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Item 7. Management’s Discussion and Analysis

2023-03-09 compared with 2022-03-17 · 216 added, 172 removed, 228 unchanged (63% of the section changed)

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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.

This section provides an analysis of our financial results for the year ended December 31, 2022 compared to the same period in the prior year.

Company Overview

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.

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.

Our pipeline of product candidates is designed with the goal to become the patient-friendly, new-era standard-of-care medicines, in the therapeutic area of oncology.

On December 5, 2022, we entered into a Collaboration and License Agreement (the “License Agreement”) with Akeso, Inc.

and its affiliates (“Akeso”) pursuant to which we are partnering with Akeso to in-license its breakthrough bispecific antibody, ivonescimab.

Ivonescimab, known as AK112 in China and Australia, and also as SMT112 in the United States, Canada, Europe, and Japan, is a novel, potential first-in-class bispecific antibody intending to combine the benefits of immunotherapy via a blockade of PD-1 with the anti-angiogenesis benefits of an anti-VEGF into a single molecule.

Ivonescimab was engineered to bring two well established oncology targeted mechanisms together.

Through the License Agreement, we obtained the rights to develop and commercialize SMT112 in the United States, Canada, Europe, and Japan (the “Licensed Territory”).

The License Agreement and transaction closed on January 17, 2023 following customary waiting periods.

The entry into the License Agreement represents a significant change in the Company’s strategy.

All prior development and marketing activities relating to ridinilazole are being terminated.

All business activities related to anti-infectives are being reviewed for partnership opportunities for potential further development.

Our future operations will be focused on the development of ivonescimab and other future activities as the Company determines.

On September 28, 2022, we determined that we would seek partners or a divestiture of ridinilazole, our lead product candidate for treating patients suffering from Clostridioides difficile infection, also known as C.

difficile infection, or CDI, as the path forward for the clinical development of the asset.

As a result of this determination, we discontinued our only active study for

ridinilazole, a pediatric clinical trial evaluating ridinilazole for treating adolescent patients with CDI.

We are currently involved in activities related to closeout of ridinilazole clinical trials.

Our other product candidate, SMT-738, has been in development 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 been in preclinical development and has been undergoing investigational new drug (“IND”) enabling activities.

We will continue to pursue partnerships for further development of SMT-738.

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

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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.

As a result, we will need to seek additional funding in the future to fund operations.

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 marketing, distribution or licensing arrangements.

We may be unable to raise sufficient funds through equity or debt financings, or other arrangements when needed based on our liquidity needs acceptable terms, or at all.

Recent Developments

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

In addition to the events detailed in the Company Overview section above, the following other recent developments have occurred.

On February 15, 2023, the $20 million Zanganeh Note matured and the Company repaid the outstanding principal balance.

On March 1, 2023, we closed our Rights Offering, which was fully subscribed.

We received aggregate gross proceeds from the Rights Offering of $500 million from the sale of 476,190,471 shares of our common stock at a price per share of $1.05.

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.

Issuance costs associated with the Rights Offering were approximately $0.5 million.

In connection with the closing of the Rights Offering, a promissory note with the principal amount of $400 million, issued by us to our Executive Chairman and Chief Executive Officer, Mr.

Duggan, matured and became due and we repaid the principal amounts and all outstanding accrued interest thereunder using a portion of the proceeds from the Rights Offering.

In conjunction with the significant change in our strategy and shift in focus to the therapeutic area of oncology, the Company is re-prioritizing its investments and financial resources towards the development of ivonescimab.

This could result in reduced investment in our infectious diseases programs, including, subject to local legal process and approvals, reducing research and development employee compensation-related costs and facility-related costs incurred with respect to our laboratory and office space.

Key Components of our Results of Operations

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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.

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

Revenue recognized during the years ended December 31, 2022 and 2021 related to the upfront payment and the first two enrollment milestones earned in accordance with our revenue recognition policy.

The revenue was recognized ratably over the determined performance period to reflect the transfer of control to the customer occurring over the time period that the research

and development services were 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

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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.

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 and brought the total amount of committed funding to $62.4 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.

This option work segment was never exercised by BARDA.

The contract ran through April 2022 and was extended through December 2022 as a no cost contract, solely to close out open activities.

As of December 31, 2022, based on translation of historical foreign currency amounts in the period, an aggregate of $59.2 million of cumulative income has been recognized since contract inception.

As a result of our decision to not pursue further internal clinical development of ridinilazole and seek partners or a divestiture related to ridinilazole as a path forward for the clinical development of the asset, we recognized the remainder of the deferred income for BARDA during the third quarter of 2022.

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.").

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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.

Based on criteria established by His 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 research and development expenditure incurred in our UK entities 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.

As of December 31, 2022, based on translation of historical foreign currency amounts in the period, $2.9 million of cumulative income has been recognized since contract inception.

During the quarter ended September 30, 2022, CARB-X announced changes to its funding arrangements and terms and conditions.

As a result, the current arrangement concluded as of June 30, 2022, however we have the ability to recognize reimbursements for any milestone payments related to work incurred subsequent to this date in accordance with this agreement.

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 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.

We expect our research and development expenses to continue to be significant as we initiate our planned clinical trials of ivonescimab, and continue our activities to initiate preclinical programs for future product candidates.

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

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Other general and administrative expenses include stock-based compensation expenses, market research costs, facility-related costs, consulting costs and expenses associated with the requirements of being a publicly traded company in the United States, including insurance, legal, audit and taxation services fees.

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

We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our planned clinical trials of ivonescimab, continued research and development and potential commercialization of our product candidates.

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 the Alternative Investment Market 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.

Other expense, net

Other expense, net primarily consists of foreign currency net gains and losses, cash and imputed interest expense incurred related to our promissory notes to related parties, investment income related to our money market fund and investments in highly liquid U.S.

treasury securities and interest income on restricted cash.

Imputed interest is calculated as the difference between the expected interest payable and the deemed market rate of interest and is recorded as a debt discount at inception of the note payable with a credit to additional paid-in capital for notes payable to related parties.

The debt discount is amortized to interest expense using an effective interest rate method.

All highly liquid investments with a maturity date of 90 days or less at the date of purchase are considered to be cash equivalents and the related investment income is recognized in net loss.

The appropriate classification of investments in securities is determined by the Company at the time of purchase.

tax resident trading entity we are subject to U.S.

corporate taxation.

Prior to the Redomiciliation Transaction we were a U.K.

resident trading entity and were subject to U.K.

corporate taxation on group-wide taxable income.

resident trading subsidiaries are still individually subject to U.K.

resident trading subsidiaries are individually subject to U.K.

corporate taxation.

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 in each jurisdiction 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 2021

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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.

Business Impact of COVID-19 Pandemic

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.

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.

We are continuing to monitor and support the health and well-being of our employees and their productivity as remote working continues.

• 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 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 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 U.S., the U.K.

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, 2022 to the Year Ended December 31, 2021

(in millions) Year Ended Change 2021 vs.

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

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

Revenue $ 0.7 $ 1.8 $ (1.1)

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Operating loss (72.1) (86.2) 14.1

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

Other expense, net (6.7) (2.4) (4.3)

Loss before income taxes (78.8) (88.6) 9.8

Income tax benefit — 0.2 (0.2)

Net loss $ (78.8) $ (88.6) $ 9.8

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.

Revenue for the years ended December 31, 2022 and 2021 relates to revenue from our license and commercialization agreement with Eurofarma Laboratórios S.A ("Eurofarma").

This revenue was recognized ratably over the performance period the research and development services were provided.

The decrease for the year ended December 31, 2022 compared to the same period in the prior year is attributed to the achievement of a milestone related to this agreement in September of 2021.

The total milestone of $1.3 million was recognized ratably over the determined performance period the research and development service were provided.

Operating Expenses

Research and Development Expenses

(in millions) Year Ended Change 2021 vs.

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

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

CDI program $ 25.3 $ 53.9 $ (28.6)

Antibiotic pipeline research and development costs 3.3 1.9 1.4

Other research and development costs 29.6 14.0 15.6

Other research and development expenses 23.4 29.6 (6.2)

Total $ 52.0 $ 85.4 $ (33.4)

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)

Investment in our CDI program decreased by $28.6 million for the year ended December 31, 2022, compared to the same period in the prior year, primarily due to a decrease in clinical and manufacturing activity spend associated with the ridinilazole Phase III clinical program as a result of our decision to seek partners or a divestiture related to ridinilazole as the path forward for the clinical development of the asset.

Investment in our antibiotic pipeline development activities increased by $1.4 million for the year ended December 31, 2022, compared to the same period in the prior year, primarily due to increased development activity spend, specifically IND-enabling activities, associated with the 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.

Other research and development expenses are comprised of the following:

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

Compensation related costs $ 16.3 $ 19.4 $ (3.1)

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Total $ 23.4 $ 29.6 $ (6.2)

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.

Other research and development expenses decreased by $6.2 million for the year ended December 31, 2022, compared to the same period in the prior year, primarily due to a decrease of $3.1 million in compensation related costs, a decrease of $1.6 million in stock-based compensation due to a lower headcount as compared to the same period in the prior year, and recognition of a $1.3 million gain on the remeasurement of assumed contingent liabilities.

General and Administrative Expenses

(in millions) Year Ended Change 2021 vs.

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

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

Compensation related costs $ 11.5 $ 9.7 $ 1.8

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Total $ 26.7 $ 23.6 $ 3.1

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.

General and administrative expenses increased by $3.1 million, compared to the same period in the prior year, primarily due to an increase of $1.8 million in compensation related costs and an increase of $0.7 million in stock-based compensation as the Company is focused on building our executive management team to support the growth of the Company, and an increase of $1.1 million in legal and professional fees to support our financings and business development efforts during the year.

Impairment of Intangible Assets

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.

In December 2017, we expanded our activities in the field of infectious diseases with the acquisition of Discuva Limited, a privately held United Kingdom-based company.

Through this acquisition, we obtained a bacterial genetics platform and a suite of software-based technologies (collectively termed our “Discuva Platform”), which facilitates the discovery and development of new mechanism antibiotics.

In conjunction with the significant change in the Company’s strategy and shift in focus to the therapeutic area of oncology, the Company determined that it will cease further investment in the Discuva Platform and evaluate further options for the use of the Discuva Platform.

Management have concluded that this indicated the carrying amount of the acquired Discuva Platform intangible asset may not be recoverable and hence performed an assessment using a probability-weighted approach to determine the undiscounted cash flows of the asset, which indicated that an impairment exists.

Based on the assessment to compare the fair value of the asset to its carrying amount, an impairment charge of $8.5 million was recognized during the year ended December 31, 2022, representing the aggregate carrying amount of the intangible asset.

This impairment charge is presented as impairment of intangible assets in the consolidated statements of operations and comprehensive loss.

Other Operating Income

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

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.

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.

Other operating income is comprised of the following:

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

Funding income from BARDA $ 8.1 $ 4.6 $ 3.5

Research and development tax credits 4.5 15.2 (10.7)

Grant income from CARB-X 1.8 1.2 0.6

Total $ 14.4 $ 21.0 $ (6.6)

Funding income from BARDA increased by $3.5 million for the year ended December 31, 2022, compared to the same period in the prior year, primarily due to the accrual of the remaining clinical trial costs associated with ridinilazole as a result of our decision to seek partners or a divestiture related to ridinilazole as the path forward for the clinical development of the asset.

The recognition of the remaining clinical trial costs resulted in the acceleration of deferred other income for costs that had been billed and collected from BARDA prior to the expense being recognized.

research and development tax credits decreased by $10.7 million for the year ended December 31, 2022, compared to the same period in the prior year, due to a decrease in clinical and manufacturing activity spend associated with the ridinilazole Phase III clinical program, which was ceased during the third quarter of 2022, and resulted in a decrease in tax credits claimed, coupled with a decrease in eligible expenses claimed due to recent changes in tax legislation.

Grant income received from CARB-X increased by $0.6 million for the year ended December 31, 2022, compared to the same period in the prior year due to an increase in spend to progress the preclinical candidate SMT-738 from the DDS-04 series for development in the fight against multidrug resistant infections, specifically CRE infections.

Other Expense, Net

Other expense, net is comprised of the following:

(in millions) Year Ended

December 31, 2022 December 31, 2021 $ Change

Foreign currency loss $ (4.1) $ (2.1) $ (2.0)

Interest expense on promissory notes payable to related parties (4.4) (0.2) (4.2)

Investment income 1.5 — 1.5

Other income (expense), net 0.3 (0.1) 0.4

Total $ (6.7) $ (2.4) $ (4.3)

Other expense, net primarily increased by $4.3 million for the year ended December 31, 2022, compared to the same period in the prior year, due to unfavorable changes in foreign currency of $2.0 million, increase in loan interest expense of $4.2 million related to the $25.0 million and $520.0 million promissory notes issued to related parties during the year (as described below), partially offset by $1.5 million of investment income related to increased balances and yields in our money-market fund and highly liquid U.S.

government treasury securities.

Liquidity and Capital Resources

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 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.

To date, we have financed our operations primarily through issuances of our common stock, 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 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.

In December 2019, we received net proceeds of $49.1 million from the issuance and sale of 35,075,690 shares of common stock to three existing investors.

As part of the equity placing, the participating investors were granted warrants with the right to subscribe for 5,261,353 new shares of common stock at an exercise price of $1.58 per share.

On November 6, 2020, we received net proceeds of $50.0 million from the issuance and sale of 14,970,060 shares of common stock to three existing investors.

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

On March 24, 2021, pursuant to an unsecured promissory note we received net proceeds of $55.0 million.

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.

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 2021 rights offering ("2021 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 notes.

On August 8, 2022, we received net proceeds of $99.9 million from the sale of 103,092,783 share of Common Stock at a price of $0.97 per share from our 2021 Rights Offering, the proceeds of which were used in part to repay amounts outstanding on the March 2022 Note.

On December 6, 2022, the Company entered into a Note Purchase Agreement, with Mr.

Duggan and Dr.

Zanganeh, pursuant to which the Company agreed to sell to each of Mr.

Duggan and Dr.

Zanganeh unsecured promissory notes in the aggregate amount of $520 million.

Pursuant to the Note Purchase Agreement, the Company issued to Mr.

Duggan and Dr.

Zanganeh the unsecured Duggan February Note in the amount of $400 million and $20 million Zanganeh Note, respectively, which would mature and become due on February 15, 2023 and an unsecured Duggan September Note to Mr.

Duggan in the amount of $100 million, which will mature and become due on September 15, 2023.

The maturity dates of the December 2022 Notes could be extended one or more times at the Company’s election, but in no event to a date later than September 6, 2024.

In addition, if the Company shall consummate a public offering, then upon the later to occur of (i) five business days after the Company receives the net cash proceeds therefrom or (ii) May 15, 2023, the Duggan February Note and the Zanganeh Note shall be prepaid by an amount equal to the lesser of (a) 100% of the amount of the net proceeds of such offering and (b) the outstanding principal amount on such Notes.

On January 19, 2023, the Company provided notice to extend the term of the Duggan February Note and Duggan September Note to a maturity date of September 6, 2024.

Furthermore, on January 19, 2023, the Company and Mr.

Duggan rectified the Duggan February Note and Duggan September Note in order to correctly reflect the parties’ intent that the Company may only prepay (i) the Duggan February Note following the completion of a public rights offering to be conducted by Summit in the approximate amount of $500 million (the “Rights Offering”), or a similar capital raise, in an amount equal to the lesser of (x) the net proceeds of the Rights Offering or such capital raise or (y) the full amount outstanding of the Duggan February Note, and (ii) Duggan September Note following the completion of a capital raising transaction subsequent to the Rights Offering in an amount equal to the lesser of (i) the net proceeds of such capital raise or (ii) the full amount outstanding of the Duggan September Note.

Following the issuance of the “Duggan Promissory Notes, the Duggan February Note and Duggan September Note were marked as “cancelled” on their face and replaced in their entirety by the Notes.

The Notes accrue interest at an initial rate of 7.5%.

All interest on the Notes shall be paid on the date of signing for the period through February 15, 2023.

Such prepaid interest shall be paid in a number of shares of the Company’s Common Stock, equal to the dollar amount of such prepaid interest, divided by $0.7913 (the consolidated closing bid price immediately preceding the time the Company entered into the Note Purchase Agreement, plus $.01), which was 9,720,291 shares.

For all applicable periods following the February 15, 2023, interest shall accrue on the outstanding principal balance of the Notes at the US prime interest rate, as reported in the Wall Street Journal, plus 50 basis points, as adjusted monthly, for three months immediately following February 15, 2023, and thereafter at the US prime rate plus 300 basis points, as adjusted monthly.

On February 15, 2023, the $20 million Zanganeh Note matured and the Company repaid the outstanding principal balance.

In connection with the closing of the Rights Offering, the $400 million Duggan Promissory Note matured and became due, and the Company repaid all principal and accrued interest thereunder using a portion of the proceeds from this Rights Offering.

Following the repayment of this note, only the $100 million Duggan September Note remains outstanding.

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 the foreseeable future.

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 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, if we obtain marketing approval for any of our product candidates 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:

• continue the research and development of ridinilazole, as well as our early-stage programs targeting infections caused by Enterobacteriaceae;

• seek to identify and develop additional future product candidates, including through our bacterial genetics-based Discuva Platform for the discovery and development of new mechanism antibiotics, and specifically our research activities against a group of bacteria that collectively are known as the ESKAPE pathogens;

• Invest in clinical development of ivonescimab in our Licensed Territory;

• conduct research and continue development of additional product candidates;

• maintain and augment our intellectual property portfolio and opportunistically acquire complimentary intellectual property;

• seek further regulatory advancement for ivonescimab;

• invest in our manufacturing capabilities for ivonescimab and any other products for which we may obtain regulatory approval;

• seek marketing approvals for any product candidates that successfully complete clinical development;

• ultimately establish a sales, marketing and distribution infrastructure in jurisdictions where we have retained commercialization rights and scale up external manufacturing capabilities to commercialize any product candidates for which we receive marketing approval;

• acquire or in-license other product candidates and technology;

• maintain, expand and protect our intellectual property portfolio;

• hire additional clinical, regulatory and scientific personnel;

• perform our obligations under our collaboration agreements;

• pursue business development opportunities, including investing in other businesses, products and technologies;

• experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges

• hire additional clinical, regulatory, scientific and administrative personnel;

• expand our physical presence;

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

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.

• borrow capital to fund our resources and have to pay interest expenses on such borrowings.

During the year ended December 31, 2022, we incurred a net loss of $78.8 million, and cash flows used in operating activities was $41.6 million.

As of December 31, 2022 we had an accumulated deficit of $378.3 million, cash and cash equivalents of $348.6 million, restricted cash of $300.0 million, research and development tax credits of $5.8 million and accounts receivable of $0.3 million.

These losses could continue for the next several years as we invest in clinical development of ivonescimab.

We believe that our financial resources as of December 31, 2022, after considering the payments made to Akeso in January and March 2023 totaling $474.9 million, the net proceeds of $499.5 million from the Rights Offering that closed on March 1, 2023, and repayments of the promissory notes payable to related parties in February and March 2023 totaling $420 million, will fund our operating costs and working capital needs for our planned clinical trials for ivonescimab into the second half of 2024.

In addition to the payments already made to Akeso, under the License Agreement there are additional potential milestone payments of $4.5 billion, as Akeso will be eligible to receive regulatory milestones of up to $1.05 billion and commercial milestones of up to $3.45 billion.

In addition, Akeso will be eligible to receive low double-digit royalties on net sales.

Until we can generate substantial revenue and achieve profitability, we will need to raise additional capital to fund ongoing operations and capital needs, including the payment of the milestone payments referenced above.

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 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 costs, timing and outcome of clinical trials required for clinical development of ivonescimab;

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

• the costs, timing and outcome of regulatory review of ridinilazole and our other product candidates we develop;

• the costs, timing and outcome of regulatory review of ivonescimab and/or our other product candidates we develop;

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

• subject to receipt of marketing approval, revenue received from commercial sales of ridinilazole or any other product candidates;

• the extent to which we become liable for milestone payments under our Licensing Agreement for ivonescimab;

• subject to receipt of marketing approval, revenue received from commercial sales of any product candidates;

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

• our contract with BARDA and whether BARDA elects to pursue its final designated option beyond the base period and two exercised options;

• 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 third-party partnerships or other arrangements and the financial terms of such arrangements;

• our ability to establish and maintain collaborations, licensing 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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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.

We will need to seek additional funding in the future to fund operations.

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

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends or other distributions.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends or other distributions.

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 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.

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 years ended December 31, 2022 and 2021.

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

(in millions) Year Ended December 31, 2022 Year Ended December 31, 2021

Net cash used in operating activities $ (41.6) $ (72.6)

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Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $41.6 million and resulted from a net loss of $78.8 million, which included non-cash charges of $37.2 million, which is primarily comprised of $11.9 million of stock-based compensation, $8.5 million impairment charge, $4.3 million non-cash interest expense, $2.5 million of amortization and depreciation charges, $2.6 million unrealized foreign exchange loss and a $8.6 million net decrease in working capital.

The net decrease in working capital was primarily due to a $8.4 million decrease in the research and development tax credit receivable, a $4.8 million increase in accrued liabilities and accrued compensation, a $5.1 million decrease in prepaid expenses, partially offset by a $7.3 million decrease in deferred revenue and other income and a $4.1 million decrease in accounts payable.

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.

The net increase in working capital was primarily due to 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.

Investing Activities

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.

Net cash used in investing activities for the years ended December 31, 2022 and 2021of $0.6 million and $0.3 million, respectively, was for the purchase of property and equipment.

Financing Activities

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.

Net cash provided by financing activities for the year ended December 31, 2022 was $620.2 million and primarily resulted from net proceeds of $99.9 million from the rights offering in August 2022, proceeds from promissory notes from related parties of $545.0 million, partially offset by the repayment of a promissory note from a related party of $25.0 million and $0.4 million of net proceeds from the exercise of stock 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, partially offset by repayments of the promissory notes from a related party of $110.0 million and $3.1 million of net proceeds received from the exercise of stock options.

Contractual Obligations and Commitments

Fixed asset purchase commitments

At December 31, 2022 and 2021, we had no capital commitments.

Lease commitments

The following table summarizes our lease contractual obligations as of December 31, 2022.

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Operating lease obligations $4.9 $1.5 $3.4 $ — $ —

The preceding table excludes contingent payment obligations which primarily consist of commitments under our agreements with the Wellcome Trust, the University College London and certain employees, former employees and former directors of Discuva, pursuant to which we will be required to pay royalties or make milestone payments.

As of December 31, 2021, we were unable to estimate the amount, timing or likelihood of achieving the milestones or making future product sales that these contingent payment obligations relate to.

For additional information regarding these agreements, see “Business—Our Collaborations and Funding Arrangements” in this Annual Report on Form 10-K.

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.

Debt commitments

December 2022 Promissory Notes

On December 6, 2022, we entered into the Note Purchase Agreement, with Mr.

Duggan and Dr.

Zanganeh, pursuant to which we agreed to sell to each of Mr.

Duggan and Dr.

Zanganeh unsecured promissory notes in the aggregate amount of $520 million.

Pursuant to the Note Purchase Agreement, we issued to Mr.

Duggan and Dr.

Zanganeh the Duggan February Note and the Zanganeh Note, respectively, which would mature and become due on February 15, 2023 and the Duggan September Note to Mr.

Duggan, which will mature and become due on September 15, 2023.

On January 19, 2023, we provided notice to extend the term of the Duggan February Note and Duggan September Note to a maturity date of September 6, 2024.

Furthermore, on January 19, 2023, we and Mr.

Duggan rectified the Duggan February Note and Duggan September Note in order to correctly reflect the parties’ intent regarding prepayment terms.

Please see "Liquidity and Capital Resources-Sources of Liquidity" section for further details of the Company's debt commitments.

On February 15, 2023, the $20 million Zanganeh Note matured and the Company repaid the outstanding principal balance.

Other commitments

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.

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.

As of December 31, 2022, total contractual commitments, excluding leases

commitments and debt commitments, are estimated to be approximately $11.5 million and the majority of these commitments are due within one year.

We have certain commitments under our agreements with Akeso, Wellcome Trust, the University College London and certain employees, former employees and former directors of Discuva, pursuant to which we will be required to pay royalties or make milestone payments.

The License Agreement with Akeso also contains certain manufacturing and purchase commitments.

As of December 31, 2022, we are unable to estimate the amount, timing or likelihood of achieving the milestones, making future product sales or assessing estimated forecasts for manufacturing and supplied materials which these contingent payment obligations relate to.

Indemnifications

Our certificate of incorporation provides that it will indemnify the directors and officers to the fullest extent permitted by Delaware law.

In addition, we have entered into indemnification agreements with all of the directors and executive officers.

These indemnification agreements may require us, among other things, to indemnify each such director or executive officer for some expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by him or her in any action or proceeding arising out of his or her service as one of our directors or executive officers.

We believe the fair value for these indemnification obligations is minimal.

Accordingly, we have not recognized any liabilities relating to these obligations as of December 31, 2022.

Legal Proceedings

We are not currently subject to any material legal proceedings.

Critical Accounting Policies and Significant Judgments and Estimates

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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.

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:

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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.

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.

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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.

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.

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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.

Intangible assets are estimated by management based on the fair value of assets acquired.

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

Intangible assets are amortized from one to eighteen years on a straight-line basis which represents the estimated periods of benefit and the expected pattern of consumption.

Our intangible assets are recorded at fair value at the time of their acquisition, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives or over the period of the relevant agreement for an option over non-financial assets.

Intangible assets are stated in our consolidated balance sheets net of accumulated amortization and impairments, if applicable.

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 events and circumstances indicate that the carrying amount may not fully be recoverable, 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.

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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.

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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.

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

Additionally, the Company uses a Monte Carlo simulation model to calculate the estimated fair value on the date of grant related to awards with market-based service conditions.

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.

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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.

• Expected volatility—The expected volatility is 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.

5 unchanged sentences

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

The Company classifies stock-based compensation expense in the consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified.

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

10 unchanged sentences

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