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Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-31 · 255 added, 268 removed, 145 unchanged (78% of the section changed)

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Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements.

This section provides an analysis of our financial results for the year ended December 31, 2021 compared to the year ended December 31, 2020.

For the discussion and analysis covering the year ended December 31, 2020 compared to the eleven months ended December 31, 2019, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 31, 2021.

Company Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of novel antibiotics for serious infectious diseases.

We are conducting a Phase 3 clinical program focused on the infectious disease C.

We are a biopharmaceutical company focused on the discovery, development, and commercialization of patient-, physician-, caregiver- and societal-friendly medicinal therapies intended to improve quality of life, increase life expectancy, and resolve

serious unmet needs.

Our novel mechanism pipeline of product candidates is designed with the goal to become the patient-friendly, new-era standard-of-care medicines, and to work in harmony with the human microbiome.

Summit’s lead product candidate, ridinilazole, is a novel first-in-class drug that is engaged in a global Phase III clinical trial program.

On December 20, 2021, we announced topline results for the Phase III Ri-CoDIFy study evaluating ridinilazole for treating patients suffering from Clostridioides difficile infection, also known as C.

difficile infection, or CDI.

We are also seeking to expand our product candidate portfolio through the development of new mechanism, precision antibiotics using our proprietary Discuva Platform.

Our lead CDI product candidate is ridinilazole (formerly SMT19969), an orally administered small molecule antibiotic.

To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or ADSs), payments to us under our license and commercialization agreement with Eurofarma Laboratórios SA, or Eurofarma, payments to us under our now-terminated license and collaboration agreement with Sarepta, and development funding and other assistance from government entities, philanthropic, non-government and not for profit organizations and patient advocacy groups for our product candidates.

Our second product candidate, SMT-738, was announced in May 2021 for combating multidrug resistant infections, specifically Carbapenem-resistant Enterobacteriaceae (“CRE”) infections.

SMT-738 is the first of a novel class of precision antibiotics that has entered into preclinical development.

We intend to expand our portfolio by developing further new mechanism, new era product offerings that are designed to work in harmony with the human gut microbiome in the therapeutic areas of oncology and infectious diseases.

To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction (as defined below) issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or ADSs), payments to us under our license and commercialization agreement with Eurofarma Laboratórios SA, or Eurofarma, development funding and other assistance from government entities, philanthropic, non-government and not-for-profit organizations for our product candidates.

In particular, we have received funding from BARDA, CARB-X, Innovate UK, Wellcome Trust and a number of not-for-profit organizations.

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We have not completed the development of any drugs.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

We expect to continue to incur significant expenses and increasing operating losses for at least the next few years.

The net losses we incur may fluctuate significantly from quarter to quarter and year to year, due to the nature and timing of our research and development activities.

We anticipate that our expenses will increase substantially in connection with conducting clinical trials for our lead product candidate, ridinilazole (formerly SMT19969), for the treatment of patients with CDI and seeking marketing approval for ridinilazole in the United States, as well as other geographies.

In addition, if we obtain marketing approval of ridinilazole in the United States or other jurisdictions where we retain commercial rights, we expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses.

We expect that our research and development and general and administrative expenses will continue to be significant in connection with our ongoing research and development efforts.

In addition, if we obtain marketing approval of ridinilazole in the U.S.

or other jurisdictions where we retain commercial rights, and if we choose to maintain those rights, we would expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses.

Recent Developments

On May 12, 2021, we closed our rights offering, which was fully subscribed.

We received aggregate gross proceeds from the rights offering of $75.0 million from the sale of 14,312,976 shares of our common stock at a price per share of $5.24.

Issuance costs associated with the rights offering were immaterial.

In connection with the closing of the rights offering, a promissory note, dated April 20, 2021, issued by us in favor of our Chairman, Chief Executive Officer, and the beneficial owner of approximately 70% of our outstanding common stock prior to this rights offering, Robert W.

Duggan, in the principal amount of $55.0 million, matured and became due and we repaid all principal and accrued interest thereunder using a portion of the proceeds from the rights offering.

On August 11, 2021, based on a thorough review of the design and enrollment status of its two ongoing blinded Phase III Ri-CoDIFy trials, we announced that we combined our two blinded pivotal Phase III clinical trials evaluating ridinilazole versus vancomycin into a single study and presented this decision to the United States ("U.S.") Food and Drug Administration (the "FDA") as such.

During September 2021, we received feedback from the FDA that the FDA did not agree with the change to the primary endpoint that we proposed and subsequently implemented in our ongoing Phase III Ri-CoDIFy studies when combining the trials.

On December 20, 2021 we announced topline results for the Phase III Ri-CoDIFy study evaluating ridinilazole, for the treatment of and Sustained Clinical Response (“SCR”), as defined below, for patients suffering from C.

difficile infection (" C.

infection" or "CDI").

The study showed that ridinilazole resulted in a numerically higher SCR rate than vancomycin, but did not meet the study’s primary endpoint for superiority.

The pivotal Phase III clinical trial consisted of two Phase III clinical trials combined into a single study, designed to assess, as the primary endpoint, the superiority of ridinilazole compared to vancomycin in SCR, which is defined as Clinical Response of the treated episode of CDI and no recurrence of CDI through 30 days after the end of treatment.

Additional endpoints include Clinical Response ("CR"), safety, tolerability, recurrence, and analyses of the gut microbiome and metabolome, in addition to quality of life and health economic outcome measures.

We are in the process of evaluating the future path forward with respect to ridinilazole, including potential partnership opportunities.

Key Components of our Results of Operations

Revenue consists of amounts received from the license and commercialization agreement with Eurofarma.

Prior periods also include amounts received from the license and collaboration agreement with Sarepta, which was terminated in August 2019, and a research collaboration agreement with F.

Hoffmann-La Roche Ltd, which ended in February 2018.

Revenue consists of amounts received from the license and commercialization agreement with Eurofarma Laboratórios S.A.

("Eurofarma").

We have not generated any revenue from product sales.

Under the terms of the agreement with Eurofarma, we received an upfront payment of $2.5 million in December 2017.

We are eligible to receive additional development milestones upon the achievement of staged patient enrollment targets in our ongoing Phase 3 clinical trials of ridinilazole.

In February 2020, we achieved the first of these enrollment targets and triggered a milestone payment of $1.0 million from Eurofarma, and we are eligible to receive up to an additional $2.75 million in development milestones upon the achievement of additional enrollment targets.

We are also eligible to receive up to an

additional $21.4 million through other development milestones, commercial milestones, and one-time sales milestones based on cumulative net sales up to $100.0 million in the territory where Eurofarma has commercialization rights.

Further, the agreement provides for product supply transfer payments expected to provide a return equivalent of a high single digit to low double-digit percentage of net sales.

For each incremental $100.0 million in cumulative net sales achieved, we are entitled to a further milestone payment which, when combined with the aforementioned product supply transfer payments, is expected to provide a return equivalent to a mid- to high-teens percentage of net sales in the territories where we have granted Eurofarma commercialization rights.

Under the terms of the agreement with Sarepta, we received an upfront payment of $40.0 million and a development milestone payment of $22.0 million, which was payable after the first dosing of the last patient in PhaseOut DMD, our Phase 2 clinical trial of ezutromid.

We also agreed to collaborate with Sarepta on the research and development of our utrophin modulators, or the licensed products, pursuant to a joint development plan.

Until December 31, 2017, we were solely responsible for all research and development costs for the licensed products in the licensed territory, and thereafter we were responsible for 55.0% and Sarepta was responsible for 45.0% of such costs.

In June 2018, we announced the discontinuation of the development of ezutromid after PhaseOut DMD did not meet its primary or secondary endpoints.

As a result, we updated the development period over which the revenues were recognized and deemed it to have concluded in June 2018 in line with when the development of ezutromid was discontinued.

This resulted in all revenues relating to the Sarepta agreement that were previously deferred in the balance sheet being recognized in full.

We continued to receive cost share income for wind-down activities in relation to PhaseOut DMD and our earlier-stage utrophin modulation development activities up until the agreement was terminated in August 2019.

Under the terms of the license and commercialization agreement with Eurofarma, we received an upfront payment of $2.5 million in December 2017.

In February 2020, we achieved the first enrollment milestone and received $1.0 million.

In September 2021, we achieved the second enrollment milestone and received $1.3 million.

The terms of the contract have been assessed under ASC 606 and currently only the upfront payment and the first two milestone payments are included in the transaction price.

These payments were initially reported as deferred revenue in the balance sheet and are being recognized as revenue ratably over the performance period.

Revenue recognized during the period ended December 31, 2021 related to the upfront payment and the first two enrollment milestones earned in accordance with our revenue recognition policy.

Revenue recognized during the period ended December 31, 2020 related to the upfront payment and the first enrollment milestone earned in accordance with our revenue recognition policy.

The revenue is being recognized ratably over the performance period to reflect the transfer of control to the customer occurring over the time period that the research and development services are provided.

This output method is, in management’s judgment, the best measure of progress towards satisfying the performance period.

In addition, we will be entitled to receive an additional $1.5 million for achieving various development milestones.

We are also eligible to receive up to $21.4 million in additional development, commercial and sales milestones when cumulative net sales equal or exceed $100.0 million in the Eurofarma licensed territory.

For each incremental $100.0 million in cumulative net sales achieved, we are entitled to additional milestone payments, which, when combined with the aforementioned anticipated product supply transfer payments, is estimated to range from a mid-teens to high-teens percentage of cumulative net sales in the territories where we have granted Eurofarma commercialization rights.

Other Operating Income

Other operating income includes income received and recognized from grants and clinical trial support from government entities, philanthropic, non-government and not for profit organizations and patient advocacy groups.

Specifically, the BARDA contract provides for a cost-sharing arrangement under which BARDA funds a specified portion of estimated costs for specified activities related to the continued clinical and regulatory development of ridinilazole for the treatment of CDI.

We also have received grant income from a funding arrangement with CARB-X for our gonorrhea program, however, work on this program has since ceased as the series of antibiotics was determined not to have suitable qualities for further development.

Other operating income also includes benefit from two U.K.

Other operating income includes income received and recognized from grants and clinical trial support from government entities, philanthropic, non-government and not-for-profit organizations.

In September 2017, we were awarded a funding contract from the Biomedical Advanced Research and Development Authority ("BARDA"), part of the Office of the Assistant Secretary for Preparedness and Response at the United States Department of Health and Human Services, in support of our Ri-CoDIFy clinical trials and clinical development of ridinilazole.

The awarded contract was originally worth up to $62.0 million.

In June 2019 and again in January 2020, BARDA increased the value of the contract such that it is now worth up to $72.5 million.

The remaining federal government funding is dependent on BARDA in its sole discretion exercising the final independent option work segment, upon the achievement by the Company of certain agreed-upon milestones for ridinilazole.

As of December 31, 2021, an aggregate of $56.5 million of the total committed BARDA funding had been received and the Company has recognized $50.3 million of cumulative income since contract inception.

We have also received income from research and development ("R&D") tax credits, which consist of the R&D tax credit received in the United Kingdom ("U.K.").

We benefit from two U.K.

research and development tax credit cash rebate regimes:

Small and Medium Enterprise, or SME, Program and the Research and Development Expenditure Credit, or RDEC, Program.

Qualifying expenditures largely comprise employment costs for research staff, consumables, a proportion of relevant, permitted sub-contract costs and certain internal overhead costs incurred as part of research projects for which we do not receive commercial or other funding income.

Under both schemes, the Company receives cash rebate payments ranging from 9.7% to 33.4% of eligible research and development expenditure, these payments are not dependent on the Company’s pre-tax net income levels.

Small and Medium Enterprise Program ("SME Program") and the Research and Development Expenditure Credit Program ("RDEC Program").

Tax credits related to the SME Program and RDEC Program are recorded as other operating income in the consolidated statements of operations and other comprehensive loss.

Under both schemes, we receive cash payments that are not dependent on our pre-tax net income levels.

Based on criteria established by Her Majesty’s Revenue and Customs ("HMRC"), a portion of expenditures being carried out in relation to our pipeline research and development, clinical trials management and third-party manufacturing development activities are eligible for the SME regime and we expect such elements of expenditure will also continue to be eligible for the SME regime for future periods.

In May 2021, we announced the selection of a new preclinical candidate, SMT-738, from the DDS-04 series for development in the fight against multi-drug resistant infections, specifically Carbapenem-resistant Enterobacteriaceae ("CRE") infections.

Simultaneously, we received an award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator program ("CARB-X") to progress this candidate through preclinical development and

Phase Ia clinical trials.

The award commits initial funding of up to $4.1 million with the possibility of up to another $3.7 million based on the achievement of future milestones.

As of December 31, 2021, $0.5 million of grant funding from CARB-X has been received and the Company has recognized $1.2 million of cumulative income since contract inception.

Operating Expenses

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We track expenses related to our clinical programs and certain preclinical programs on a per project basis.

We expect our research and development expenses to continue to increase as compared to prior periods as we continue to enroll our Phase 3 clinical trials of ridinilazole for the treatment of CDI, continue our early-stage research programs for the treatment of Enterobacteriaceae infections, and continue our activities and initiate preclinical programs for future product candidates, including under our Discuva Platform.

We expect our research and development expenses to continue to be significant as we continue our early-stage research programs for the treatment of Enterobacteriaceae infections, continue our activities to initiate preclinical programs for future product candidates, including under our Discuva Platform, and develop product candidates that we may obtain through business development activities.

The timing and amount of these expenses will depend upon the outcome of our clinical trials and the associated costs.

The timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our product candidates and the related expansion of our research and development organization, regulatory requirements, advancement of our preclinical programs and product candidate manufacturing costs.

The table below summarizes our research and development expenses by category.

Our CDI program expenses, antibiotic pipeline development activities and DMD program expenses include costs paid to contract research organizations, manufacturing costs for our clinical trials and laboratory testing costs and research related expenses.

Other research and development costs include staff and travel costs (including those of our internal CDI, antibiotic development and DMD teams), research and development related legal costs, patent registration fees, an allocation of facility-related costs and other non-core program related expenses.

Year ended Eleven months ended Year ended

December 31, December 31, January 31,

2020 2019 2019

CDI program $ 37,485 $ 26,731 $ 23,784

Antibiotic pipeline research and development costs 1,765 3,213 2,546

DMD program 11 320 12,631

Other research and development costs 14,013 9,545 13,042

Total $ 53,274 $ 39,809 $ 52,003

From inception to December 31, 2020, our total CDI program expenses were $118.5 million, our total antibiotic pipeline research and development expenses were $7.5 million and our total DMD program expenses were $69.8 million.

We no longer expect to incur future costs related to the DMD program with the close-out activities related to ezutromid complete and the research collaboration with the University of Oxford terminated.

The successful development and commercialization of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of ridinilazole or any of our future product candidates.

This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

• the progress, costs and results of clinical trials of ridinilazole for CDI;

• the scope, rate of progress, costs and results of preclinical development, laboratory testing and clinical trials for our future product candidates;

• the costs, timing and outcome of regulatory review of our product candidates;

• the efficacy and potential advantages of our product candidates compared to alternative treatments, including any standard of care, and our ability to achieve market acceptance for any of our product candidates that receive marketing approval;

• the costs and timing of commercialization activities, including product sales, marketing, distribution and manufacturing, for any of our product candidates that receive marketing approval and the rate we expand our physical presence;

• the costs and timing of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights and defending against any intellectual property-related claims.

A change in the outcome of any of these variables with respect to the development of ridinilazole or any other product candidate that we may develop could result in a significant change in the costs and timing associated with the development of that product candidate.

For example, if the U.S.

Food and Drug Administration, or the FDA, the European Medicines Agency, or EMA, or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate for the completion of clinical development of ridinilazole or any other product candidate, or if we

experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

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We also anticipate continued accounting, audit, regulatory, compliance, insurance and investor and public relations expenses associated with being a publicly traded company in the United States.

Prior to the Redomiciliation Transaction, our American Depositary Shares, or ADSs, had traded on the Nasdaq Global Market and, until we canceled the admission on February 24, 2020, our ordinary shares had traded on AIM in the United Kingdom.

Our common stock is currently traded on the Nasdaq Global Market, and therefore, we only anticipate incurring future expenses associated with being a listed public company in the United States.

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Due to the nature of our business, we have generated losses since inception.

We have recorded a full valuation allowance against the deferred tax assets with respect to these tax losses in excess of our deferred tax liabilities because we do not consider it probable that there will be suitable taxable profits in the foreseeable future based on the evidence available against which to offset these losses.

We have recorded a full valuation allowance against the deferred tax assets with respect to

these tax losses in excess of our deferred tax liabilities because we do not consider it probable that there will be suitable taxable profits in the foreseeable future based on the evidence available against which to offset these losses.

Jumpstart Our Business Startups Act of 2012

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Formerly, as an emerging growth company, we were able to take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies.

These provisions include:

• an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

• an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

• reduced disclosure about our executive compensation arrangements;

• exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

The last day of the fiscal year following the fifth anniversary of our initial public offering in March 2015 was December 31, 2020, hence we have ceased to be an emerging growth company.

Accordingly, from January 1, 2021, we will no longer benefit from the above provisions.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies.

We had irrevocably elected not to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will continue to be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

Business Impact of COVID-19 Pandemic

In December 2019, an outbreak of respiratory illness caused by a novel coronavirus, commonly referred to as COVID-19, began in Wuhan, China and has now spread worldwide.

On March 11, 2020, the World Health Organization declared the outbreak a global pandemic and public health emergency, and on March 13, 2020, the President of the United States declared the virus as a national emergency.

In addition to those who have been directly affected, millions more have been affected by government efforts in the United States, the United Kingdom, the European Union and around the world to slow the spread of the pandemic through quarantines, travel restrictions, heightened border scrutiny and other measures.

The pandemic and measures taken in response by governments, private industry, individuals and others have also had significant direct and indirect adverse impacts on businesses and commerce as supply chains have been disrupted;

facilities and production have been suspended;

and demand for certain goods and services has spiked, while demand for other goods and services has decreased significantly.

The COVID-19 pandemic and measures taken to contain it have affected our business and operations in several ways.

These include, but are not limited to, the following:

• A substantial portion of our employees are remote working and expect to continue working remotely for the foreseeable future.

We have been unable to undertake certain activities directly at the same level as prior to the pandemic, including clinical trial visits and investigator meetings, with such activities being done remotely where possible.

• A substantial portion of our employees are remote working.

We have been unable to undertake certain activities directly at the same level as prior to the COVID-19 pandemic, including clinical trial visits and investigator meetings, with such activities being done remotely where possible.

We have been relying on remote means of working and communication both internally and externally.

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• Certain of our clinical trial sites have suspended enrollment due to facility closures, reduced staff and operations, quarantine travel restrictions and other governmental restrictions.

Additionally, we have experienced, and may continue to experience, patient enrollment at a slower pace at certain of our clinical trial sites than expected.

We may also face difficulties in recruiting and retaining patients in our clinical trials to the extent patients are affected by the virus or are fearful of visiting or traveling to our clinical trial sites because of the pandemic.

As a result, we expect the results from our clinical trials to be delayed, which we expect will have a material adverse impact on our clinical trial timelines and result in increased clinical development costs.

• As a result of the slower pace of patient enrollment, our clinical supplies of ridinilazole and vancomycin manufactured for our Phase 3 clinical trials may not be utilized prior to their expiration and may need to be replaced.

While we do not currently anticipate significant interruptions in our clinical supply chain, quarantines, travel restrictions and other measures may significantly impact the ability of employees of our third-party suppliers to get to their places of work to manufacture and deliver additional clinical supplies, which could cause the results from our clinical trials to be delayed even further and may increase the costs of our clinical trials.

Additionally, we experienced patient enrollment at a slower pace than expected at certain clinical trial sites which resulted in increased clinical development costs.

• Many of our clinical trial sites have been operating with reduced staff and other restrictions.

We have increased our efforts to engage with our clinical trial sites with a focus on retaining patients and maintaining scheduled visits and treatments, and where possible, instituted practices such as addition of home healthcare provider services for patients and remote monitoring.

• The pandemic has caused significant disruption to the financial markets and has caused volatility in the price of our stock and that of other companies in the biotechnology industry.

The progression of the COVID-19 pandemic continues to evolve and its enduring impact on our business remains uncertain.

We increased our efforts to engage with our clinical trial sites with a focus on retaining patients and maintaining scheduled visits and treatments, and where possible, instituted practices such as addition of home healthcare provider services for patients and remote monitoring.

The ongoing COVID-19 pandemic continues to evolve and its enduring impact on our business remains uncertain.

There may be other material adverse impacts on our business, operations and financial condition that are unpredictable at this time, including delays in the development and regulatory approval of our product candidates and difficulties in retaining qualified personnel during the pandemic and once it subsides.

The extent to which the pandemic may impact our business will depend on future developments, such as the duration of the pandemic, quarantines, travel restrictions and other measures in the United States, the United Kingdom, the European Union and around the world, business closures or business disruptions and the effectiveness of actions taken to contain the pandemic.

and around the world, business closures or business disruptions and the effectiveness of actions taken to contain the pandemic.

Results of Operations

Comparison of the Year Ended December 31, 2020, to the Eleven Months Ended December 31, 2019

Following the change in the Company's fiscal year end from January 31 to December 31, effective December 31, 2019, the following table summarizes the results of our operations for the year ended December 31, 2020, and the eleven months ended December 31, 2019, together with the changes to those items:

Period ended Change 2020 vs.

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

(in millions) Year Ended Change 2021 vs.

December 31, 2021 December 31, 2020 Increase/(Decrease)

(in thousands, except percentages)

Revenue $ 1.8 $ 0.9 $ 0.9

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General and administrative 23.6 19.2 4.4

Impairment of goodwill and intangible assets 859 — 859 100.0

Impairment of intangible assets — 0.9 (0.9)

Total operating expenses 109.0 73.4 35.6

Other operating income 21.0 19.3 1.7

Loss from operations (53,193) (27,473) (25,720) 93.6

Other income (expense), net 283 (1,618) 1,901 117.5

Loss before income tax (52,910) (29,091) (23,819) 81.9

Benefit (charge) from income taxes 213 (36) 249 (691.7)

Operating loss (86.2) (53.2) (33.0)

Other (expense) income, net (2.4) 0.3 (2.7)

Loss before income taxes (88.6) (52.9) (35.7)

Income tax benefit — 0.2 (0.2)

Net loss $ (88.6) $ (52.7) $ (35.9)

Revenue was $0.9 million for the year ended December 31, 2020, compared to $0.7 million for the eleven months ended December 31, 2019.

The Company recognized revenue of $0.9 million during the year ended December 31, 2020 and $0.6 million during the eleven months ended December 31, 2019, relating to the receipt of a $2.5 million upfront payment and a $1.0 million enrollment milestone payment in respect of the license and commercialization agreement signed with Eurofarma in December 2017.

Revenues in the period ended December 31, 2019, also included $0.1 million relating to the Company’s license and collaboration agreement with Sarepta which was terminated, effective August 2019, following the Company’s decision to discontinue development of ezutromid in June 2018 and has no material ongoing obligations for either party.

Other Operating Income

Other operating income was $19.3 million for the year ended December 31, 2020, as compared to $22.9 million for the eleven months ended December 31, 2019.

Other operating income for these periods primarily related to the Company's funding contract with BARDA for the development of ridinilazole for the treatment of CDI.

Specifically, the Company recognized other operating income of $9.5 million during the year ended December 31, 2020, as compared to $16.6 million during the eleven months ended December 31, 2019, from the BARDA contract.

This decrease of $7.1 million is due to reaching the funding limit on certain work segments of the contract.

This decrease is partially offset by an increase in U.K.

Research and Development Expenditure Credits as research and development expenses not funded by third parties may be eligible for these credits, see below for details.

The Company also recognized other operating income of $0.5 million during the year ended December 31, 2020, as compared to $0.8 million during the eleven months ended December 31, 2019, related to the Company's funding arrangements with CARB-X for its gonorrhea program.

With the Company's decision not to advance the DDS-01 series of antibiotics and to cease work on the gonorrhea program, it is expected CARB-X will cover its remaining share of the work that has been funded under the award.

In addition, $9.4 million was recognized in respect of U.K.

Research and Development Expenditure Credits for the year ended December 31, 2020 as compared to $5.5 million for the eleven months ended December 31, 2019.

This increase of $3.9 million is due primarily to additional research and development expenses incurred during the year ended December 31, 2020 that were not funded by third parties.

Revenue increased $0.9 million for the year ended December 31, 2021, compared to the same period in the prior year.

The increase is primarily attributed to the achievement of a milestone related to our license and commercialization agreement with Eurofarma Laboratórios S.A.

("Eurofarma") in September of 2021.

The total milestone of $1.3 million is recognized ratably over the performance period the research and development services are provided, which extends beyond 2021.

Operating Expenses

Research and Development Expenses

Research and development expenses increased by $13.5 million to $53.3 million for the year ended December 31, 2020 from $39.8 million for the eleven months ended December 31, 2019.

There was increased expenditure related to the Company's CDI program and the research and development related staffing and facilities costs, offset by decreased expenditure related to antibiotic pipeline research and development activities and the discontinued DMD program.

This net increase is also due, in part, to the comparison of a twelve month period to an eleven month period.

When comparing these results with the year ended December 31, 2019 rather than the eleven month period, research and development costs would have increased by $10.0 million.

Expenses in connection with the CDI program increased by $10.8 million to $37.5 million for the year ended December 31, 2020, from $26.7 million for the eleven months ended December 31, 2019.

This increase primarily related to clinical and manufacturing activities related to the Phase 3 clinical trials of ridinilazole that commenced in February 2019.

Investment in the Company's antibiotic pipeline development activities decreased by $1.4 million to $1.8 million for the year ended December 31, 2020, compared to $3.2 million for the eleven months ended December 31, 2019.

This decrease primarily related to the decision not to advance the DDS-01 series of antibiotics and to cease work on the gonorrhea program.

Expenses related to the DMD program decreased by $0.3 million to $nil for the year ended December 31, 2020, from $0.3 million for the eleven months ended December 31, 2019.

This was driven by the decision to discontinue development of ezutromid in June 2018 as well as ending all the next and future generation utrophin modulation research activities.

Other research and development expenses increased by $4.4 million to $14.0 million during the year ended December 31, 2020, as compared to $9.6 million during the eleven months ended December 31, 2019.

This was primarily due to an increase in supporting staff and facilities costs related to the CDI program.

(in millions) Year Ended Change 2021 vs.

December 31, 2021 December 31, 2020 Increase/(Decrease)

CDI program $ 53.9 $ 37.5 $ 16.4

Antibiotic pipeline research and development costs 1.9 1.8 0.1

Other research and development costs 29.6 14.0 15.6

Total $ 85.4 $ 53.3 $ 32.1

Investment in our CDI program increased by $16.4 million for the year ended December 31, 2021, compared to the same period in the prior year, primarily due to clinical and manufacturing activities associated with the Phase III clinical program of ridinilazole.

Investment in our antibiotic pipeline development activities was $1.9 million for the year ended December 31, 2021, which reflects costs associated with development of our preclinical candidate, SMT-738, from the DDS-04 series for development in the fight against multi-drug resistant infections, specifically Carbapenem-resistant Enterobacteriaceae ("CRE") infections.

Investment in our antibiotic pipeline development activities was $1.8 million for the year ended December 31, 2020, which reflects costs associated with work on the DDS-01 series and the gonorrhoeae program which we ceased work on at the end of 2020.

Other research and development costs are comprised of the following:

(in millions) Year Ended Change 2021 vs.

December 31, 2021 December 31, 2020 Increase/(Decrease)

Compensation related costs $ 19.4 $ 10.0 $ 9.4

Stock-based compensation 5.9 0.3 5.6

Other research and development costs 4.3 3.7 0.6

Total $ 29.6 $ 14.0 $ 15.6

Other research and development costs increased by $15.6 million for the year ended December 31, 2021, compared to the same period in the prior year, due primarily to an increase of $9.4 million in compensation related costs and an increase of $5.6 million in stock-based compensation as a result of increased hiring.

General and Administrative Expenses

General and administrative expenses increased by $7.9 million to $19.2 million for the year ended December 31, 2020, from $11.3 million for the eleven months ended December 31, 2019.

This increase is primarily due to additional legal and professional fees incurred in connection with the Redomiciliation Transaction, increased support staff related costs and commercial preparatory activities, such as market research.

This net increase is also due, in part, to the comparison of a twelve month period to an eleven month period.

When comparing these results with the year ended December 31, 2019 rather than the eleven month period, general and administrative would have increased by $7.1 million.

(in millions) Year Ended Change 2021 vs.

December 31, 2021 December 31, 2020 Increase/(Decrease)

Compensation related costs $ 9.7 $ 7.6 $ 2.1

Stock-based compensation 6.9 1.0 5.9

Legal and Professional Fees 2.6 6.0 (3.4)

Other general and administrative expenses 4.4 4.6 (0.2)

Total $ 23.6 $ 19.2 $ 4.4

General and administrative expenses were $23.6 million and $19.2 million for the year ended December 31, 2021 and 2020, respectively.

General and administrative expenses increased by $4.4 million, compared to the same period in the prior year, primarily due to an increase of $8.0 million in compensation related costs, including stock-based compensation due to the initial recognition of modified stock option awards in September 2021 of $2.7 million, and an increase of $5.3 million as a result of increased hiring, partially offset by a decrease of $3.4 million in consulting and professional fees, as the prior year included professional fees related to the Redomiciliation Transaction.

Impairment of Intangible Assets

During the year ended December 31, 2020, the Company identified an impairment related to our option over non-financial asset pursuant to an Evaluation and Option Agreement with a collaboration partner.

The partner is no longer conducting antibiotic candidate programs over which the Company had the option, management therefore determined that the fair value of our option to acquire the assignment of the proprietary rights for antibiotic candidates is $nil.

Accordingly, the asset was written off in its entirety resulting in an impairment charge of $0.9 million.

Other income (expense), net

Other income, net was $0.3 million for the year ended December 31, 2020, compared to other expense, net of $1.6 million for the eleven months ended December 31, 2019.

This net movement was primarily due to a net positive movement in foreign currency gains (losses) of $1.4 million and a gain of $0.5 million for a revaluation recorded during the year ended December 31, 2020 in relation to the assumed contingent liabilities for potential payments to certain employees, former employees and former directors of Discuva Limited, based on specified development and clinical milestones related to proprietary product candidates developed under the Discuva Platform.

Other interest expense remained consistent.

Benefit (charge) from income tax

The income tax benefit for the year ended December 31, 2020, was $0.2 million as compared to a charge of $0.04 million for the eleven months ended December 31, 2019.

These amounts relate to the Company's U.S.

corporate taxation due in relation to the U.S.

tax resident trading entity.

The Company has recorded a full valuation allowance against the deferred tax assets in excess of our deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences.

Comparison of Eleven Months Ended December 31, 2019 and Year Ended January 31, 2019

The following table summarizes the results of our operations for the eleven months ended December 31, 2019 and year ended January 31, 2019, together with the changes to those items:

Period ended Change December 2019 vs.

December 31, 2019 January 31, 2019 Increase/(Decrease)

(in thousands, except percentages)

Revenue $ 743 $ 57,088 $ (56,345) (98.7) %

Operating expenses:

Research and development 39,809 52,003 (12,194) 23.4 %

General and administrative 11,279 17,014 (5,735) 33.7 %

Impairment of goodwill and intangible assets — 5,290 (5,290) 100.0 %

Total operating expenses 51,088 74,307 (23,219) (31.2) %

During the year ended December 31, 2020, we recognized an impairment charge of $0.9 million relating to our option over a non-financial intangible asset pursuant to an evaluation and option agreement with a collaboration partner.

The partner was no longer conducting antibiotic candidate programs over which we had the option and thus, we assessed the fair value to be zero.

Other Operating Income

(Loss) income from operations (27,473) 5,389 (79,300) 1,471.5 %

Other operating income was $21.0 million and $19.3 million for the year ended December 31, 2021 and 2020, respectively.

The increase in other operating income of $1.7 million for the year ended December 31, 2021, compared to the same period in the prior year is due to an increase of $5.8 million related to U.K.

research and development tax credits for research and development expenses incurred that are not funded by third parties and an increase of $0.7 million in grant income received from CARB-X to progress the preclinical candidate, SMT-738, from the DDS-04 series for development in the fight against multi-drug resistant infections, offset by a decrease of $4.9 million in funding income from BARDA in support of our Ri-CoDIFy clinical trials and regulatory development of ridinilazole.

Other (Expense) Income, Net

(Loss) income before income tax (29,091) 9,083 (84,612) 931.5 %

(Charge) benefit from income taxes (36) 1,786 (1,822) (102.0) %

Net (loss) income $ (29,127) $ 10,869 $ (86,434) 795.2 %

Revenue was $0.7 million for the eleven months ended December 31, 2019, compared to $57.1 million for the year ended January 31, 2019.

The Company recognized $0.6 million of revenue during the eleven months ended December 31, 2019, relating to the receipt of a $2.5 million upfront payment in respect of the license and commercialization agreement signed with Eurofarma in December 2017.

Revenues in the period ended January 31, 2019, related primarily to the Company’s license and collaboration agreement with Sarepta following the recognition of all remaining deferred revenue related to the Sarepta agreement following the Company’s decision to discontinue development of ezutromid in June 2018.

This recognition of deferred revenues did not impact the Company's cash flows.

The agreement with Sarepta was terminated, effective August 2019, with no material ongoing obligations for either party.

Other Operating Income

Other operating income was $22.9 million for the eleven months ended December 31, 2019, as compared to $22.6 million for the year ended January 31, 2019.

Other operating income for these periods primarily was related to the Company's funding contract with BARDA for the development of ridinilazole for the treatment of CDI.

Specifically, the Company recognized other operating income of $16.6 million during the eleven months ended December 31, 2019, as compared to $17.4 million during the year ended January 31, 2019, from the BARDA contract.

The Company also recognized other operating income of $0.8 million during the eleven months ended December 31, 2019, related to the Company's funding arrangements with CARB-X for its gonorrhea program.

In addition, $5.5 million was recognized in respect of U.K.

Research and Development Expenditure Credits for the eleven months ended December 31, 2019 as compared to $2.9 million for the year ended January 31, 2019.

This increase of $2.6 million is due to the use of some of the R&D tax credit for the year ended January 31, 2019 to offset taxable income.

Operating Expenses

Research and Development Expenses

Research and development expenses decreased by $12.2 million to $39.8 million for the eleven months ended December 31, 2019, from $52.0 million for the year ended January 31, 2019.

This decrease was primarily caused by the discontinuation of the

DMD program and related research and development staffing and facilities costs.

This decrease is also due to the comparison of an eleven month period to a twelve month period.

When comparing the year ended December 31, 2019 rather than the eleven month period, research and development costs would have decreased by $10.0 million.

Expenses related to the DMD program decreased by $12.3 million to $0.3 million for the eleven months ended December 31, 2019, from $12.6 million for the year ended January 31, 2019.

This was driven by the decision to discontinue development of ezutromid in June 2018 as well as ending all the next and future generation utrophin modulation research activities.

Investment in expenses in connection with the CDI program increased by $2.9 million to $26.7 million for the eleven months ended December 31, 2019, from $23.8 million for the year ended January 31, 2019.

This increase primarily related to clinical and manufacturing activities related to the Phase 3 clinical trials of ridinilazole that commenced in February 2019.

Investment in the Company's antibiotic pipeline development activities was $3.2 million for the eleven months ended December 31, 2019, compared to $2.5 million for the year ended January 31, 2019.

This increase primarily related to research activities in relation to the DDS-01 and DDS-04 programs for gonorrhea and Enterobacteriaceae infections.

Other research and development expenses decreased by $3.5 million to $9.5 million during the eleven months ended December 31, 2019, as compared to $13.0 million during the year ended January 31, 2019.

This was due to a decrease in staff and facilities costs related to the DMD program, a non-cash charge related to the acceleration of stock-based payment expenses resulting from the surrender of share option awards and a non-cash charge for amortization of our proprietary Discuva Platform in the prior period.

General and Administrative Expenses

General and administrative expenses decreased by $3.8 million to $12.6 million for the eleven months ended December 31, 2019, from $16.4 million for the year ended January 31, 2019.

The higher expenses in the year ended January 31, 2019 were primarily due to a non-cash charge for the acceleration of stock-based payment expenses resulting from the surrender of share option awards and a loss on recognition of contingent consideration payable relating to the acquisition of Discuva Limited.

Impairment of Goodwill and Intangible Assets

As a result of discontinuing the development of ezutromid, the Company recognized a full impairment charge during the year ended January 31, 2019, of $5.3 million relating to the utrophin program intangible asset and goodwill associated with the acquisition of MuOx Limited.

Other income (expense), net

Other expense, net was $1.6 million for the eleven months ended December 31, 2019, compared to other income, net of $3.7 million for the year ended January 31, 2019.

This net movement was primarily due to a net negative movement in foreign currency gains (losses) of $1.9 million and a revaluation of $3.7 million recognized during the year ended January 31, 2019 in relation to the Company's financial liabilities on funding arrangements relating to DMD-related U.S.

not for profit organizations following the discontinuation of the development of ezutromid in June 2018.

Benefit (charge) from income taxes

The income tax charge for the eleven months ended December 31, 2019, was less than $0.1 million as compared to a benefit of $1.8 million for the year ended January 31, 2019.

This movement primarily relates to the recognition of available carried forward group tax losses.

Other expense, net was $2.4 million and other income, net was $0.3 million income for the year ended December 31, 2021 and 2020, respectively, and related primarily to changes in foreign exchange rates.

Income Tax Benefit

A tax benefit of $0.2 million was recognized for the year ended December 31, 2020 related to a tax refund recognized from the overpayment of estimated federal tax liabilities for previous tax years.

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Sources of Liquidity

To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or ADSs), payments to us under our former license and collaboration agreement with Sarepta and our license and commercialization agreement with Eurofarma and development funding and other assistance from government entities, philanthropic, non-government and not for profit organizations and patient advocacy groups for our product candidates.

To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or ADSs), payments to us under license, collaboration, and commercialization arrangements, for example, our license and commercialization agreement with Eurofarma Laboratórios SA, or Eurofarma, and development funding and other assistance from government entities, philanthropic, non-government and not-for-profit organizations for our product candidates.

In particular, we have received funding from BARDA, CARB-X, Innovate UK, Wellcome Trust and a number of not-for-profit organizations.

In March 2018, we received net proceeds of $19.8 million from the issuance and sale of 1,666,667 shares of common stock to investors in Europe.

In January 2019, we received net proceeds of $24.4 million from the issuance and sale of 15,625,000 shares of common stock to a single investor, Mr.

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Following the issuance of an unsecured promissory note on March 24, 2021, we received net proceeds of $55.0 million.

Funding requirements

Such note was later repaid without interest or penalty, rescinded and replaced by a new note on April 20, 2021, pursuant to a second unsecured promissory note we received net proceeds of $55.0 million.

Subsequently, on May 12, 2021, we received proceeds of $75.0 million in the aggregate from the sale of 14,312,976 shares of Common Stock at a price per share of $5.24 from our rights offering, the proceeds of which were used in part to repay amounts outstanding on the second unsecured promissory note.

On March 10, 2022, we received net proceeds of $25.0 million from the issuance of an unsecured promissory note (the "2022 Note") which becomes due upon the earlier of (i) the consummation of a registered public offering with net proceeds of no less than $25,000 or (ii) 18 months from the date of issuance of the 2022 Note.

We have devoted substantially all of our efforts to research and development, including clinical trials.

We have not completed the development of any drugs.

Since our inception, we have incurred significant operating losses.

We anticipate that we will continue to incur losses for at least the next several years.

We expect that our research and development and general and administrative expenses will continue to increase in connection with conducting clinical trials for our lead product candidate, ridinilazole, for the treatment of CDI, conducting preclinical research and development activities and seeking marketing approval for ridinilazole in the United States as well as other geographies where we retain commercialization rights.

We anticipate that we will continue to incur losses for the foreseeable future.

The net losses we incur may fluctuate significantly from quarter to quarter and year to year, due to the nature and timing of our research and development activities.

We expect that our research and development and general and administrative expenses will continue to be significant in connection with our ongoing research and development efforts.

In addition, if we obtain marketing approval of ridinilazole in the United States or other jurisdictions where we retain commercial rights, and if we choose to retain those rights, we would expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses.

In addition, our expenses will increase if and as we:

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• add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.

As of December 31, 2020, we had cash and cash equivalents of $66.4 million.

We believe that the proceeds of $55 million received in March 2021 from Mr.

Duggan, our Executive Chairman and Chief Executive Officer and primary stockholder in exchange for the issuance of an unsecured promissory note combined with our existing cash resources, funding agreements and research and development tax credits receivable, will be sufficient to enable us to fund our current operating plans until the second quarter of 2022.

While these capital resources have allowed us to conduct our two Phase 3 clinical trials of ridinilazole, we do not expect to be able to complete all activities associated with these trials without additional capital.

Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition.

On March 25, 2021, the Company’s Board of Directors approved a rights offering available to all holders of record of the Company’s common stock, as of the close of business on April 9, 2021.

Assuming the rights offering is fully subscribed, the Company will receive gross proceeds of up to $75.0 million, less expenses related to the rights offering.

During year ended December 31, 2021, we incurred a net loss of $88.6 million, and cash flows used in operating activities was $72.6 million.

As of December 31, 2021 we had an accumulated deficit of $299.5 million, cash of $71.8 million, research and development tax credit receivable of $15.7 million and accounts receivable of $1.5 million.

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

Based on our current funding arrangements and financial resources as of December 31, 2021 and after considering proceeds received of $25.0 million from the 2022 Note issued on March 10, 2022, the Company has the ability to fund its operating costs and working capital needs into the second half of 2023.

Until we can generate substantial revenue and achieve profitability, we will need to raise additional capital to fund ongoing operations and capital needs.

We will continue to review our data, including performing additional analyses on the microbiome and the relative impacts of ridinilazole and vancomycin in order to submit our data to the FDA.

We have also determined, in light of our increased focus on the microbiome, that we may seek one or more third-party partnership opportunities for ridinilazole.

In addition, we may consider and/or pursue business development opportunities to expand our pipeline of product candidates, including without limitation, potential acquisitions of and/or collaborations with other entities.

While these capital resources will allow us to continue to evaluate our next steps, we will need additional capital to prepare for regulatory filings and commercial readiness, consider commencing additional trials, or consider other strategic alternatives with respect to ridinilazole or pursue other business development opportunities.

O ur failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition.

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

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Our future capital requirements will depend on many factors, including:

• the progress, costs and results of clinical trials of ridinilazole for CDI;

• the timing and evaluation of the data from our Phase III Ri-CoDIFy clinical trial for our lead product candidate, ridinilazole (formerly SMT19969), the next steps we will take with ridinilazole based upon our review, and the costs associated with these decisions, including completing our review of the data associated with Ri-CoDIFy and any partnerships into which we may enter to continue the advancement of ridinilazole;

• the number and development requirements of other future product candidates that we pursue;

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• the amounts we receive from Eurofarma under our license and commercialization agreement, including for the achievement of development, commercialization and sales milestones and for product supply transfers;

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

• our ability to establish and maintain third-party partnerships or other arrangements and the financial terms of such arrangements;

• the extent to which we acquire or invest in other businesses, products and technologies;

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Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of some, or all, of the following:

equity and debt offerings, collaborations, strategic alliances, grants and clinical trial support from government entities, philanthropic, non-government and not-for-profit organizations and patient advocacy groups, and marketing, distribution or licensing arrangements.

We do not have any committed external source of funds other than amounts we may receive from BARDA and Eurofarma under our arrangements with them and our research and development tax credits receivable.

As a result, we will need additional capital to fund our operations.

equity and debt offerings, collaborations, strategic alliances, grants and clinical trial support from government entities, philanthropic, non-government and not-for-profit organizations and, marketing, distribution or licensing arrangements.

We do not have any committed external source of funds other than amounts we may receive from Eurofarma, BARDA, CARB-X and under our arrangements with them and our research and development tax credits receivable.

We will be entitled to receive an additional $1.5 million from Eurofarma for the achievement of various development milestones and we are eligible to receive up to $21.4 million in development, commercial and sales milestones when cumulative net sales equal or exceed $100.0 million in the Eurofarma licensed territory.

Each subsequent achievement of an additional $100.0 million in cumulative net sales will result in the Company receiving additional milestone payments, which, when combined with anticipated product supply transfer payments from Eurofarma paid to the Company in connection with a commercial supply agreement to be entered into between the two parties, will provide payments estimated to range from a mid-

teens to high-teens percentage of cumulative net sales in the territories where we have granted Eurofarma commercialization rights.

As of December 31, 2021, we have recognized $3.9 million of cumulative income since inception.

The total amount of committed BARDA funding is $62.4 million.

As of December 31, 2021, an aggregate of $56.5 million of the total committed BARDA funding has been received and we have recognized $50.3 million of cumulative income since contract inception.

The total amount of committed CARB-X funding is $4.1 million, with the possibility of up to another $3.7 million based on the achievement of future milestones.

As of December 31, 2021, an aggregate of $0.5 million of grant funding from CARB-X has been received and we have recognized $1.2 million of cumulative income since inception.

We will need additional capital to fund our operations.

Additional capital, when needed, may not be available to us on acceptable terms, or at all.

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements 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 product candidates that we would otherwise prefer to develop and market ourselves.

The following table summarizes the results of our cash flows for the year ended December 31, 2020, the eleven months ended December 31, 2019 and the year ended January 31, 2019.

Year ended December 31, 2020 Eleven months ended December 31, 2019 Year ended January 31, 2019

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we will be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The following table summarizes the results of our cash flows for the years ended December 31, 2021 and 2020.

Year Ended December 31, 2021 Year Ended December 31, 2020

Net cash used in operating activities (72,587) (48,111)

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Operating Activities

Net cash used in operating activities for the year ended December 31, 2020, was $48.1 million, consisting primarily of operating costs of $70.1 million, offset by $16.9 million received from licensing agreements and funding arrangements, $5.0 million U.K.

research and development tax credits received and a net taxation refund received of $0.1 million.

Net loss of $52.7 million for the year ended December 31, 2020 included net $4.6 million of non-cash items.

Significant non-cash items include stock-based compensation expense of $1.8 million, depreciation and amortization expense of $2.0 million and an impairment charge of $0.9 million relating to our option over non-financial asset.

The significant items in the change in operating assets that impacted our use of cash in operations was an increase in deferred revenue and income of $5.4 million and an increase in research and development tax credit receivable of $4.4 million.

Net cash used in operating activities for the eleven months ended December 31, 2019, was $20.8 million, consisting primarily of a net loss of $29.1 million adjusted for non-cash items including stock-based compensation expense and deferred income taxes of $1.4 million, depreciation and amortization expense of $1.6 million, and a net decrease in operating assets and liabilities of $5.2 million.

The significant items in the change in operating assets that impacted our use of cash in operations was a decrease in accounts receivable of $5.4 million.

Net cash used in operating activities for the year ended January 31, 2019, was $35.3 million consisting primarily of net income of $10.9 million adjusted for non-cash items including stock-based compensation expense and impairment of goodwill of $7.9 million, depreciation and amortization expense of $2.0 million, an impairment charge of $5.3 million and a net decrease in operating assets and liabilities of $55.0 million.

The significant items in the change in operating assets that impacted our use of cash in operations was a decrease in deferred revenue and income of $49.0 million due to the recognition of all revenue from Sarepta due to the decision to terminate the DMD project in June 2019, as well as increases of $2.5 million and $2.2 million, respectively, on both accounts receivable and current taxes receivable.

Net cash used in operating activities for the year ended December 31, 2021 was $72.6 million and resulted from a net loss of $88.6 million, which included non-cash charges of $16.1 million, which is primarily comprised of $12.8 million of stock-based compensation, and a $0.1 million net increase in working capital.

The net increase in working capital was primarily due to an a $6.0 million increase in the research and development tax credit receivable, a $1.7 million decrease in accounts payable, a $1.1 million increase in accounts receivable, a $1.1 million decrease in lease liabilities and a $0.8 million decrease in deferred revenue partially offset by a $8.2 million increase in accrued liabilities and accrued compensation and a $2.3 million decrease in prepaid expenses.

Net cash used in operating activities for the year ended December 31, 2020 was $48.1 million and resulted from a net loss of $52.7 million, which included non-cash charges of $4.0 million, which is primarily comprised of $1.8 million in stock-based compensation and $1.2 million in amortization of intangible assets, and a net decrease in working capital of $0.6 million.

The net decrease in working capital was primarily due to a $5.4 million increase in deferred revenue and other income and an increase of $1.6 million in accounts payable, partially offset by an increase in the research and development tax credit receivable of $4.4 million, a decrease of $1.3 million in accrued liabilities and accrued compensation, a $0.5 million decrease in lease liabilities.

Investing Activities

Net cash outflow in investing activities for the year ended December 31, 2020, was $0.4 million which represents amounts paid to acquire property and equipment.

Net cash outflow in investing activities for the eleven months ended December 31, 2019, was $0.3 million which represents amounts paid to acquire property and equipment and intangible assets.

Net cash outflow from investing activities for the year ended January 31, 2019, was $0.3 million which represents $0.2 million contingent consideration paid in connection with the acquisition of Discuva Limited and $0.1 million paid to acquire property and equipment and intangible assets.

Net cash used in investing activities for the year ended December 31, 2021 of $0.3 million was for the purchase of property and equipment.

Net cash outflow in investing activities for the year ended December 31, 2020 was $0.4 million was for the purchase of property and equipment.

Financing Activities

Net cash inflow from financing activities for the year ended December 31, 2020, was $50.6 million.

This includes $50.0 million of net proceeds received following the issuance and sale in a private placement of shares of common stock in November 2020, and $0.6 million received following the exercise of RSUs and share options.

Net cash inflow from financing activities for the eleven months ended December 31, 2019, was $49.1 million, which represents the net proceeds received following our equity placing of ordinary shares on the AIM market of the London Stock Exchange in December 2019.

Net cash generated from financing activities for the year ended January 31, 2019, was $44.5 million.

This includes $20.0 million of net proceeds received following our equity placing of ordinary shares on the AIM market of the London Stock Exchange in March 2018, $24.4 million of net proceeds received following our private placement of ADSs in the United States in January 2019, and $0.1 million received following the exercise of RSUs and share options.

Net cash provided by financing activities for the year ended December 31, 2021 was $77.9 million and primarily resulted from net proceeds of $74.8 million from the rights offering in May 2021, proceeds from the promissory notes from a related party of $110.0 million, offset by repayments of the promissory notes from a related party of $110.0 million and $3.1 million of net proceeds from the exercise of stock options.

Net cash provided by financing activities for the year ended December 31, 2020, was $50.6 million and resulted from net proceeds of $50.0 million received from a private placement of common stock in November 2020, and $0.6 million of net proceeds from the exercise of stock options.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2020.

The following table summarizes our lease contractual obligations as of December 31, 2021.

Payment due by period

Total Less that 1 year Between 1 and 3 years Between 3 and 5 years More that 5 years

(in thousands)

(in millions) Total Less than 1 year Between 1 and 3 years Between 3 and 5 years More than 5 years

Operating lease obligations $2.9 $1.0 $1.5 $0.4 $—

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Additionally, we enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes.

These contracts generally provide for termination upon notice, and therefore are cancellable contracts and not included in the table of contractual obligations and commitments.

Off‑Balance Sheet Arrangements

Other than the contractual obligations and commitments described above, we did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Most contracts provide for termination upon notice, and therefore are cancellable contracts.

As of December 31, 2021, total contractual commitments are estimated to be approximately $17.0 million and the majority of these commitments are due within one year.

Critical Accounting Policies and Significant Judgments and Estimates

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, intangible assets, accrued research and development expenses, stock-based compensation and income taxes.

We base our estimates on historical experience, known trends and events, and various other factors that we believe to be 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.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in this Report, we believe the following accounting policies to be most critical to understanding the judgments and estimates used by management in the preparation of our financial statements.

Other operating income

The Company generates income from government contracts that reimburse the Company for certain allowable costs for funded projects.

For contracts with government agencies, when the Company has concluded that it is the principal in conducting the research and development activities, and where the funding arrangement is considered central to the Company’s ongoing operations, the funding is classified as other operating income, rather than as a reduction of research and development expenses.

This funding income is not recorded as revenue as the Company's primary business activity is not to do research and development on behalf of government bodies, but rather to ultimately produce and sell pharmaceutical products commercially.

Income from government grants is recognized in the consolidated statement of operations and comprehensive income (loss) as the qualifying expenses related to the contracts are incurred, provided that there is reasonable assurance of recoverability and to the extent the conditions of the grant are met.

If the government agency approves the project proposed by the Company, the government agency funds the project upon receipt of the support for the costs incurred up to the contract limit.

Amounts received from these sources are recorded either as deferred income or recognized as accrued income (a component of other current assets) in the consolidated balance sheets, as appropriate depending on timing of receipts.

The related costs incurred by

the Company are included in research and development expenses in the Company’s consolidated statements of operations and comprehensive (loss) income.

Credits related to the two U.K.

research and development tax credit cash rebate regimes (SME Program and RDEC), received in respect of qualifying expenditure are recorded as other operating income in the consolidated statements of operations and other comprehensive (loss) income.

We believe the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing the consolidated financial statements:

Revenue Recognition

The Company accounts for revenue using Accounting Standards Codification ("ASC") 606 ("ASC 606").

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards.

The Company enters into out-licensing agreements within the scope of ASC 606 under which it licenses certain rights to its product candidates to third parties.

Such agreements may include the transfer of intellectual property rights in the form of

licenses, transfer of technological know-how, delivery of drug substances, research and development services, and participation on certain committees with the counterparty.

Payments made by the customers may include one or more of the following:

non-refundable, up-front license fees;

development, regulatory, and commercial milestone payments;

payments for manufacturing supply services the Company provides through its contract manufacturers;

and royalties on net sales of licensed products if they are successfully approved and commercialized.

Each of these payments may result in license, collaboration, or other revenue, except revenue from royalties on net sales of licensed products, which would be classified as royalty revenue.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its out-licensing agreements, the following steps are performed:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

Revenue is then recognized in respect of the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

As part of the accounting for these arrangements, the Company must use significant judgment to determine:

(a) the performance obligations based on the determination under step (ii) above;

(b) the transaction price under step (iii) above;

and (c) the standalone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above.

The Company also uses judgment to determine whether milestone payments or other variable consideration, except for royalties and sales-based milestones, should be included in the transaction price, as described below.

The transaction price is allocated to each performance obligation based on the relative standalone selling price of each performance obligation in the contract, and the Company recognizes revenue based on those amounts when, or as, the performance obligations under the contract are satisfied.

Exclusive Licenses

If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace.

In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises.

For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue recognition.

The measure of progress, and the resulting periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research, development and licensing arrangement.

Such a change could have a material impact on the amount of revenue the Company records in future periods.

Under the Company’s existing license and collaboration agreements, the Company has concluded that the transfer of control to the customer occurs over the time period that the research and development services are to be provided by the Company, and this output method is, in management’s judgment, the best measure of progress towards satisfying the performance obligation.

Milestone Payments

At the inception of each arrangement that includes potential research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered likely to be met and estimates the amount to be considered for inclusion in the transaction price using the most-likely-amount method.

If it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur, the associated milestone payment value is included in the transaction price.

For milestone payments due upon events that are not within the control of the Company or the licensee, such as regulatory approvals, the Company is not able to assert that it is likely that the regulatory approval will be granted and that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur until those approvals are received.

In making this assessment, the Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone.

There is considerable judgment involved in determining whether it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur.

At the end of each

subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price of the arrangement.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect the amounts of revenue and earnings in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments due upon first commercial sales or based on a level of sales, that are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) the occurrence of the related sales or (ii) the date upon which the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, the Company has not recognized any royalty revenue from any of its licensing arrangements.

Intangible Assets

Intangible assets include patents, licenses, an option over non-financial assets and a research and development discovery platform ("Discuva Platform").

Patents, licenses, and the option over non-financial assets are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives.

The Company evaluates the recoverability of its intangible and long-lived assets whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

If events and circumstances indicate that the carrying amount may not fully be recoverable, the Company will perform a qualitative assessment, and consider certain events and circumstances specific to the intangible asset and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the intangible asset is less than its carrying amount.

This periodic review may result in an adjustment of estimated depreciable lives or asset impairment.

When indicators of impairment are present, the carrying values of the asset are evaluated in relation to their operating performance and future undiscounted cash flows of the underlying business.

If the future undiscounted cash flows are less than their carrying value, impairment exists.

The impairment is measured as the difference between the carrying value and the fair value of the underlying asset.

Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

Other intangible assets are amortized in equal installments over their estimated useful lives as follows:

Intangible Asset Amortization Period

Option over non-financial assets Over the period of the relevant agreement

Amortization of intangible assets is included as part of the research and development expense line shown on the face of the consolidated statement of operations and comprehensive loss.

Research and Development Costs

Research and development costs are expensed as incurred.

Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs of outside vendors engaged to conduct preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials.

Research and development expenses consist of costs incurred to discover, research and develop product candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs of outside vendors engaged to conduct preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials.

Non - refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses.

Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

Milestone and other payments made to third-parties with respect to in-process research and development, in accordance with the Company’s license, acquisition and other similar agreements are expensed when determined to be probable and estimable.

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Actual results could differ from the Company’s estimates.

In all cases, the full cost of each study or activity is expensed by the time the final report or where applicable, product, has been received.

In all cases, the full cost of each study or activity is expensed by the

time the final report or where applicable, product, has been received.

The Company’s historical estimates have not been materially different from the actual costs.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock option and restricted stock unit awards based on the estimated fair value of the award on the grant date.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards.

The fair value is recognized as expense, over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis for each separately vesting portion of the award when the only condition to vesting is continued service.

If vesting is subject to a market or performance condition, recognition is based on the derived service period of the award.

Expense for awards with performance conditions is estimated and adjusted on a quarterly basis based upon the assessment of the probability that the performance condition will be met.

Use of the Black-Scholes option-pricing model requires management to apply judgment under highly subjective assumptions.

These assumptions include:

• Expected term—The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding.

The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission.

The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

• Expected volatility—The expected volatility was calculated based on historical volatility of the Company's share price.

• Risk-free interest rate—The risk-free rate assumption is based on the U.S.

Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

• Expected dividend—The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

The Company has not paid and does not intend to pay dividends.

The Company estimates expected forfeitures at the time of grant instead of accounting for forfeitures as they occur.

Stock option and restricted stock unit awards have been granted at fair value to non-employees, in connection with research and consulting services provided to the Company, to non-employees in connection with corporate activities, and to employees, in connection with Stock Purchase and Restriction Agreements.

Equity awards generally vest over terms of 3 or 4 years.

The provision for income taxes is determined using the asset and liability approach.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

These deferred tax balances both arise in the U.K.

tax jurisdiction, accordingly these are offset in the consolidated balance sheet.

We record interest and penalties related to income tax matters as part of income tax expense.

Assumed Contingent Liabilities

As part of the acquisition of Discuva Limited in December 2017, the Company assumed certain contingent liabilities as certain employees, former employees and former directors of Discuva Limited are eligible for payments from Discuva Limited based on specified development and clinical milestones related to proprietary product candidates developed under the Discuva Platform.

The timing of these potential payments is uncertain.

The fair value of the assumed contingent liability was estimated using the expected value of the payments.

The assumed contingent liabilities are subsequently measured at amortized cost using discounted cash flow models which calculate the risk adjusted net present values of estimated potential future cash flows of the payments.

The assumed contingent liabilities are remeasured when there is a specific significant event that provides evidence of a significant change in the probability of successful development and clinical milestones being achieved.

The models will be updated for changes in the probability of successful development and clinical milestones being achieved and other associated assumptions with the discount factor remaining unchanged within the model.

A discount factor of 13% has been used to discount the contingent liabilities back to net present value.

This discount factor has been calculated using appropriate measures and rates which could have been obtained in the period that the contingent liabilities were assumed.

Accretion of the discount factor, or interest expense, is recognized as part of other income (expense), net in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

The Company has recorded a full valuation allowance against the deferred tax assets in excess of its deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences.

The Company records interest and penalties related to income tax matters as part of income tax expense.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 4 to our consolidated financial statements contained in this Report.

For a discussion of recent accounting pronouncements, please see Note 5 to our consolidated financial statements contained in this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis