses and remained hospitalized long enough to have the day 8 end-of-efficacy period D-dimer levels measured, there was a reduction from baseline of -28.7 (-49.1,14.0) %, P=0.23, while the Heparin group change from baseline was an increase of 1.1 (-45.2,108) %, P=0.33; between groups P=0.33. The clinical trial statistical analysis plan called for analysis of data stratified by a modified WHO COVID-19 Severity Scale that assigned randomized patients to either Mild or Severe groups. There was an imbalance by rNAPc2 dose group between these strata with more higher dose group patients in the Severe stratum (15 vs 10 lower dose) and more lower dose in the Mild stratum. Because treatment effects were different in these strata, dose response had to be analyzed within each stratum. In the ITT analysis, WHO Mild patients (N= 84) had baseline median (IQR) D-dimer levels of 314 (206,473) D-Dimer Units (DDUs, ng/ml). D-dimer levels as percent change decreased at day 8 or hospital discharge in both the pooled high and low dose rNAPc2 arms (-32.7 (-44.7,4.3), P=0.009) and in the heparin arm (-16.8 (-36.0.0.5), P= 0.010); this decrease was statistically significant in the higher dose rNAPc2 group (-32.3 (-43.7,-2.4), P=0.016) but not in the lower dose group (-33.0 (-45.8,8.0), P=0.17). In contrast, in WHO Severe patients (N= 51, baseline DDU median 546 (318,872), P<0.0001 vs. Mild) D-dimer levels increased in the heparin group (% change 29.0 (‑14.9,145), P=0.022) but did not change in the pooled rNAPc2 group (25.9 (-49.1,136), P=0.16) or in either rNAPc2 dose group (lower, -12.1(-50.2,498), P=0.84; higher, 36.8 (-41.7,136) P=0.13). On the secondary endpoints measuring thrombotic events and time-to-recovery, there was a numerical imbalance in favor of rNAPc2 that was non-significant. rNAPc2 was well-tolerated at both doses. There were no serious treatment-related adverse events and no dose dependent increase in adverse events was observed. There was no difference between rNAPc2 and standard-of-care heparin in major or non-major clinically relevant bleeding. The clinical trial was managed in collaboration with the Colorado Prevention Center, or CPC, the University of Colorado's Academic Research Organization. We own the clinical development program of rNAPc2, including the Phase 2b clinical development. If rNAPc2 is successfully developed, we believe it will have intellectual property protection, including 12 years of market exclusivity as an innovative biologic product under FDA regulation in the United States, 10 years data protection exclusivity in the European Union, or EU, and potentially patent protection in addition to this. We have filed an international patent application for the use of rNAPc2 in COVID-19 and plan to prosecute this patent in the United States and other markets. If this patent issues in the United States, we believe it could provide intellectual property protection into approximately 2040. We plan to pursue strategic co-development and partnering opportunities for rNAPc2 development and commercialization. In July 2021, we entered into a patent assignment agreement, or the Agreement, with the University Medical Center of Johannes Gutenberg University Mainz , Germany. Under the terms of the Agreement, we received exclusive world-wide patent rights relating to the use of rNAPc2 as a potential treatment for COVID-19, and other indications, based on the research and discoveries from Univ.-Prof. Dr. Wolfram Ruf, the Scientific Director and Alexander von Humboldt Professor at the Center for Thrombosis and Hemostasis (CTH) of the University Medical Center Mainz, and his collaborators. We have upfront and potential milestone obligations to the University Medical Center Mainz that could total approximately €1.6 million and royalty obligations in the low single digit range, if rNAPc2 receives regulatory approval and is commercialized. The term of the Agreement extends to the date of expiration of the last to expire of any of the assigned patents. 16 Gencaro™ (bucindolol hydrochloride) for Atrial Fibrillation Gencaro™ (bucindolol hydrochloride) is a pharmacogenetically-targeted beta-adrenergic receptor antagonist with mild vasodilator properties that we are developing for the treatment of atrial fibrillation in patients with heart failure. We believe the pharmacology of Gencaro is unique and its efficacy can be enhanced by prescribing it to patients with a common genotypic variant that is present in approximately 50% of the North American and European general populations. This gene can be detected with a simple genetic test. We are developing Gencaro to treat atrial fibrillation, or AF, in patients with chronic heart failure, or HF. AF is the most common form of cardiac arrhythmia, a disruption of the heart’s normal rhythm or rate. HF is a chronic condition in which the heart is unable to pump enough blood to meet the body’s needs. AF and HF commonly occur together. In HF patients, the development of AF leads to worsening symptoms, and increased risk of hospitalization and death. Current treatment options for AF in HF patients are limited, and can be invasive, costly and dangerous. Our development plan for Gencaro focuses on the treatment of AF in patients with higher ejection fraction HF, those who have an ejection fraction, or EF, of 40% and higher who also have the genotype we believe is optimal for Gencaro efficacy. This population of HF encompasses more than half of all HF patients in the United States and Europe. There are currently few approved or effective drug therapies to treat AF or HF in this patient population. Our development plan for Gencaro is based on our recently published analysis of the Phase 2b clinical trial of Gencaro for the prevention of AF in HF patients, known as GENETIC-AF. This analysis showed novel results for Gencaro in patients in the clinical trial with EF’s of 40% and higher. We currently have an agreement with the FDA, known as a Special Protocol Assessment, or SPA, for the requirements of a Gencaro Phase 3 clinical trial that would support approval of Gencaro if successful. The Phase 3 pivotal clinical trial of Gencaro conducted under an SPA will include secondary endpoints that are intended to capture some of this new information, such as a reduction in the need to deploy rhythm control interventions including electrical cardioversion, catheter ablation and use of anti-arrhythmic drugs and avoidance of drug-related complications such as bradycardia. Based on these analyses, we were issued a United States patent in February 2021 for the use of Gencaro in this patient population. We believe this patent will substantially extend the patent protection for our planned development of Gencaro into 2039. We are seeking similar patent protection in other countries. We believe that patients with HF and AF represent a major unmet medical need, and this need is most pronounced in patients with EF values of 40% and above. This EF range constitutes more than half of all chronic HF in the United States and Europe, as well as in Japan and China, and there are currently few approved, effective or guideline-recommended therapies for these patients to treat either their AF or HF. AF is a very common complication in these patients, with estimates of AF incidence ranging from 40% to 60%. Beta-blockers approved for HF are commonly used off-label to control heart rate in these patients, but they are not considered effective in preventing AF and none are approved for patients with EF ≥ 40%. Other anti-arrhythmic drugs approved for the treatment of AF have adverse side effects and in HF patients are either contraindicated or have label warnings for use due to an increased risk of mortality. Interventional procedures for AF, such as catheter ablation and electrical cardioversion, are invasive, expensive, and often temporary; these interventions also typically require the continued use of beta blockers and other anti-arrhythmic drugs post-intervention. We believe that Gencaro, if approved, may be a safe and more effective therapy for the treatment of higher ejection fraction HF patients with AF. We believe there are several potentially important attributes that would differentiate Gencaro from existing therapies, including: • More effective rhythm control compared to the current standard of care; • Reduction in the need for catheter ablation, electrical cardioversion, or toxic anti-arrhythmic drugs; • Maintenance of rhythm control after a successful AF catheter ablation; • Effective rate control with lower risk of treatment-limiting, adverse event producing bradycardia; • Reduction in symptoms and improvement in quality of life; • Reduced health care burden; • Foundational beta-blocker benefits for HF and unique evidence of efficacy in HF patients with AF; • One of the only drug therapies approved and shown effective for AF in HF patients with EF ≥ 40%, and the only one in its drug class. We have an international patent portfolio for Gencaro in the United States, the EU, and other major markets, as well as new chemical entity status, including a new patent that we believe will give us a strong intellectual property position to at least approximately 2039 in the United States; we have filed applications similar to this new patent in international territories. We have developed a laboratory platform for the diagnostic test that would be used to prescribe Gencaro; this platform was approved by FDA for use in the Phase 2B 17 clinical trial. We retain all rights to this test platform; we expect to use it in future clinical trials, and we believe it could be one of multiple diagnostic platforms used for commercialization . To support the continued development of rNAPc2 and Gencaro, we will need additional financing to fully fund any clinical trials, and our general and administrative costs through the clinical trials’ projected completion and potential commercialization. Considering the substantial time and costs associated with the development of rNAPc2 and Gencaro and the risk that we may be unable to raise a significant amount of capital on acceptable terms, we are also pursuing co-development and commercialization partnering opportunities with large pharmaceutical and/or specialty pharmaceutical companies and may pursue a strategic combination or other strategic transactions. If we are unable to obtain sufficient financing or are unable to complete a strategic transaction, we may discontinue our development activities on rNAPc2 or Gencaro or discontinue our operations . We believe our cash and cash equivalents as of September 30, 2022 will be sufficient to fund our operations at the current levels through at least the end of fiscal year 2023. Our review of our strategic options may impact this projection. Conducting a Phase 3 rNAPc2 clinical trial or the Phase 3 PRECISION-AF trial would likely require additional financing. However, changing circumstances may cause us to consume capital significantly faster or slower than currently anticipated. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate; therefore, we may have to raise additional capital for other clinical trials of rNAPc2 . Initiating any Phase 3 clinical trial of Gencaro is dependent on sustained improvement in the COVID-19 pandemic and will require additional financing . In April 2022, the Board of Directors established a Special Committee and, in May, retained Ladenburg Thalmann & Co. Inc. to evaluate strategic options, including transactions involving the merger or sale of all or part of our assets, and other alternatives with the goal of maximizing stockholder value. We believe there are multiple potential opportunities to enhance value for our shareholders. We do not have a defined timeline for the strategic review process and the review may not result in any specific action or transaction. In July 2020, we entered into a new sales agreement with a placement agent to sell, from time to time, our common stock having an aggregate offering price of up to $54.0 million, in an “at the market offering.” As of February 2021, we had sold an aggregate of 9,928,272 shares of our common stock pursuant to the terms of such sales agreement for aggregate gross proceeds of approximately $54.0 million. Net proceeds received in this offering were approximately $52.2 million, after deducting expenses for executing the “at the market offering” and commissions paid to the placement agent. In April 2021, we amended the new sales agreement and have $50.0 million available for the offering under our prospectus to our registration statement on Form S-3 (No. 333-254585) . As of October 27, 2022, the amount available for the offering under the prospectus supplement is subject to the limitation of not selling a total value amount of shares exceeding more than one-third of our public float in any 12-month period, which as of October 27, 2022 would have been approximately $9.3 million . In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We do not expect a material financial effect as a result of the pandemic. However, if the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. Results of Operations Research and Development Expenses Research and development, or R&D, expense is comprised primarily of personnel costs, clinical development, manufacturing process development, and regulatory activities and costs. Our R&D expense is almost entirely generated by our activities relating to the development of rNAPc2 (AB201). R&D expense for the three months ended September 30, 2022 was $1.0 million compared to $3.4 million for the corresponding period of 2021, a decrease of $2.4 million. R&D expense for the nine months ended September 30, 2022 was $4.7 million compared to $9.9 million for the corresponding period of 2021, a decrease of $5.2 million. Clinical expense decreased approximately $2.0 million and $4.1 million for the three and nine months ended September 30, 2022, as compared to the corresponding periods of 2021. The decrease was related to the completion of enrollment in our rNAPc2 (AB201) international Phase 2b clinical trial in the fourth quarter of 2021. Manufacturing process development costs decreased approximately $0.4 million and $1.0 million for the three and nine months ended September 30, 2022, as compared to the corresponding periods of 2021. 18 R&D personnel costs in creased approximately $ 0.2 million for both the three and nine months ended September 30 , 2022 , as compared to the corresponding period s of 202 1 . In July 2022, we implemented a strategic reduction of our workforce by approximately 67%, or 12 employees. Personnel reductions were primarily focused in research and development and general and administrative functions. The restructuring was a result of our decision to manage our operating costs and expenses. In July, we record ed total restructuring charges of approximately $790,000, of which $490,000 and $300,000 were reco gnize d in research and development and general and administrative expenses, respectively, in connection with the restructuring, all in the form of one-time termination benefits. R&D expense in 2022 is expected to be lower than 2021, as we completed our rNAPc2 (AB201) international Phase 2b clinical trial in the fourth quarter of 2021. General and Administrative Expenses General and administrative, or G&A, expenses primarily consist of personnel costs, consulting and professional fees, insurance, facilities and depreciation expenses, and various other administrative costs. G&A expenses were $1.5 million for the three months ended September 30, 2022 compared to $1.3 million for the corresponding period of 2021, an increase of $0.2 million. The increase for the three month period was primarily a result of one-time termination benefits discussed above. G&A expenses were $4.4 million for the nine months ended September 30, 2022 compared to $3.8 million for the corresponding period of 2021, an increase of $0.6 million. The increase for the nine month period was primarily a result of increases in professional fees and consulting costs and one-time termination benefits discussed above in 2022. G&A expenses in 2022 are expected to be slightly higher than 2021 as we maintain administrative activities to support our ongoing operations along with the one-time termination benefits recorded in the third quarter 2022. Interest and Other Income Interest and other income was $222,000 and $4,000 in the three months ended September 30, 2022 and 2021, respectively. Interest and other income was $301,000 and $9,000 in the nine months ended September 30, 2022 and 2021, respectively. Interest income for the remainder of 2022 is expected to be negligible. Other Expense Other expense was $5,000 for the three and nine months ended September 30, 2022. Based on our current capital structure, other expense for the remainder of 2022 is expected to be negligible. Liquidity and Capital Resources Cash and Cash Equivalents September 30, December 31, 2022 2021 (in thousands) Cash and cash equivalents $ 43,939 $ 53,359 As of September 30, 2022, we had total cash and cash equivalents of $43.9 million, as compared to $53.4 million as of December 31, 2021. The net decrease of $9.4 million primarily reflects the cash used in operating activities during the nine months ended September 30, 2022. 19 Cash Flows from Operating, Investing and Financing Activities Nine Months Ended September 30, 2022 2021 (in thousands) Net cash (used in) provided by: Operating activities $ (9,418 ) $ (13,815 ) Investing activities (2 ) (36 ) Financing activities — 23,093 Net (decrease) increase in cash and cash equivalents $ (9,420 ) $ 9,242 Net cash used in operating activities for the nine months ended September 30, 2022 decreased $4.4 million compared with the same period in 2021. This was primarily due to lower outflows related to changes in operating assets and liabilities and a lower net loss in 2022, as discussed in Results of Operations above. Net cash used in investing activities for the nine months ended September 30, 2022 was $2,000 for the purchase of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2021 was $36,000 for the purchase of property and equipment. There were no financing activities in the nine months ended September 30, 2022. Net cash provided by financing activities was $23.1 million for the nine months ended September 30, 2021 related to net proceeds from sales of our common stock in our “at the market” equity offering in the period. Sources and Uses of Capital Our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common stock. The primary uses of our capital resources to date have been to fund operating activities, including research, clinical development and drug manufacturing expenses, license payments, and spending on capital items. In July 2020, we entered into a sales agreement with a placement agent to sell, from time to time, our common stock having an aggregate offering price of up to $54.0 million, in an “at the market offering.” As of February 2021, we had sold an aggregate of 9,928,272 shares of our common stock pursuant to the terms of such sales agreement for aggregate gross proceeds of approximately $54.0 million. Net proceeds received in this offering were approximately $52.2 million, after deducting expenses for executing the “at the market offering” and commissions paid to the placement agent. In April 2021, we amended the new sales agreement and have $50.0 million available for the offering under our prospectus to our registration statement on Form S-3 (No. 333-254585). As of October 27, 2022, the amount available for the offering under the prospectus supplement is subject to the limitation of not selling a total value amount of shares exceeding more than one-third of our public float in any 12-month period, which as of October 27, 2022 would have been approximately $9.3 million . In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We do not expect a material financial effect as a result of the pandemic. However, if the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. 20 Our ability to execute our development program s in accordance with our projected time line depends on a number of factors, including, but not limited to, the following: • the costs and timing for the potential additional clinical trials in order to gain possible regulatory approval for rNAPc2, Gencaro or any other product candidate; • the market price of our stock and the availability and cost of additional equity capital from existing and potential new investors; • our ability to retain the listing of our common stock on the Nasdaq Capital Market; • our ability to control costs associated with its operations; • general economic and industry conditions affecting the availability and cost of capital, including as a result of the COVID-19 pandemic; • the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and • the terms and conditions of our existing collaborative and licensing agreements. We believe our cash and cash equivalents as of September 30, 2022 will be sufficient to fund our operations at the current levels through at least the end of fiscal year 2023. Our review of our strategic options may impact this projection . Conducting a Phase 3 rNAPc2 clinical trial or the Phase 3 PRECISION-AF trial would likely require additional financing . However, changing circumstances may cause us to consume capital significantly faster or slower than currently anticipated. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate; therefore, we may have to raise additional capital for clinical trials of rNAPc2 . Initiating any Phase 3 clinical trial of Gencaro is dependent on our obtaining additional financing. We may not be able to raise sufficient capital on acceptable terms, or at all, to continue development and potential commercialization of rNAPc2 or Gencaro or to otherwise continue operations and may not be able to execute any strategic transaction. In April 2022, the Board of Directors established a Special Committee and, in May, retained Ladenburg Thalmann & Co. Inc. to evaluate strategic options, including transactions involving the merger or sale of all or part of our assets, and other alternatives with the goal of maximizing stockholder value. We believe there are multiple potential opportunities to enhance value for our shareholders. We do not have a defined timeline for the strategic review process and the review may not result in any specific action or transaction. Critical Accounting Policies and Estimates A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are described in Note 1 of “Notes to Financial Statements” included within our 2021 Annual Report on Form 10-K filed with the SEC. Following is a discussion of the accounting policies that we believe involve the most difficult, subjective or complex judgments and estimates. Accrued Outsourcing Expenses As part of the process of preparing our financial statements, we are required to estimate accrued outsourcing expenses. This process involves identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued outsourcing expenses include contract service fees, such as fees payable to contract manufacturers in connection with the production of materials related to our drug product, and service fees from clinical research organizations. We develop estimates of liabilities using our judgment based upon the facts and circumstances known at the time. Indemnifications In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify certain parties from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. We have entered into indemnity agreements with each of our directors, officers and certain employees. Such indemnity agreements contain provisions, which are in some respects broader than the specific indemnification provisions contained in Delaware law. We also maintain an insurance policy for our directors and executive officers insuring against certain liabilities arising in their capacities as such. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.