Rein Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis are meant to provide material information relevant to an assessment of the financial condition and results of operations of our Company, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources, so as to allow investors to better view our Company from management’s perspective. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements for the quarter ended September 30, 2024, included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”). Overview and Recent Developments We are a clinical stage biopharmaceutical company focused on developing novel therapies for the treatment of orphan pulmonary and fibrosis indications with no approved or limited effective treatments. We currently have two product candidates in clinical development, LTI-03 and LTI-01, and multiple candidates in preclinical development focused on fibrosis indications. Our pipeline includes: • LTI-03, a peptide for which we conducted a Phase 1b dose-ranging, placebo-controlled safety, tolerability, and pharmacodynamic biomarker activity trial in development for the treatment of Idiopathic Pulmonary Fibrosis (“IPF”), that has demonstrated the ability in both preclinical studies and clinical trials to protect healthy lung epithelial cells and reduce pro-fibrotic signaling; • LTI-01, a proenzyme that completed a Phase 2a dose-ranging, placebo-controlled trial and a Phase 1b safety, tolerability and proof of mechanism trial in loculated pleural effusion (“LPE”), patients, an indication that has no approved drug treatment; and • preclinical programs targeting cystic fibrosis and a peptide program focused on the Cav1 protein for systemic fibrosis indications. In June 2024, we decided to temporarily delay clinical development of LTI-01 in an effort to focus our resources on clinical development of LTI-03 and until additional funds are raised. Prior to the termination of development of ALRN-6924 in February 2023 and the Lung Acquisition (as described below), our focus was the development of ALRN-6924, a MDM2/MDMX dual inhibitor that leveraged our proprietary peptide drug technology. Since our inception, we have devoted a substantial portion of our resources to developing our product candidates, including ALRN-6924 and since the Lung Acquisition, LTI-03, developing our technology platform, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. Data from Cohort 1 and Cohort 2 of Phase 1b Clinical Trial of LTI-03 The Phase 1b trial of LTI-03 is a randomized, double-blind, placebo-controlled, Phase 1b clinical trial of LTI-03 in IPF patients, which is being conducted at 11 centers in the United States, the United Kingdom, Belgium, Germany and Australia. In the trial, these patients have a bronchoscopy at a baseline screening followed by either LTI-03 or placebo twice a day for 14 days. On day 14, shortly after the final dose, patients receive a second bronchoscopy and are monitored thereafter for seven days. In Cohort 1, patients in the active arm inhaled a single 2.5 mg capsule of LTI-03 twice daily. In Cohort 2, patients received two 2.5 mg capsules of LTI-03 for inhalation twice daily. Of the 12 patients enrolled in Cohort 1 of the trial, three were randomized to the placebo arm and nine to the active arm. Of the 12 patients enrolled in Cohort 2 of the trial, three were randomized to the placebo arm and nine to the active arm. In addition to the safety and tolerability of LTI-03, in the trial, various biomarkers relating to epithelial damage, fibrosis and inflammation in blood cells were assessed. The eight biomarkers that we evaluated in Cohort 1 included: thymic stromal lymphopoietin (TSLP), galectin-7 (GAL-7), interleukin-11 (IL-11), collagen 1 alpha chain (Col-1α1), phosphorylated SMAD2/3 (pSMAD2/3/tSMAD2/3), phosphorylated AKT kinase (pAKT), soluble (sol) receptor for advanced glycation end-products (solRAGE), and CXC chemokine 7 (CXCL7). The eight biomarkers that we evaluated in Cohort 2 included: TSLP, GAL-7, IL-11, Col-1α1, pSMAD2/3/tSMAD2/3, pAKT, CXCL7, and surfactant protein D (SPD). solRAGE, which was evaluated in Cohort 1, was not able to be evaluated in Cohort 2 due to multiple protocol violations. In May 2024, we announced positive data from the low-dose Cohort 1 of the Phase 1b clinical trial. In Cohort 1, a positive trend was observed in seven out of the eight biomarkers with data from three biomarkers being statistically significant (based on a one-tailed t-test). The findings from Cohort 1 include: • LTI-03 reduced expression of multiple profibrotic proteins in both pathologic basal-like cells and fibroblasts, with statistically significant decreases observed in three biomarkers - GAL-7 (p=0.0014, SEM 0.901), TSLP (p=0.0223, SEM 22 5.163) and Col-1α1 (p=0.0489, SEM 0.7102) - supporting the potential of LTI-03 to reduce fibrosis, inflammation and associated changes in the lung. • LTI-03 stimulated production of solRAGE (p=0.1407, SEM 0.3269), a factor indicative of type I epithelial cell health that is a critically important aspect of IPF and has gone largely unaddressed. • LTI-03 did not induce inflammation in peripheral blood mononuclear cells as measured by pAKT (p=0.358, SEM 11.32). • LTI-03 was generally well-tolerated with no serious adverse events reported. In November 2024, we announced positive topline data from the high-dose Cohort 2 of the Phase 1b clinical trial. In Cohort 2, a positive trend was observed in seven out of the eight biomarkers, with data from three biomarkers that were statistically significant in Cohort 2, and from four biomarkers that were statistically significant in the combined data set of Cohort 1 and Cohort 2, and data from five biomarkers that showed dose dependence relative to the data from those biomarkers in Cohort 1. The findings from Cohort 2 include: • LTI-03 reduced expression of multiple profibrotic proteins active in both pathologic basal-like cells and fibroblasts, with four biomarkers (IL-11, CXCL7, TSLP and GAL-7) showing statistically significant decreases in the combined data set supporting the potential of LTI-03 to reduce fibrosis, inflammation and associated functional changes in the lung. • LTI-03 dose dependent trends were observed in five biomarkers, including COL1A1, CXCL7, TSLP, GAL-7, and SPD, which provide evidence of active LTI-03 pharmacodynamics in the trial. • SPD, an indicator of epithelial cell health that is linked to decline in lung function, decreased by 5% in Cohort 2 at 14 days of treatment. The current standard of care for IPF, nintetanib, reduced SPD by 4% at 12-weeks in a third party trial of nentanib referred to as the INMARK trial. The biomarker regarding change in SPD in our Phase 1b trial and the data from the INMARK trial of nintedanib compares two clinical trials with different trial designs, patient enrollment criteria and treatment regimens. In addition, the applicable measurements were observed over different time periods. As a result, the data from these trials may not be directly comparable. • LTI-03 did not induce inflammation in peripheral blood mononuclear cells in either Cohort, measured by pAKT, a safety marker for inflammation in this trial. • LTI-03 was generally well-tolerated, and there were no drug-related adverse events that resulted in a discontinuation of the trial. Planning is underway for a Phase 2 clinical trial. The Lung Acquisition On October 31, 2023, we acquired Lung Therapeutics, Inc. (“Lung”) pursuant to an Agreement and Plan of Merger (the “Lung Acquisition Agreement”). Following our acquisition of Lung (the “Lung Acquisition”), Lung became a wholly-owned subsidiary of the Company. In addition, following the Lung Acquisition, the business conducted by Lung became the business primarily conducted by the Company and we shifted our operating disease focus to advancing a pipeline of first-in-class medicines to address significant unmet medical needs in orphan pulmonary and fibrosis indications. Under the terms of the Lung Acquisition Agreement, at the closing of the Lung Acquisition, we issued to the stockholders of Lung 344,345 shares of our common stock and 19,903 shares of our newly designated Series X non-voting convertible preferred stock (the “Series X Preferred Stock”). Each share of Series X Preferred Stock is convertible into 1,000 shares of common stock. In addition, we assumed all Lung stock options and all warrants exercisable for Lung common stock immediately outstanding prior to the closing of the Lung Acquisition, each subject to adjustment pursuant to the terms of the Lung Acquisition Agreement. Immediately following the closing of the Lung Acquisition, we entered into a Stock and Warrant Purchase Agreement (the “Purchase Agreement”) with a group of accredited investors led by Bios Partners, the majority stockholder of Lung prior to the closing of the Lung Acquisition, and including Nantahala Capital, as well as additional undisclosed investors, pursuant to which we issued and sold (i) an aggregate of 4,707 shares of Series X Preferred Stock, and (ii) warrants to purchase up to an aggregate of 2,353,500 shares of common stock (the “PIPE Warrant Shares”) for an aggregate purchase price of approximately $18.4 million, which included the conversion of certain convertible promissory notes in the aggregate principal amount of approximately $1.6 million issued by Lung to Bios Partners prior to the closing of the Lung Acquisition at a 10% discount to the per share price of the Series X Preferred Stock (the “PIPE Financing”). The PIPE Financing closed on November 2, 2023. On February 28, 2024, we held our 2023 annual meeting of stockholders in which our stockholders approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of our outstanding Series X Preferred Stock. Following approval of the conversion of outstanding Series X Preferred Stock, the Company had approximately 29,495,512 shares of common stock issued and outstanding on a pro forma basis, which gives effect to the full conversion of the Series X Preferred Stock as 23 of the date of our 2023 annual meeting of stockholders, without regard to beneficial ownership limitations that may limit the ability of certain holders of Series X Preferred Stock to convert such shares to common stock as such time. On March 5, 2024, subject to then existing beneficial ownership limitations, 11,957 shares of Series X Preferred Stock were automatically converted into 11,957,000 shares of common stock. Exclusive Option Agreement with Advancium On October 31, 2024, we entered into an exclusive option agreement with Advancium for the sale of ALRN-6924. During the option period, Advancium intends to evaluate ALRN-6924 as a potential therapy for retinoblastoma. Under the terms of the option agreement Advancium paid us a non-refundable fee of $0.1 million for the exclusive option to acquire ALRN-6924 and related assets. If Advancium exercises its option, we will receive an exercise payment with potential for additional development, regulatory and commercial milestone payments and sales royalties. Liquidity and Going Concern Management believes that, based on our current operating plan, our cash and cash equivalents of $17.7 million as of September 30, 2024 will not be sufficient to enable the Company to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of the condensed consolidated financial statements included in this Form 10-Q, which raises substantial doubt about our ability to continue as a going concern. See Note 1 to the unaudited condensed consolidated financial statements included under Part I, Item I of this Form 10-Q for a further discussion of our liquidity and the conditions that raise substantial doubt regarding our ability to continue as a going concern. Components of our Results of Operations Revenue We have not generated any revenue from product sales and we do not expect to generate any revenue from the sale of products in the foreseeable future. Operating Expenses Our expenses since inception have consisted solely of research and development costs, general and administrative, and restructuring costs. Research and Development Expenses For the periods presented in this Quarterly Report on Form 10-Q, research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include: • salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions; • expenses incurred in connection with the clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs; • the cost of manufacturing product candidates for use in our clinical trials and preclinical studies, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs; • expenses incurred in connection with the preclinical development of our product candidates, including outsourced professional scientific development services, consulting research fees and payments made under sponsored research arrangements with third parties; • the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; • third-party license fees; • costs related to compliance with regulatory requirements; and • facility-related expenses, which included direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses. 24 In addition, we typically use our employee and infrastructure resources across our development programs. We track outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. Research and development activities are central to our business model. The duration, costs and timing of clinical trials and development of a product candidate depend on a variety of factors, including: • the scope, rate of progress, expense and results of clinical trials of the product candidates that we are developing and other research and development activities that we have conducted; • uncertainties in clinical trial design and patient enrollment rates; • significant and changing government regulation and regulatory guidance; • the timing and receipt of any marketing approvals; and • the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate would be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development. General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance and corporate and administrative functions. General and administrative expenses are comprised of professional fees associated with being a public company including costs of accounting, auditing, legal, regulatory, tax and consulting services associated with maintaining compliance with exchange listing and the SEC requirements, director and officer insurance costs; and both public and investor relations costs. General and administrative expenses also include legal fees relating to patent and corporate matters; legal and other professional fees relating to our strategic process; other insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. Restructuring Costs Restructuring-related charges are comprised of one-time termination costs in connection with our reduction-in-workforce in 2023, including severance, benefits, and related costs. Other Income, net Interest and Other Income Interest income consists of interest income earned on our cash and cash equivalents. Historically, our interest income had not been significant due to low investment balances and low interest earned on those balances. We anticipate that our interest income will fluctuate in the future in response to our cash and cash equivalents and the interest rate environment. Other income, net consists of gains or losses recognized from non-routine items such as accretion on short-term investments, and gains or losses recognized from foreign currency transactions, and the disposal of fixed assets. 25 Results of Operations Comparison of the Three Months Ended September 30, 2024 and 2023 The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023: Three Months Ended September 30, Increase 2024 2023 (Decrease) (in thousands) Revenue $ — $ — $ — Operating expenses: Research and development 3,722 22 3,700 General and administrative 2,349 1,955 394 Restructuring and Other Costs — 6 (6 ) Total operating expenses 6,071 1,983 4,088 Loss from operations (6,071 ) (1,983 ) (4,088 ) Other income, net 224 156 68 Net loss $ (5,847 ) $ (1,827 ) $ (4,020 ) Research and Development Expenses Research and development expenses for the three months ended September 30, 2024 were $3.7 million, compared to less than $0.1 million for the three months ended September 30, 2023. The increase of $3.7 million was primarily a result of the clinical programs acquired as part of the Lung Acquisition in October 2023. During the three months ended September 30, 2024, we incurred expenses of $2.1 million on clinical trials, $1.0 million on manufacturing including $0.8 million write-offs due to the temporary delay of clinical development of LTI-01, and $0.1 million on regulatory and development consulting as well as $0.5 million on employee and related expenses associated with clinical programs acquired in the Lung Acquisition. These programs and related activities were not included in the Company’s financial results for periods prior to the Lung Acquisition, including during the three months ended September 30, 2023. General and Administrative Expenses General and administrative expenses were $2.3 million for the three months ended September 30, 2024, compared to $2.0 million for the three months ended September 30, 2023. The increase of $0.4 million was primarily due to increased employee and related expenses of $0.5 million as a result of increased headcount associated with the Lung Acquisition and severance expense recognized due to departure of former employees, and increased facilities and other expenses of $0.2 million, offset by decreased professional fees of $0.3 million as a result of less external consulting expenses during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Restructuring and Other Costs There were no restructuring-related expenses incurred in the three months ended September 30, 2024. Before the Lung Acquisition, in February 2023, our Board of Directors determined to reduce the Company’s workforce at that time from nine to three full-time employees. We incurred restructuring-related charges of less than $0.1 million for the three months ended September 30, 2023. Restructuring-related charges were comprised of one-time termination costs in connection with the reduction-in-workforce, including severance, benefits, and related costs. All restructuring-related expenses were incurred and paid in 2023. Other Income, net Other income, net for the three months ended September 30, 2024 was $0.2 million and it was primarily driven by fluctuations in foreign currency exchange rates and interest of our money market funds and treasury bills. 26 Comparison of the Nine Months Ended September 30, 2024 and 2023 The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023: Nine Months Ended September 30, Increase 2024 2023 (Decrease) (in thousands) Revenue $ — $ — $ — Operating expenses: Research and development 10,926 2,019 8,907 General and administrative 11,389 6,027 5,362 Restructuring and Other Costs — 940 (940 ) Total operating expenses 22,315 8,986 13,329 Loss from operations (22,315 ) (8,986 ) (13,329 ) Other income, net 413 593 (180 ) Net loss $ (21,902 ) $ (8,393 ) $ (13,509 ) Research and Development Expenses Research and development expenses for the nine months ended September 30, 2024 were $10.9 million, compared to $2.0 million for the nine months ended September 30, 2023. The increase of $8.9 million was primarily a result of the clinical programs acquired as part of the Lung Acquisition in October 2023. During the nine months ended September 30, 2024, we incurred expenses of $4.2 million on clinical trials, $4.6 million on manufacturing including $3.2 million write-offs due to the expiration of clinical materials and the temporary delay of clinical development of LTI-01, and $0.5 million on regulatory and development consulting as well as $1.6 million on employee and related expenses associated with clinical programs acquired in the Lung Acquisition. These programs and related activities were not included in the Company’s financial results for periods prior to the Lung Acquisition, including during the nine months ended September 30, 2023. There were $2.0 million research and development expenses related to ALRN-6924 during the nine months ended September 30, 2023. General and Administrative Expenses General and administrative expenses were $11.4 million for the nine months ended September 30, 2024, compared to $6.0 million for the nine months ended September 30, 2023. The increase of $5.4 million was primarily due to increased professional fees of $1.7 million and increased employee and related expenses of $2.6 million as a result of increased consulting activities and headcount associated with the Lung Acquisition and severance expense recognized due to departure of former employees, and increased facilities and other expenses of $1.1 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Restructuring and Other Costs There were no restructuring-related expenses incurred in the nine months ended September 30, 2024. We incurred restructuring-related charges of $0.9 million for the nine months ended September 30, 2023 in connection with our February 2023 restructuring before the Lung Acquisition. Restructuring-related charges were comprised of one-time termination costs in connection with the reduction-in-workforce, including severance, benefits, and related costs. All restructuring-related expenses were incurred and paid in 2023. Other Income, net Other income, net for the nine months ended September 30, 2024 was $0.4 million and it was primarily driven by fluctuations in foreign currency exchange rates and interest of our money market funds and treasury bills. Liquidity and Capital Resources Since inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our lead product candidates, LTI-03 and LTI-01, or any future product candidates. We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials and manufacturing for our lead product candidates or any future product candidates to support potential future commercialization and providing general and administrative support for our operations, including the costs associated with operating as a public company. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, strategic collaborations, licensing arrangements or other sources. See the section titled “ Risk Factors ” found elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 15, 2024 for additional risks associated with our substantial capital requirements. 27 To date, we have funded our operations through sales of common stock in our initial public offering, sales of common stock and warrants in follow-on public offerings, sales of common stock and warrants in a private placement, sales of common stock in “at-the-market” offerings, sales of common stock under our now terminated equity line with Lincoln Park Capital LLC, sales of preferred stock prior to our initial public offering, payments received under a collaboration agreement, sales of common stock, preferred stock and warrants in connection with the Lung Acquisition and the PIPE Financing and sales of common stock upon option exercises. As of September 30, 2024, we had cash and cash equivalents of $17.7 million. In July 2024, we entered into an Equity Distribution Agreement with Citizens JMP Securities, LLC (“Citizens JMP”), as agent and/or principal, under which we may offer and sell up to $50.0 million of our common stock from time to time through or to Citizens JMP. Sales of common stock through or to Citizens JMP may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market. We did not sell any shares of common stock pursuant to the Equity Distribution Agreement during the nine months ended September 30, 2024. Upon entry into the Equity Distribution Agreement, we terminated our prior “at the market offering” pursuant to a Capital on Demand™ Sales Agreement with JonesTrading Institutional Services LLC and William Blair & Company, L.L.C. At the time of termination, we had not sold any shares under the sales agreement prospectus related to the prior sales agreement. In May 2024, we completed an underwritten follow-on public offering (the “Offering”) of 4,273,505 shares of our common stock and accompanying warrants to purchase 4,273,505 shares of our common stock. All of the shares and accompanying warrants sold in the Offering were sold by the Company. Each share was offered and sold together with an accompanying warrant at a combined offering price of $4.68, and the underwriter purchased each share and accompanying warrant at a combined price of $4.35. Net proceeds from the Offering were approximately $17.7 million, after deducting underwriting discounts and commissions and offering expenses, and excluding any proceeds that may be received from exercise of the warrants. Each warrant has an exercise price per share of common stock equal to $4.68. Each warrant may be exercised until May 1, 2027. Each warrant is exercisable solely by means of a cash exercise, except that a warrant is exercisable via cashless exercise if at the time of exercise, a registration statement registering the issuance of shares underlying the warrants is not then effective or the prospectus contained therein is not available for the issuance of such shares. Each warrant is callable by the Company during the ten trading day period after the date that is 30 days following the public announcement by the Company of the topline results from the Phase 1b clinical trial of LTI-03 in patients with IPF, including a statement that there were no drug-related adverse events that resulted in a discontinuation of the trial. In accordance with the terms of the warrants, each warrant is callable by the Company during the ten-trading day period after November 13, 2024 (the “Trigger Date”). Subject to certain exceptions, in the event that the warrants are outstanding, if, after the Trigger Date, then the Company may, within ten trading days of the Trigger Date, upon notice (a “Call Notice”), call for cancellation of the warrants for which a notice of exercise has not yet been delivered for consideration equal to $0.001 per share of common stock; provided that the Company may only deliver such Call Notice if the volume-weighted average price of its shares of common stock exceeds the exercise price of the warrants on the trading day immediately prior to the date the Company delivers the Call Notice. Any warrant subject to such Call Notice for which a notice of exercise shall not have been received by the Call Date (as hereinafter defined) will be canceled at 6:30 p.m. (New York City time) on the tenth trading day after the date we send the Call Notice (such date and time, the “Call Date”). Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2024 2023 (in thousands) Cash used in operating activities $ (17,479 ) $ (9,417 ) Cash provided by investing activities — 16,292 Cash provided by financing activities 17,817 — Effect of exchange rate changes on cash and cash equivalents 1 — Net increase in cash, cash equivalents and restricted cash $ 339 $ 6,875 Operating Activities. During the nine months ended September 30, 2024, net cash used in operating activities was $17.5 million primarily due to our net loss of $21.9 million, offset by cash provided by the change in operating assets and liabilities of $3.4 million and non-cash charges of $1.0 million. Non-cash charges resulted primarily from stock-based compensation expense of $1.0 million. Changes in our operating assets and liabilities during the nine months ended September 30, 2024 consisted primarily of a decrease of $2.2 million in other assets due to the recognition of a prepaid expense, and an increase of $1.4 million in accrued expenses and other current liabilities, offset by an increase of less than $0.1 million in prepaid expenses and other current assets and a decrease of $0.1 million in accounts payable. During the nine months ended September 30, 2023, net cash used in operating activities was $9.4 million primarily due to our net loss of $8.4 million and $1.8 million of decreased net operating assets and liabilities, offset by $0.8 million in non-cash expenses. Investing Activities . 28 During the nine months ended September 30, 2024, there was no cash provided by investing activities. During the nine months ended September 30, 2023, net cash provided by investing activities was $16.3 million primarily resulting from proceeds from the sale of investments. Financing Activities. During the nine months ended September 30, 2024, net cash provided by financing activities was $17.8 million primarily due to the Offering in May 2024. During the nine months ended September 30, 2023, there were no cash provided by financing activities. Funding Requirements Our plan of operation is to continue implementing our business strategy, continue research and development of LTI-03 and LTI-01 and any other product candidates we may acquire or develop and continue to expand our research pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our current and future product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or terminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including: • the scope, timing, progress, costs, and results of discovery, preclinical development, and clinical trials for our current and future product candidates; • the number of clinical trials required for regulatory approval of our current and future product candidates; • the costs, timing, and outcome of regulatory review of any of our current and future product candidates; • the cost of manufacturing clinical and commercial supplies of our current and future product candidates; • the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval; • the costs and timing of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights; • our ability to maintain existing, and establish new, strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement; • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; • expenses to attract, hire and retain, skilled personnel; • the costs of operating as a public company; • if our product candidates are approved, our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payors; • the effect of competing technological and market developments; • the extent to which we acquire or invest in businesses, products, and technologies; and • unfavorable global economic conditions, which may exacerbate the magnitude of the factors discussed above. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of the product candidates. As of September 30, 2024, we had cash and cash equivalents of $17.7 million. Based on our current operating plan, we believe that our existing cash and cash equivalents as of September 30, 2024 will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into June 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, strategic collaborations, licensing, arrangements or other sources. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us, or at all. If we raise additional funds through the issuance of equity or convertible preferred stock, it may result in dilution to our existing stockholders. Debt financing or preferred equity financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations. 29 If we raise funds through strategic collaborations, licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. Critical Accounting Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements to this Report on Form 10-Q, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. During the three and nine months ended September 30, 2024, there were no material changes to the items that we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on April 15, 2024. Recent Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements to this Report on Form 10-Q for a discussion of recent accounting pronouncements. Smaller Reporting Company Status We are a “smaller reporting company” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700.0 million. For so long as we continue to be a smaller reporting company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.