Spero Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial information and the notes thereto included appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, 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. Overview We are a multi-asset, clinical-stage biopharmaceutical company focused on identifying and developing novel treatments for rare diseases and diseases caused by multi-drug resistant (“MDR”) bacterial infections with high unmet need. Our wholly-owned lead product candidate, SPR720, is an oral agent in development for the first-line treatment of nontuberculous mycobacterial (“NTM”) pulmonary disease, a rare disease. We believe that SPR720, if successfully developed and approved, has the potential to be the first approved oral agent for NTM pulmonary disease in treatment-naïve and treatment-experienced and non-refractory patients. Our partnered programs consist of tebipenem HBr and SPR206. Tebipenem HBr is in development to potentially be the first oral carbapenem to treat complicated urinary tract infections (“cUTIs”), including pyelonephritis, caused by certain microorganisms, in adult patients. SPR206 is an IV-administered antibiotic being developed as an innovative option to treat MDR Gram-negative bacterial infections in the hospital setting. We believe that our novel product candidates, if successfully developed and approved, could provide meaningful benefits to patients suffering from serious rare diseases and life-threatening bacterial infections, in both the community and hospital settings. Since our inception in 2013, we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product sales. We have experienced net losses and significant cash outflows from cash used in operating activities since our inception through 2022. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of June 30, 2024, we had an accumulated deficit of $421.6 million, and cash and cash equivalents of $63.5 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We believe that our existing cash and cash equivalents, together with expected collections from our collaboration receivables – related party, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Based on our cash and cash equivalents as of June 30, 2024, we believe that our cash runway will be sufficient to fund our operating expenses and capital expenditure requirements into late 2025. During this period, we plan to prioritize advancing SPR720 to key Phase 2 milestones, advancing the Phase 3 clinical trial activities for tebipenem HBr under our GSK License Agreement and advancing SPR206 Phase 2 activities contingent on obtaining non-dilutive financing. Beyond this point we will need additional funding, which we expect will primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations or additional grant funding. If we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned clinical trials. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with our continued operation as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government funding arrangements, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. 26 Recent Developments SPR720 Enrollment has concluded, with 25 patients enrolled in the Phase 2a proof-of-concept clinical trial evaluating SPR720 in NTM-PD. The last patient received the first dose in July 2024. Preliminary data on SPR720’s early bactericidal activity, as assessed by the change in NTM bacterial load over the treatment course of 56 days, are expected in the fourth quarter of 2024. The rate of change in log 10 Colony Forming Units per milliliter (CFU/mL), which is the trial’s primary endpoint, is being measured, along with the rate of change in Time to Positivity, which is a key secondary endpoint. The double-blinded, placebo-controlled, trial enrolled treatment-naïve and treatment-experienced patients with non-refractory NTM-PD due to Mycobacterium avium complex in 3 treatment groups (placebo, SPR720 500 mg and SPR720 1000 mg dosed QD). Additional secondary endpoints include assessments of clinical response, pharmacokinetics (“PK”), and safety and tolerability. Dosing completed in two Phase 1 clinical studies evaluating SPR720 in healthy volunteers: i) a bronchoalveolar lavage (“BAL”) study assessing intrapulmonary PK (epithelial lung fluid and alveolar macrophage) of SPR719, the active moiety of the prodrug SPR720, and ii) a study evaluating changes in plasma PK when SPR720 is co-administered with azithromycin and ethambutol. Topline results from both studies are also expected to be disclosed in the fourth quarter of 2024. Tebipenem HBr In July 2024, an additional contract modification of $11.7 million was executed under our existing contract with BARDA, increasing the total committed funding under this award to $59.3 million with no change to the period of performance. The additional funding is expected to provide support for clinical development activities for tebipenem HBr. SPR206 In March 2024, SPR206 was awarded Fast Track designation by the FDA for treatment of hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia due to carbapenem-resistant Acinetobacter baumannii-calcoaceticus complex and carbapenem-resistant Pseudomonas aeruginosa. Components of Our Results of Operations Sales Revenue To date, we have not generated any revenue from product sales. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. Grant Revenue We expect a portion of our revenue for the next few years will continue to be derived from payments under our active government awards and any awards that we may receive in the future. Collaboration Revenue Collaboration revenue relates to our agreements with Pfizer Inc. (“Pfizer”) and GSK. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include: • employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions; • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with contract research organizations (“CROs”); • costs incurred in connection with our government awards; • the cost of consultants and contract manufacturing organizations (“CMOs”) that manufacture drug products for use in our preclinical studies and clinical trials; 27 • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and • payments made under third-party licensing agreements. We expense research and development costs as incurred. Nonrefundable advance payments we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development activities. License fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in early-stage research programs. We do not allocate employee costs, costs associated with our preclinical programs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following: • successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority, including on account of disruptive impacts of any global health, economic or political crises; • receipt of marketing approvals from applicable regulatory authorities; • establishment of arrangements with third-party manufacturers to obtain manufacturing supply; • obtainment and maintenance of patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with Meiji Seika Pharma Co. Ltd. (“Meiji”) with respect to tebipenem HBr; • protection of our rights in our intellectual property portfolio; • launch of commercial sales of our product candidates, if approved, whether alone or in collaboration with others; • acceptance of our product candidates, if approved, by patients, the medical community and third-party payors; • competition with other therapies; and • a continued acceptable safety profile of our product candidates, if approved. A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We also anticipate that we will continue to incur accounting, audit, legal, regulatory, compliance, infrastructure and director and officer insurance costs, as well as investor and public relations expenses associated with our continued operation as a public company. Other Income (Expense) Interest Income (Expense) Interest income (expense) during the three and six months ended June 30, 2024 and 2023 consists of interest expense related to the significant financing component related to the GSK License Agreement and interest earned on our cash equivalents, which are primarily invested in money market accounts, as well as interest earned on our investments in marketable securities. 28 Other Income (Expense), Net Other income (expense), net, consists of insignificant amounts of miscellaneous income, as well as realized and unrealized gains and losses from foreign currency-denominated cash balances, vendor payables and receivables related to the Australian research and development tax incentive. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. We have made no changes to our existing critical accounting policies, as described in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of Operations Comparison of the Three Months Ended June 30, 2024 and 2023 The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, 2024 2023 $ Change Revenues: Grant revenue $ 4,180 $ 1,928 $ 2,252 Collaboration revenue - related party 5,903 519 5,384 Collaboration revenue 114 269 (155 ) Total revenues 10,197 2,716 7,481 Operating expenses: Research and development 23,725 9,510 14,215 General and administrative 5,533 6,096 (563 ) Total operating expenses 29,258 15,606 13,652 Loss from operations (19,061 ) (12,890 ) (6,171 ) Other income (expense): Interest income 1,198 982 216 Other income (expense), net 1 (6 ) 7 Total other income (expense), net 1,199 976 223 Net loss $ (17,862 ) $ (11,914 ) $ (5,948 ) Grant Revenue Three Months Ended June 30, 2024 2023 $ Change BARDA Contract (Tebipenem HBr) $ 4,103 $ 1,006 $ 3,097 NIAID Contract (SPR206) 77 922 (845 ) Total grant revenue $ 4,180 $ 1,928 $ 2,252 Grant revenue recognized during the three months ended June 30, 2024 and 2023 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards. The increase in grant revenue during the three months ended June 30, 2024 was primarily due to an increase of $3.1 million in qualified expenses incurred under our Biomedical Advanced Research and Development Authority (“BARDA”) contract for tebipenem HBr, partially offset by a decrease of $0.8 million under our U.S. National Institute of Allergy and Infectious Diseases (“NIAID”) agreement relating to SPR206. 29 Collaboration Revenue Three Months Ended June 30, 2024 2023 $ Change GSK (Tebipenem HBr) $ 5,903 $ 519 $ 5,384 Pfizer (SPR206) 114 269 (155 ) Total collaboration revenue $ 6,017 $ 788 $ 5,229 During the three months ended June 30, 2024, we recognized $5.9 million in collaboration revenue related to our agreement with GSK and $0.1 million in collaboration revenue related to our agreement with Pfizer. During the three months ended June 30, 2023, we recognized $0.5 million in collaboration revenue related to our agreement with GSK and $0.3 million in collaboration revenue related to our agreement with Pfizer. Research and Development Expenses Three Months Ended June 30, 2024 2023 $ Change Direct research and development expenses by program: SPR720 $ 4,839 $ 1,315 $ 3,524 Tebipenem HBr 14,283 2,260 12,023 SPR206 114 1,012 (898 ) Unallocated expenses: Personnel related (including share-based compensation) 3,383 3,679 (296 ) Facility related and other 1,106 1,244 (138 ) Total research and development expenses $ 23,725 $ 9,510 $ 14,215 Direct costs related to our SPR720 program increased by $3.5 million during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to increased clinical activity during the period related to our Phase 2a clinical trial of SPR720, which completed enrollment in the second quarter of 2024. We expect to continue to incur direct costs related to SPR720 as we progress clinical activities. Direct costs related to our tebipenem HBr program increased by $12.0 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, due to continued clinical activities related to our pivotal Phase 3 clinical trial of tebipenem HBr, which we initiated in the fourth quarter of 2023. Direct costs related to our tebipenem HBr program during the three months ended June 30, 2024 reflect a $1.6 million reduction to expense related to a repurchase of drug substance material by GSK. Direct costs related to our SPR206 program decreased by $0.9 million during the three months ended June 30, 2024, primarily due to decreased preclinical activity. The decrease in personnel-related costs of $0.3 million was primarily a result of decreased research and development headcount costs. Personnel-related costs during the three months ended June 30, 2023 included retention bonus payments in connection with our restructuring in May 2022. Personnel-related costs for the three months ended June 30, 2024 and 2023 included share-based compensation expense of $0.7 million and $0.6 million, respectively. Facility-related and other costs primarily reflect costs related to supporting our research and development staff. General and Administrative Expenses Three Months Ended June 30, 2024 2023 $ Change Personnel related (including share-based compensation) $ 3,179 $ 3,950 $ (771 ) Professional and consultant fees 1,779 1,669 110 Facility related and other 575 477 98 Total general and administrative expenses $ 5,533 $ 6,096 $ (563 ) The decrease in personnel-related costs of $0.8 million was primarily a result of decreased headcount costs in our general and administrative functions during the period. Personnel-related costs during the three months ended June 30, 2023 included retention bonus payments in connection with our restructuring in May 2022. Personnel-related costs for the three months ended June 30, 2024 and 2023 included share-based compensation expense of $1.4 million and $1.3 million, respectively. The increase in professional and consultant fees of $0.1 million was primarily due to varying legal and consulting expenses incurred in the three months ended June 30, 2024. Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff. 30 Other Income (Expense), Net Other income (expense), net was $1.2 million for the three months ended June 30, 2024, compared to $1.0 million for the three months ended June 30, 2023. Total other income for the three months ended June 30, 2024 included $1.2 million of interest income, of which $0.4 million related to the significant financing component recognized under the GSK License Agreement, offset by immaterial fluctuations in unrealized foreign currency. Total other income for the three months ended June 30, 2023 included $1.0 million of interest income, offset by changes primarily due to fluctuations in unrealized foreign currency. Comparison of the Six Months Ended June 30, 2024 and 2023 The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023 (in thousands): Six Months Ended June 30, 2024 2023 $ Change Revenues: Grant revenue $ 9,243 $ 3,258 $ 5,985 Collaboration revenue - related party 9,967 1,036 8,931 Collaboration revenue 254 492 (238 ) Total revenues 19,464 4,786 14,678 Operating expenses: Research and development 41,057 18,489 22,568 General and administrative 11,450 13,413 (1,963 ) Total operating expenses 52,507 31,902 20,605 Loss from operations (33,043 ) (27,116 ) (5,927 ) Other income (expense): Interest income 2,525 1,944 581 Other income (expense), net (13 ) (8 ) (5 ) Total other income (expense), net 2,512 1,936 576 Net loss $ (30,531 ) $ (25,180 ) $ (5,351 ) Grant Revenue Six Months Ended June 30, 2024 2023 $ Change BARDA Contract (Tebipenem HBr) $ 9,011 $ 1,477 $ 7,534 NIAID Contract (SPR206) 232 1,781 (1,549 ) Total grant revenue $ 9,243 $ 3,258 $ 5,985 Grant revenue recognized during the six months ended June 30, 2024 and 2023 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards. The increase in grant revenue during the six months ended June 30, 2024 was primarily due to an increase of $7.5 million in qualified expenses incurred under our BARDA contract for tebipenem HBr, partially offset by a decrease of $1.5 million under our NIAID agreement relating to SPR206. Collaboration Revenue Six Months Ended June 30, 2024 2023 $ Change GSK (Tebipenem HBr) $ 9,967 $ 1,036 $ 8,931 Pfizer (SPR206) 254 492 (238 ) Total collaboration revenue $ 10,221 $ 1,528 $ 8,693 During the six months ended June 30, 2024, we recognized $10.0 million in collaboration revenue related to our agreement with GSK and $0.3 million in collaboration revenue related to our agreement with Pfizer. During the six months ended June 30, 2023, we 31 recognized $1.0 million in collaboration revenue related to our agreement with GSK and $0.5 million in collaboration revenue related to our agreement with Pfizer. Research and Development Expenses Six Months Ended June 30, 2024 2023 $ Change Direct research and development expenses by program: SPR720 $ 9,208 $ 3,063 $ 6,145 Tebipenem HBr 22,016 3,947 18,069 SPR206 346 1,716 (1,370 ) Unallocated expenses: Personnel related (including share-based compensation) 6,933 7,453 (520 ) Facility related and other 2,554 2,310 244 Total research and development expenses $ 41,057 $ 18,489 $ 22,568 Direct costs related to our SPR720 program increased by $6.1 million during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, due to increased clinical activity during the period related to our Phase 2a clinical trial of SPR720, which completed enrollment in the second quarter of 2024. We expect to continue to incur direct costs related to SPR720 as we progress clinical activities. Direct costs related to our tebipenem HBr program increased by $18.1 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due to continued clinical activities related to our pivotal Phase 3 clinical trial of tebipenem HBr, which we initiated in the fourth quarter of 2023. Direct costs related to our tebipenem HBr program during the six months ended June 30, 2024 reflect a $1.6 million reduction to expense related to a repurchase of drug substance material by GSK. Direct costs related to our SPR206 program decreased by $1.4 million during the six months ended June 30, 2024, primarily due to decreased preclinical activity. The decrease in personnel-related costs of $0.5 million was primarily a result of decreased research and development headcount costs. Personnel-related costs during the six months ended June 30, 2023 included retention bonus payments in connection with our restructuring in May 2022. Personnel-related costs for the six months ended June 30, 2024 and 2023 included share-based compensation expense of $1.4 million and $1.4 million, respectively. Facility-related and other costs primarily reflect costs related to supporting our research and development staff. General and Administrative Expenses Six Months Ended June 30, 2024 2023 $ Change Personnel related (including share-based compensation) $ 6,508 $ 8,512 $ (2,004 ) Professional and consultant fees 3,809 3,784 25 Facility related and other 1,133 1,117 16 Total general and administrative expenses $ 11,450 $ 13,413 $ (1,963 ) The decrease in personnel-related costs of $2.0 million was primarily a result of decreased headcount costs in our general and administrative functions during the period. Personnel-related costs during the six months ended June 30, 2023 included retention bonus payments in connection with our restructuring in May 2022. Personnel-related costs for the six months ended June 30, 2024 and 2023 included share-based compensation expense of $2.7 million and $2.6 million, respectively. Changes in professional and consultant fees were primarily due to varying legal and consulting expenses incurred in the six months ended June 30, 2024. Facility-related and other costs primarily reflect costs related to supporting our general and administrative staff. Other Income (Expense), Net Other income (expense), net was $2.5 million for the six months ended June 30, 2024, compared to $1.9 million for the six months ended June 30, 2023. Total other income for the six months ended June 30, 2024 included $2.5 million of interest income, of which $0.8 million related to the significant financing component recognized under the GSK License Agreement, offset by immaterial fluctuations in unrealized foreign currency. Total other income for the six months ended June 30, 2023 included $1.9 million of interest income, offset by immaterial changes primarily due to fluctuations in unrealized foreign currency. 32 Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We have recognized revenue to date from funding arrangements with the United States Department of Defense (“DoD”), NIAID, CARB-X and BARDA, the GSK License Agreement and our license agreements with Everest and Pfizer. We have not yet commercialized any of our product candidates and we may not generate revenue from sales of any product candidates. To date, we have funded our operations with payments received under license and collaboration agreements and funding from government contracts, and from the proceeds of multiple common stock offerings. As of June 30, 2024, we had cash and cash equivalents of $63.5 million. We filed a new universal shelf registration statement on Form S-3 with the SEC on March 15, 2024 (the “2024 Form S-3”), which became effective on March 22, 2024, and pursuant to which we registered for sale up to $300.0 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, including up to $75.0 million of our common stock available for issuance pursuant to a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”). Under the Sales Agreement, Cantor may sell shares of our common stock by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), subject to the terms of the Sales Agreement. During the three and six months ended June 30, 2024 and year-to-date, we did not sell any shares of our common stock under the Sales Agreement. Cash Flows The following table summarizes our sources and uses of cash for the six months ended June 30, 2024 and 2023: Six Months Ended June 30, 2024 2023 Cash used in operating activities $ (12,806 ) $ (31,417 ) Net decrease in cash and cash equivalents $ (12,806 ) $ (31,417 ) Operating Activities Net cash used in operating activities for the six months ended June 30, 2024 was $(12.8) million, primarily resulting from our net loss of $30.5 million, adjusted for a net decrease in non-cash items of $4.7 million (primarily stock-based compensation). Net cash provided by changes in our operating assets and liabilities was $13.1 million and consisted primarily of a $21.4 million decrease in our related party collaboration receivable, primarily due to the receipt of the first installment payment from GSK (see Note 9 - License, Collaboration and Service Agreements), a $10.2 million decrease in deferred revenue, a $3.2 million net increase in receivables, a $3.5 million increase in accrued expenses, a $1.3 million increase in accounts payable and a $1.0 million decrease in prepaid expenses. Net cash used in operating activities for the six months ended June 30, 2023 was $31.4 million, primarily resulting from our net loss of $25.2 million, adjusted for net decrease in non-cash items of $4.7 million (primarily stock-based compensation). Net cash used due to changes in our operating assets and liabilities was $11.0 million and consisted primarily of a $5.2 million increase in prepaid expenses and other current assets, a $1.0 million net increase in receivables, a decrease of $3.4 million in accrued expenses and a $1.5 million decrease in deferred revenue. Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in all periods were generally due to the advancement of our programs and the timing of vendor invoicing and payments. Changes in deferred revenue are primarily related to the GSK License Agreement and our license agreement with Pfizer. Changes in collaboration receivable related to the GSK License Agreement. Investing Activities We did not undertake any investing activities during the six months ended June 30, 2024 or 2023. Financing Activities We did not undertake any financing activities during the six months ended June 30, 2024 or 2023. Funding Requirements Our future use of operating cash and capital requirements, and the timing and amount thereof, will depend largely on: • the timing and costs of our ongoing and planned clinical trials; • the initiation, progress, timing, costs and results of preclinical studies and clinical trials of our product candidates and potential new product candidates; 33 • the amount of funding that we receive under government contracts that we have applied for; • the number and characteristics of product candidates that we pursue; • the outcome, timing and costs of seeking regulatory approvals; • the costs of commercialization activities for our product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; • the terms and timing of any future collaborations, licensing or other arrangements that we may establish; • the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements; • the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims; • the costs of operating as a public company; and • the extent to which we in-license or acquire other products and technologies. As of June 30, 2024, we had cash and cash equivalents of $63.5 million. In accordance with ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we are required to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern from the issuance date of our financial statements. We believe that our existing cash and cash equivalents, together with expected collections from our collaboration receivables – related party, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the issuance of the financial statements included in this report. Based on our cash and cash equivalents as of June 30, 2024, we believe that our cash runway will be sufficient to fund us into late 2025. Beyond this point we will need additional funding, which we expect will primarily consist of raising additional capital through some combination of equity or debt financings, potential new collaborations, additional grant funding and/or reducing cash expenditures. If we are not able to secure adequate additional funding, we plan to make reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our planned clinical trials and research stage programs. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, government funding, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. 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 grant licenses on terms that may not be favorable to us. Global health, economic, and political crises, such as the COVID-19 pandemic, have resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets, including relating to the global volatility, our operations and financial condition could be adversely impacted. 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 research, 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. Contractual Obligations and Commitments During the three and six months ended June 30, 2024, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those described under the heading “Management’s Discussion and 34 Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2023. Off-Balance Sheet Arrangements 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 SEC. Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. As of June 30, 2024, we had cash and cash equivalents of $63.5 million, consisting of cash and money market accounts. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. We did not have any assets classified as marketable securities as of June 30, 2024. As we incur research expenses in foreign countries, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Japanese Yen and Australian dollar against the U.S. dollar. Historically, foreign currency fluctuations have not had a material impact on our consolidated financial statements. Please note, that we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. Therefore, the above disclosure is discretionary.