What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-23 compared with 2022-03-31 · 248 added, 231 removed, 77 unchanged (86% of the section changed)

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Market Information

Our common stock has been listed on the Nasdaq Global Market under the symbol “SBTX”

since December 4, 2020.

Prior to that date, there was no public market for our common stock.

On November 8, 2022, Silverback completed its reverse merger with privately-held ARS Pharmaceuticals, Inc.

On November 9, 2022, the combined company changed its name to ARS Pharmaceuticals, Inc.

Silverback’s shares of common stock were listed on the Nasdaq Global Market from December 4, 2020 through the close of business on November 8, 2022 under the ticker symbol “SBTX.”

On November 9, 2022, we began trading on the Nasdaq Global Market under the ticker symbol “SPRY.”

Holders of Common Stock

As of March 15, 2022, there were approximately eight holders of record of our common stock.

As of March 17, 2023, there were approximately 29 holders of record of our common stock.

Because most of our common stock is held by brokers, nominees, and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Securities Authorized for Issuance Under Equity Compensation Plans

Information about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.

Dividend Policy

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Recent Sales of Unregistered Securities

Issuer Purchases of Equity Securities

Use of Proceeds

On December 3, 2020, we commenced our initial public offering (IPO) pursuant to a registration statement on Form S-1 (File No.

On December 3, 2020, we commenced our initial public offering (“IPO”) pursuant to a registration statement on Form S-1 (File No.

333-250009) that was declared effective by the SEC on December 3, 2020, for 11,500,000 shares of our common stock for sale to the public at a price of $21.00 per share.

In addition, in December 2020, the underwriters exercised their over-allotment option to purchase 1,725,000 additional shares of our common stock in the initial public offering at the public offering price of $21.00 per share, such that the aggregate offering price of our initial public offering was $277.7 million.

The net offering proceeds to us, after deducting underwriting discounts and commissions and offering costs, were $255.3 million.

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Wainwright & Co., LLC.

The net proceeds from our IPO are held in cash and cash equivalents, primarily in treasury money market accounts, and

investments, primarily in U.S.

On November 8, 2022, Silverback completed its reverse merger with privately-held ARS Pharmaceuticals, Inc.

On November 9, 2022, the combined company changed its name to ARS Pharmaceuticals, Inc.

The net proceeds from the IPO are held in cash and cash equivalents, primarily in treasury money market accounts, and investments, primarily in U.S.

Treasury securities.

Through December 31, 2021, we have used approximately $45.0 million of the net proceeds from our IPO.

The following information updates the planned use of proceeds information from our IPO that we previously disclosed in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) of the Securities Act on December 4, 2020:

we intend to use the remaining net proceeds from the IPO, together with our existing cash and cash equivalents, to fund the development of our SBT8230 program for cHBV, including IND-enabling studies, a Phase 1 SAD study, and a Phase 1 MAD study.

We intend to use the remainder to fund our other research and development activities, including activities related to our internal discovery programs, as well as for working capital and other general corporate purposes.

Through December 31, 2022, approximately $95.7 million of the net proceeds from the IPO have been used, of which, (i) an estimated $51.7 million was used toward development of Silverback’s product candidates, (ii) $0.8 million was used to repay outstanding indebtedness, (iii) $16.0 million was used for transaction costs related to the Merger, including $7.0 million in severance and change in control benefit payments made to Silverback’s former officers and (iv) an estimated $27.2 million was used for working capital and general corporate purposes.

There have been no updates to the planned use of proceeds information from the IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on December 4, 2020, except as otherwise disclosed in our Annual Report on Form 10-K, filed with the SEC on March 31, 2022, and our Quarterly Report on Form 10-Q, filed with the SEC on August 11, 2022.

We continue to intend to use the remaining net proceeds from the IPO, together with our existing cash and cash equivalents, to fund the development and, if approved, commercialization of neffy for the emergency treatment of Type I allergic reactions and other indications, as well as for working capital and other general corporate purposes.

We may also use a portion of the net proceeds from the IPO to in-license, acquire or invest in complementary businesses, technologies, products or assets.

However, we have no current commitments or obligations to do so.

Issuer Purchases of Equity Securities

Not applicable.

Management’s Discussion and Analysis o f Financial Condition and Results of Operations

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Financial Statements and Supplementary Data”

in this Annual Report on Form 10-K.

in this Annual Report.

The following discussion contains forward-looking statements that involve risks and uncertainties.

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Risk Factors.”

We are a biopharmaceutical company focused on leveraging our proprietary ImmunoTAC technology platform to develop systemically delivered, tissue targeted therapeutics for the treatment of chronic viral infections, cancer, and other serious diseases.

Our ImmunoTAC platform is the result of a focused effort to discover ways to systemically deliver disease-modifying small molecules in a directed fashion to sites of disease.

Our platform enables us to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed to specific disease sites.

Many potentially promising systemic therapies fail to maximize their therapeutic potential due to toxicities in healthy tissues.

Our approach is designed to expand the therapeutic window and avert unacceptable toxicities by directly targeting specific disease sites where our therapeutics are locally active.

In July 2020, we initiated clinical development of our first ImmunoTAC product candidate, a TLR8 agonist conjugated to a HER2 antibody, SBT6050.

Preclinical data suggested that we would be able to demonstrate a therapeutic window and advance SBT6050 through clinical development as a monotherapy and in combination with standard-of-care agents that had a complementary mechanism-of-action.

Our Phase 1/1b program was designed to measure safety and tolerability, PK, PD and anti-tumor activity as monotherapy and in combination with pembrolizumab.

On March 28, 2022, we made the decision to discontinue our clinical development program for SBT6050 due to limited monotherapy activity and dose-limiting adverse events when used in combination with pembrolizumab.

SBT6290, comprised of the same linker payload conjugated to a Nectin4 antibody was expected to show a similar clinical profile and, therefore, we also terminated this program prior to dosing patients.

We have prioritized our resources to focus on the development of SBT8230 and early-stage discovery programs.

Our understanding of TLR8 conjugates in preclinical species and in the clinic guides our interpretation of the preclinical characteristics of SBT8230, an ASGR1 antibody conjugated to a TLR8 agonist linker payload for the treatment of cHBV, which is currently in preclinical development.

ASGR1 is highly expressed in liver and is restricted in its expression to this organ.

Other ASGR1-directed agents, such as those used in RNAi therapies, have shown robust liver localization.

SBT8230 shows biodistribution profiles in NHP consistent with these agents, which is distinct from SBT6050 and SBT6290.

We believe that efficient liver targeting of SBT8230 via ASGR1 binding has the potential to lead to markedly lower serum exposures of SBT8230 in patients compared to those observed with SBT6050 in the clinic at any dose evaluated.

We believe the preclinical to clinical experience for SBT6050, coupled with the NHP PK, PD, and tolerability data for SBT8230, suggest that the clinical safety, PK and PD profiles for SBT8230 has the potential to be notably different than those for SBT6050, given the large differences in serum exposures and overall conjugate disposition for SBT8230 that are expected in patients due to its efficient liver targeting.

SBT8230 is designed to elicit an anti-viral immune response by targeting TLR8 activation to the liver.

The anti-viral immune response is achieved through activation of myeloid cells and subsequent activation of immune cells that drive an IFNγ

signal, which has been observed in the clinic with SBT6050.

This has been shown by others to drive seroconversion, an important determinant of a functional cure.

We see a significant opportunity in liver-localized immunotherapies as a potential way of achieving durable responses in these patients.

We are focused on advancing SBT8230, our liver-targeted conjugate designed to potently activate human myeloid cells in the liver for the treatment of cHBV.

Further support for investigating TLR8 agonism for the treatment of cHBV comes from selgantolimod (GS-9688), an existing untargeted, orally administered TLR8 agonist being developed by Gilead Sciences.

Selgantolimod has generated anti-viral immune responses in a cHBV animal model.

The clinical development of this untargeted TLR8 agonist has shown promise, but we believe that toxicity prevented the use of a sufficient dose to elicit optimal clinical activity.

We believe liver-localized TLR8 agonism could better realize the potential for effective therapy and potentially lead to functional cure, which is defined as sustained loss of HBsAg in the blood, in patients suffering from cHBV.

We presented a preclinical update on SBT8230 in the fourth quarter of 2021.

In the first quarter of 2022, we began a Phase 1-enabling toxicology study.

We plan to complete a P hase 1 regulatory submission in the fourth quarter of 2022 and begin a Phase 1 SAD study in healthy volunteers in the first half of 2023.

After completing the SAD study, we anticipate initiating a Phase 1 MAD study in patients with chronic HBV, who are virally suppressed on NRTI therapy.

In addition, our internal discovery programs are focused on evaluating and developing new antigen binding domains specific for targets of interest (including antibodies), next-generation linker technologies, and both agonist and antagonist small molecule payloads, that may be combined to create novel tissue-targeted antibody conjugates.

The integration of medicinal chemistry, bioconjugation, protein engineering, bioinformatics, pharmacology, and translational medicine expertise focused on developing tissue-targeted therapies allows us to leverage key learnings from our previous clinical program to bring forward the next generation of therapeutics.

We anticipate providing an update on our discovery pipeline in the fourth quarter of 2022.

Our ImmunoTAC platform drives our development pipeline of tissue targeted therapeutic candidates as summarized in the chart below:

We have incurred significant operating losses since our inception.

As of December 31, 2021, we had an accumulated deficit of $186.2 million.

Our net losses were $89.5 million and $32.9 million for the years ended December 31, 2021 and 2020, respectively.

Our losses have resulted primarily from research and development activities and general and administrative expenses.

We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.

We expect we will continue to incur significant losses for the foreseeable future as we continue our development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products, seek to expand our product pipeline, invest in our organization and technology platform, as well as incur expenses associated with operating as a public company.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors including the timing and scope of our preclinical studies and clinical trials.

Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses or other similar arrangements.

On March 28, 2022, our board of directors approved a corporate restructuring plan to discontinue our clinical development programs for SBT6050 and SBT6290 and to prioritize resources on the development of SBT8230 and early-stage discovery programs (the Restructuring Plan).

In connection with the Restructuring Plan, our workforce will be reduced by 27%, with substantially all of the reduction in personnel expected to be completed by July 15, 2022.

We initiated the reduction in force on March 31, 2022 and expect to provide severance payments, continuation of group health insurance coverage, and other benefits for a specified period to the affected employees.

We currently estimate that we will incur costs of approximately $2.0 million for termination benefits related to the Restructuring Plan, all of which will be cash expenditures paid in 2022.

Components of Our Results of Operations

Operating Expenses

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of our ImmunoTAC technology platform, product candidates, discovery efforts and preclinical studies and clinical trial activities related to our program pipeline.

Our direct costs include:

expenses incurred under agreements with CROs and other vendors that conduct our preclinical and clinical activities;

expenses associated with manufacturing our product candidates including under agreements with CDMOs and other vendors;

consulting fees.

Our indirect costs include:

personnel-related expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and recruiting costs for personnel engaged in research and development activities;

facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, and equipment maintenance;

other unallocated research and development expenses incurred in connection with our research and development programs, including laboratory materials and supplies and license fees.

We expense research and development costs as incurred.

Advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed.

In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred.

We track direct costs by stage of program, clinical or preclinical.

However, we do not track indirect costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.

We expect that our research and development expenses will decrease in 2022 due to discontinuation of the clinical development of SBT6050 and SBT6290 and the Restructuring Plan.

However, following 2022, we expect that our research and development expenses will begin to increase again for the foreseeable future as we continue the development of our preclinical and discovery programs, particularly as they move into later stages of development which increases costs considerably.

We cannot reasonably determine the timing of initiation, the duration or the completion costs of these future preclinical studies and clinical trials due to the inherently unpredictable nature of preclinical and clinical development.

Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to which development candidates and discovery programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.

We are a biopharmaceutical company focused on the development of our novel, potentially first-in-class product candidate, neffy (previously referred to as ARS-1) for the emergency treatment of Type I allergic reactions, including anaphylaxis.

neffy is a proprietary composition of epinephrine with an innovative absorption enhancer called Intravail ® , which allows neffy to provide intranasal delivery of epinephrine.

We believe neffy ’s “no needle, no injection”

approach will address a significant unmet need in the use of epinephrine, which is currently approved only in injectable formulations for the emergency treatment of Type I allergic reactions.

There are approximately 25 to 40 million people in the United States who experience Type I allergic reactions.

Of this group, approximately 16 million people have been diagnosed and experienced severe Type I allergic reactions that may lead to anaphylaxis, but only 3.3 million currently have an active epinephrine autoinjector prescription, and of those, only half consistently carry their prescribed autoinjector with them due to the many drawbacks of these devices.

In aggregate, we estimate that 90% of patients prescribed an epinephrine device are not achieving an optimal treatment outcome today.

These drawbacks include the use of needles in the devices, which can result in patient and caregiver injury as well as hesitation and delays in administration due principally to apprehension and pain of needles, allowing the allergic reaction to progress in severity leading to symptoms that seriously impact patient quality of life, to potential need for emergency services and/or hospitalizations, and to life-threatening symptoms or events.

Intra-muscular injections also are subject to dosing errors and risk of accidental blood vessel injections, which can cause a significant spike in the intravascular delivery of epinephrine potentially leading to serious cardiovascular complications or events.

We believe neffy ’s “no needle, no injection”

delivery that eliminates apprehension, pain and safety concerns, small size allowing for ease of portability, ease of use, and high reliability provide it with a user-friendly profile that will increase prescriptions for epinephrine and make it more likely for patients and caregivers to administer epinephrine sooner, achieve more rapid symptom relief and prevent the allergic reaction from progressing to a level of severity that could lead to hospitalization or even death.

Data from our studies of neffy demonstrated nasally delivered epinephrine reached blood levels comparable to those of already approved epinephrine injectable products.

Our NDA was accepted for review by FDA in the fourth quarter of 2022 with an anticipated mid-2023 PDUFA target action date and if our NDA is approved, we believe neffy will be the first “no needle, no injection”

marketed epinephrine product for the emergency treatment of Type I allergic reactions.

However, the timing for regulatory approvals is outside our control, may be delayed and is uncertain.

Since our inception in 2015 as ARS Pharmaceuticals, Inc., we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, performing research and development activities, and providing general and administrative support for these operations.

We do not have any products approved for sale and have not generated any product sales.

We have funded our operations primarily with proceeds from the Merger, private placement of convertible preferred stock, licensing, supply and distribution arrangements with our commercialization partners, and bank debt.

From inception to December 31, 2022, we have raised $262.3 million in cash, cash equivalents and short-term investments, net of transaction costs, from the Merger, net proceeds of $76.3 million from the issuance of convertible preferred and common stock, $27.8 million from our collaboration, licensing, supply and distribution arrangements, and $10.0 million from bank debt.

As of December 31, 2022, we had cash, cash equivalents, and short-term investments of $274.4 million.

We have incurred net losses from operations since our inception.

Our net loss was $34.7 million for the year ended December 31, 2022 and as of December 31, 2022 we had an accumulated deficit of $76.9 million.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other development activities, the cost for regulatory filings, expenses for pre-commercial activities to establish sales, marketing and distribution capabilities for our product candidates, and our ability to earn potential regulatory and commercial milestones under our collaboration arrangements.

We expect our expenses and operating losses will increase substantially as our product candidate, neffy potentially is approved by the FDA and we commence commercialization efforts, any future product candidates advance through clinical trials, we expand our clinical, regulatory, quality, manufacturing and pre-commercial sales and marketing capabilities, and incur additional costs to operate as a public company following the completion of the Merger.

If we obtain marketing approval for any of our product candidates, we will incur significant commercialization expenses for marketing, sales, manufacturing and distribution activities, and added expenditures to expand our operational, financial and management systems and increase personnel to support these operations.

We do not expect to generate any revenues from product sales unless and until we successfully obtain regulatory approval for one or more product candidates, if ever.

Until such time, if ever, as we can generate substantial product revenue, we may finance our operations through our existing cash, cash equivalents, short-term investments, equity offerings, debt financings and other capital sources which may include collaborations, strategic alliances, marketing, distribution or licensing arrangements or other arrangements with third parties.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

In addition, any future debt agreements may limit our ability to enter into certain debt financings without the consent of the lenders thereunder.

Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and may require us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We do not own or operate manufacturing facilities.

We currently rely on third-party manufacturers and suppliers for neffy , and we expect to continue to do so to meet our nonclinical, clinical and any commercial activities.

Our third-party manufacturers are required to manufacture our product candidates under cGMP requirements and other applicable laws and regulations.

On November 8, 2022 (the “Closing Date”), privately-held ARS Pharmaceuticals, Inc.

(“ARS Pharma ) merged with Silverback Therapeutics, Inc., a Delaware corporation (“Silverback”), a publicly traded company.

In accordance with the terms of the agreement and plan of merger and reorganization, dated July 21, 2022, as amended on August 11, 2022 and October 25, 2022 (the “Merger Agreement”), Sabre Merger Sub, Inc.

(“Merger Sub”), a wholly-owned subsidiary of Silverback, merged into ARS Pharma, with ARS Pharma surviving as Silverback’s wholly-owned subsidiary.

At the completion of the Merger, the prior ARS Pharma equityholders owned 62% and the prior Silverback equityholders owned 38% of the combined company, in each case on a fully diluted basis using the treasury stock method and excluding out-of-money options of Silverback.

Upon completion of the Merger, Silverback changed its name to ARS Pharmaceuticals, Inc.

As, among other facts, the stockholders of ARS Pharma owned a majority of the combined company, the Merger was treated for accounting purposes as if ARS Pharma had acquired Silverback.

As a result of the Merger being accounted for as if ARS Pharma had acquired Silverback, the financial statements of ARS Pharma are presented as the historical financial statements of the combined company for all periods presented.

At the effective time of the Merger (the “Effective Time”), each share of ARS Pharma common stock outstanding immediately prior to the Effective Time, after giving effect to the automatic conversion of all shares of preferred stock of ARS Pharma into shares of ARS Pharma common stock immediately prior to the Effective Time (the “Preferred Stock Conversion”), (excluding shares held as treasury stock by ARS Pharma or held or owned by Silverback, Merger Sub or any subsidiary of Silverback or ARS Pharma and dissenting shares) were automatically converted into the right to receive shares of Silverback common stock equal to the exchange ratio of 1.1819.

Outstanding and unexercised options and warrants to purchase shares of ARS Pharma common stock were converted into options and warrants to purchase shares of Silverback common stock.

Recent Events

In September 2020, we entered into a license and supply agreement (the “Recordati License and Supply Agreement”) with Recordati Ireland, Ltd (“Recordati”).

Pursuant to the Recordati License and Supply Agreement, we granted Recordati an exclusive, royalty-bearing, sublicensable license under our patents relating to neffy to (i) perform Recordati’s development activities on the epinephrine compositions (“Recordati Licensed Compositions”) and related products (“Recordati Licensed Products”) for commercialization in the EU, United Kingdom, and certain countries in the Middle East, Africa and Eurasia (the “Recordati Territory”), (ii) manufacture (or have manufactured) the Recordati Licensed Products for commercialization in the Recordati Territory, (iii) file and hold regulatory approvals for the Licensed Products in the Recordati Territory, and (iv) commercialize the Recordati Licensed Products in the Recordati Territory (collectively, the “Recordati Rights”).

On February 22, 2023, we entered into the Termination Agreement with Recordati, pursuant to which, among other things, we and Recordati agreed to terminate the Recordati License and Supply Agreement.

Pursuant to the Termination Agreement, we will reacquire all of the Recordati Rights and have agreed to pay Recordati a one-time upfront payment of €3.0 million and additional payments upon achievement of certain milestones including:

(i) an EMA regulatory milestone payment of €2.0 million, (ii) a milestone payment of €5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) milestone payments of up to €5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory.

Financial Overview

To date, we have not generated any revenues from the commercial sale of any products, and we may not generate revenues from the commercial sale of any products.

We have signed collaboration and license agreements including supply and distribution for neffy with Alfresa Pharma in Japan and Pediatrix in China.

The terms of these agreements may include payment to us of one or more of the following:

non-refundable, up-front license fees;

clinical, regulatory, and/or commercial milestone payments;

clinical development fees;

and royalties or a transfer price on net sales of licensed products if neffy receives marketing approval in these regions.

In addition, we previously entered into the Recordati License and Supply Agreement, which was terminated in February 2023.

We expect revenues to fluctuate in future periods based on our ability to meet various regulatory milestones, and contingent on successfully obtaining regulatory approval for neffy in the US and the licensed regions, US product sales, commercial milestones, royalties or transfer price earned from our partner’s net sales and the supply of commercial product as set forth in the agreements described earlier.

Research and Development Expenses

To date, our research and development expenses have related primarily to clinical development, process development and manufacturing costs of our product candidate.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

salaries, payroll taxes, benefits and stock-based compensation charges for personnel engaged in research and development efforts;

external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants and other third-party organizations to conduct our clinical studies and development activities;

costs related to manufacturing our product candidates for clinical trials and process validation studies, including fees paid to third-party manufacturers;

costs related to compliance with regulatory requirements and regulatory filings;

indirect expenses including insurance and facility-related expenses.

Our external research and development expenses for our clinical stage product candidate consists primarily of fees, materials and other costs paid to CROs, CMOs, consultant and contractors.

Our clinical trials and manufacturing costs for the periods presented below reflect an allocation of expenses associated with personnel costs, equity-based compensation expense, and indirect costs incurred in support of overall research and development, such as facilities-related costs.

We expect that our research and development expenses will likely decrease in 2023 based on our planned clinical development and manufacturing activities, as we plan to transition to commercialization efforts for the potential launch of our first product that year.

However, the timing for regulatory approvals is outside our control, may be delayed and is uncertain.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and the manufacturing costs of our product candidates due to the inherently unpredictable nature of clinical development and manufacturing activities.

Clinical development and manufacturing timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.

In addition, we cannot forecast to what degree our licensing, supply and distribution arrangements would affect our development plans and capital requirements.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include:

per patient trial costs;

the number of patients that participate in the trials;

the number of sites included in the trials;

the countries in which the trials are conducted;

the length of time required to enroll eligible patients;

the number of doses that patients receive;

the drop-out or discontinuation rates of patients;

potential additional safety monitoring or other studies requested by regulatory agencies;

the efficacy and safety profile of our product candidates, and

the cost to seek regulatory approvals for any product candidates that successfully complete clinical trials

the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S.

maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;

establishing or maintaining commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;

significant and changing government regulation and regulatory guidance;

the impact of any business interruptions to our operations or to those of the third parties with whom we work;

the extent to which we establish additional strategic collaborations or other arrangements.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

The process of conducting the necessary clinical research and manufacturing to obtain regulatory approval is costly and time-consuming.

The actual probability of success for our product candidates or any future candidates may be affected by a variety of factors.

We may never succeed in achieving regulatory approval for our product candidates or any future candidates.

Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates’

or any future candidates’

development, which could increase our research and development expenses.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-based compensation, and recruiting costs for personnel in executive, finance, and other administrative functions.

Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, insurance costs, travel expenses, and facility related expenses.

We expect that our general and administrative expenses will decrease in 2022 due to the Restructuring Plan.

However, following 2022, we expect that our general and administrative expenses will begin to increase again to the extent needed to support growth in our research and development activities.

We also expect to continue to incur increased expenses associated with operating as a public company, including costs related to accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Interest Income (Expense), Net

Interest income (expense), net includes interest earned on our cash, cash equivalents, and long-term investments carried at fair value, and interest expense on our borrowings.

General and administrative expenses consist primarily of salaries, benefits, equity-based compensation for personnel in executive, finance, business development, sales and marketing and other corporate administrative functions.

General and administrative expenses also include legal fees incurred relating to corporate and patent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, facility costs, market research costs, and insurance costs.

We anticipate our general and administrative expenses will increase substantially in 2023 as we add sales and marketing personnel, infrastructure and programs to support pre-commercial activities, and if our product candidates receive marketing approval, commercialization activities.

We also anticipate increased general and administrative personnel to support our operations, and higher patent and facility related costs.

We also expect to incur added audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, board of director fees, and investor relations costs associated with operating as a public company following the Merger.

Total Other Income (Expense)

Total other income (expense) consists primarily of interest expense from bank debt, interest income from our cash, cash equivalents, and investments, and changes in the fair value of our warrant liability prior to the Merger.

As a result of the Merger, the warrant liability was reclassified to equity and fair value adjustments are no longer required.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021:

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

Years Ended December 31,

(in thousands, except percentages)

Revenue under collaboration agreements

Operating expenses:

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Loss from operations

Interest income (expense), net

* Not meaningful

Total other income (expense):

Unrealized gain on available-for-sale securities

Comprehensive loss attributable to common stockholders

______________

(1) Includes stock-based compensation expense as follows (in thousands):

Years Ended December 31,

Research and development

General and administrative

Revenue under collaboration agreements was $1.3 million and $5.5 million for the years ended December 31, 2022 and 2021, respectively.

The revenues for the years ended December 31, 2022 and 2021 include the recognition of revenue for the portion of upfront and clinical and regulatory milestone payments under our collaborations with Alfresa and Recordati that have been allocated to research and development services provided for during the years.

Revenue under these collaboration agreements decreased $1.2 million from 2021 to 2022.

The remaining decrease from 2021 to 2022 is due to the recognition of an upfront payment of $3.0 million under our collaboration and distribution agreement with Pediatrix signed in March 2021 relating to the issuance and delivery of a technology license, with no comparable activity in 2022.

We expect revenues to fluctuate in future periods based on our ability to meet various regulatory milestones, and contingent on successfully obtaining regulatory approval for neffy in the licensed regions, commercial milestones, royalties or transfer price earned from our partner’s net sales and the supply of commercial product as set forth in these agreements.

Research and Development Expenses.

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020:

Research and development expenses were $18.4 million and $20.3 million for the years ended December 31, 2022 and 2021, respectively.

The decrease of $1.9 million was primarily due to a $3.1 million decrease in clinical trial costs associated with neffy and a $1.9 million decrease in stock-based compensation.

These aggregated decreases were partially offset by $1.1 million in in-process research and development acquired in the Merger, a $1.0 million increase in license fees for the milestone payment to Aegis upon the FDA’s acceptance of our US NDA filing, and a $0.9 million increase in regulatory consulting costs.

Years Ended December 31,

(in thousands, except percentages)

Direct costs:

Preclinical programs

Total direct costs

Indirect costs:

Personnel-related expenses, including stock-based

Facility and equipment related expenses

Other unallocated research and development expenses

Clinical trials

Manufacturing and non-clinical development

Total research and development expenses

An investigational new drug application for SBT6290 was cleared by the FDA in the fourth quarter of 2021 and we opened enrollment for a Phase 1 clinical trial of SBT6290 in the first quarter of 2022, which is now discontinued.

As a result, we have separated direct costs for the development of SBT6290 from preclinical programs for the year ended December 31, 2021 and, for comparability purposes, the year ended December 31, 2020.

This change had no effect on net loss, total research and development expenses, stockholders' equity, or cash flows as previously reported.

Research and development expenses were $61.5 million and $24.6 million for the years ended December 31, 2021 and 2020, respectively.

The increase of $36.9 million was due primarily to an increase of $10.4 million in direct costs related to the development of SBT6050 as we continued to advance the program through a Phase 1/1b clinical trial.

The increase was also due to an increase of $6.2 million in direct costs related to the development of SBT6290 as we advanced the program through FDA clearance of its investigational new drug application and prepared to initiate a Phase 1 clinical trial in the first quarter of 2022 and due to an increase in direct costs for our preclinical programs of $4.9 million as we continued to advance SBT8230 and other preclinical research efforts.

The remaining increase was due to increases in personnel-related expenses of $13.4 million resulting from increased headcount during the year ended December 31, 2021 as well as increases in salaries, bonuses, stock-based compensation, and recruiting expenses.

To a lesser extent, the increase in research and development expenses was due to facility and equipment related expenses of $0.5 million, and other unallocated research and development expenses of $1.5 million.

General and Administrative Expenses.

General and administrative expenses were $18.5 million and $4.7 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $19.7 million was due primarily to an increase of $13.5 million in personnel-related expenses due to increased headcount during the year ended December 31, 2021, including executives that were new in 2020 being present for a full year in 2021, as well as increases in salaries, bonuses, stock-based compensation, and recruiting expenses.

To a lesser extent, the increase in general and administrative expenses was due to an increase in professional fees of $5.4 million primarily attributable to legal, insurance, and outside consultant costs, and $0.8 million in other various general and administrative expenses as we operated as a public company for the full year of 2021.

Interest Income (Expense), Net

Interest income (expense), net was $0.1 million and $(29,000) for the years ended December 31, 2021 and 2020, respectively.

The change of $0.1 million was primarily due to a decrease in principal on our notes payable and an increase in our cash balance.

Also contributing to the change was the investment in higher interest-bearing assets during the period.

The increase of $13.8 million was primarily due to a $4.9 million increase in stock-based compensation of which $3.0 million was for the replacement of stock awards held by Silverback employees and directors in connection with the Merger and $1.3 million for the vesting of previously issued performance-based options, a $3.6 million increase in outside services associated with marketing and consulting, a $2.3 million increase in legal fees, a $2.2 million increase in payroll and related expenses, and a $0.6 million increase in insurance costs.

Total Other Income (Expense).

Total other income was $0.8 million for the year ended December 31, 2022 and total other expense was $0.8 million for the year ended December 31, 2021.

The difference of $1.6 million was primarily due to a $1.8 million increase in interest income from our cash, cash equivalents, and investments partially offset by a $0.1 million loss due to the change in fair value of the preferred stock warrant liability.

Liquidity and Capital Resources

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

Since our inception, we have funded our operations almost exclusively with proceeds from the sale and issuance of shares of our redeemable convertible preferred stock and common stock, and debt financings.

We will need to raise substantial additional capital in the future.

As of December 31, 2021, we had $319.1 million in cash, cash equivalents, restricted cash, and investments.

The following table sets forth a summary of the net cash flow activity for the years ended December 31, 2021 and 2020:

Sources of Liquidity and Capital

Since our inception, we have not generated any revenue from any product sale and have incurred significant operating losses and negative cash flows from our operations.

We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates until the second half of 2023 or after, if at all.

We have funded our operations to date primarily with proceeds from the Merger, the sale of preferred and common stock, revenue earned under collaboration, licensing, supply and distribution agreements and bank debt.

As of December 31, 2022, we had cash, cash equivalents, and short-term investments of $274.4 million.

The following table summarizes our cash flows for the years ended December 31, 2022 and 2021 (in thousands):

Years Ended December 31,

(in thousands)

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net cash and cash equivalents used in operating activities

Net cash and cash equivalents used in investing activities

Net cash and cash equivalents provided by financing activities

Net increase in cash and cash equivalents

Operating Activities

During the year ended December 31, 2022, net cash used in operating activities was $40.1 million.

This consisted primarily of a net loss of $89.5 million, partially offset by non-cash charges of $21.2 million and a decrease in our operating assets and liabilities of $1.5 million.

The non-cash charges primarily consisted of stock-based compensation expense of $19.2 million, non-cash lease expense of $1.2 million, and depreciation expense of $0.8 million.

The decrease in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $6.0 million.

The decrease was partially offset by a decrease in lease liability of $1.1 million and an increase in prepaid expenses and other assets of $3.4 million.

This consisted primarily of a net loss of $34.7 million and an increase in our operating assets and liabilities of $12.8 million, partially offset by non-cash charges of $7.4 million.

The increase in our operating assets and liabilities was primarily due to a decrease in accounts payable and accrued liabilities of $10.3 million, an increase in prepaid and other assets of $1.2 million, and a decrease in contract liability of $1.3 million.

The non-cash charges primarily consisted of non-cash stock-based compensation of $5.8 million, acquired in-process research and development of $1.1 million, depreciation, amortization and accretion expense of $0.3 million, and change in fair value of warrant liability of $0.1 million.

During the year ended December 31, 2021, net cash used in operating activities was $17.6 million.

This consisted primarily of a net loss of $32.9 million and an increase in our operating assets and liabilities of $2.6 million, partially offset by charges of $4.4 million.

The charges primarily consisted of stock-based compensation expense of $2.6 million, lease expense of $1.1 million, and depreciation expense of $0.6 million.

The increase in our operating assets and liabilities was primarily due to an increase in prepaid expenses and other assets of $3.5 million and a decrease in our lease liability of $0.9 million, partially offset by an increase in accounts payable and accrued expenses of $1.8 million after adjusting for items.

The increase in prepaid expenses and other assets was primarily due to the purchase of $2.6 million in prepaid insurance.

This consisted primarily of a net loss of $20.2 million and an increase in our operating assets and liabilities of $0.4 million, partially offset by non-cash charges of $3.0 million.

The increase in our operating assets and liabilities was primarily due to a decrease in contract liability of $2.5 million, partially offset by a decrease in prepaid and other assets of $1.2 million and an increase in accounts payable and accrued liabilities of $1.0 million.

The non-cash charges primarily consisted of stock-based compensation of $2.8 million and depreciation, amortization and accretion expense of $0.2 million.

Investing Activities

During the year ended December 31, 2021, cash used in investing activities was $66.5 million.

This consisted of purchases of U.S.

Treasury Securities of $65.1 million and purchases of property and equipment of $1.4 million.

During the year ended December 31, 2020, cash used in investing activities was $0.9 million due to purchases of property and equipment.

During the year ended December 31, 2022, the cash and cash equivalents used in investing activities was primarily due to $0.2 million in purchases of property and equipment.

During the year ended December 31, 2021, the cash and cash equivalents used in investing activities was primarily due to $0.1 million in purchases of property and equipment.

Financing Activities

During the year ended December 31, 2021, cash provided by financing activities was $0.6 million.

This was primarily driven by proceeds from the exercise of common stock options and the employee stock purchase plan of $1.5 million, which was partially offset by $0.8 million of principal payments on the term loan payable.

During the year ended December 31, 2020, cash provided by financing activities was $408.5 million.

This consisted primarily of net proceeds received from the issuance of our common stock in connection with our initial public offering of $255.7 million, net proceeds received from the issuance of shares of our redeemable convertible preferred stock of $153.4 million, and proceeds from the exercise of common stock options of $0.2 million, which were partially offset by principal payments on the term loan payable of $0.7 million.

During the year ended December 31, 2022, the cash and cash equivalents provided by financing activities was primarily due to $198.8 million in net proceeds from the Merger.

In addition, we acquired $63.5 million in short-term investments through the Merger.

Also, during the year ended December 31, 2022, we used cash of $8.7 million for repayment of the bank note.

During the year ended December 31, 2021, the cash and cash equivalents provided by financing activities was primarily due to $54.8 million of proceeds from the issuance of Series D convertible preferred stock in August 2021 plus $0.2 million from common stock option exercises, partially offset by $1.8 million repayments on the bank note.

Future Funding Requirements

We believe that our cash, cash equivalents, restricted cash, and investments of $319.1 million at December 31, 2021 will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2026 following the Restructuring Plan.

Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements through at least the next three years.

In particular, we expect our cash, cash equivalents, and short-term investments will allow us to fund our expenses related to the FDA’s review of our NDA for neffy, fund proof of concept clinical trials of neffy for additional indications, fund pre-commercial manufacturing and sales and marketing activities, and if and when neffy is approved by the FDA, fund our commercial launch.

However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

the initiation, trial design, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of our product candidates, and in particular future clinical trials for SBT8230;

the number and characteristics of product candidates that we pursue;

the outcome, timing and costs of seeking FDA, EMA and any other regulatory approvals;

the costs of manufacturing our product candidates and commercial manufacturing activities;

the costs associated with hiring additional personnel and consultants as our preclinical, manufacturing and clinical activities increase;

the receipt of marketing approval and revenue received from any commercial sales of any of our product candidates, if approved;

the cost of commercialization activities for any of our product candidates, if approved, including marketing, sales and distribution costs;

the emergence of competing therapies and other adverse market developments;

the ability to establish and maintain strategic collaboration, licensing or other arrangements and the financial terms of such agreements;

the extent to which we in-license or acquire other products and technologies;

the amount and timing of any payments we may be required to make pursuant to our current or future license agreements;

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

our need and ability to retain key management and hire scientific, technical, business, and medical personnel;

our implementation of additional internal systems and infrastructure, including operational, financial and management information systems;

our costs associated with expanding our facilities or building out our laboratory space;

the effects of the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide from the COVID-19 pandemic;

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

the scope, progress, results and costs of researching and developing our current product candidates, as well as other additional product candidates we may develop and pursue in the future;

the scope and costs of manufacturing our product candidates and commercial manufacturing activities;

the timing of, and the costs involved in, obtaining marketing approvals for our product candidates;

the number of future product candidates that we may pursue and their development requirements;

subject to receipt of regulatory approval, the costs of commercialization activities for our product candidates, to the extent such costs are not the responsibility of any collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

subject to receipt of regulatory approval, revenue, if any, received from commercial sales of our product candidates or any other additional product candidates we may develop and pursue in the future;

the timing and amount of any milestone and royalty payments under the Aegis License Agreement and the Termination Agreement;

the extent to which we in-license or acquire rights to other products, product candidates or technologies;

our headcount growth and associated costs as we expand our employee headcount and establish a commercial infrastructure;

the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims;

the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses or other similar arrangements.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of our existing cash, cash equivalents, short-term investments, equity offerings, debt financings and other capital sources which may include collaborations, strategic alliances, marketing, distribution or licensing arrangements or other arrangements with third parties.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could 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 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 capital expenditures or declaring dividends.

If we raise funds through strategic collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise.

In addition, our current or future debt agreements may limit our ability to incur additional debt.

If we raise funds through additional collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, development programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the US, including due to recent bank failures, and worldwide resulting from macroeconomic factors.

Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

Material Cash Requirements

Our material cash requirements include the following contractual and other obligations as of December 31, 2021:

Payments Due by Period

Less than 1 year

More than 5 years

Operating lease obligations (1)

(1) Refer to Note 6 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

Under our license agreements, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sales of products developed under those agreements.

As of December 31, 2021 and 2020, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above.

For additional details regarding these agreements, see Part I, Item 1 of this Annual Report on Form 10-K under the section titled “License Agreement”.

In October 2019, we entered into a cell line license agreement with WuXi Biologics (Hong Kong) Limited (WuXi Bio), pursuant to which we received a non-exclusive, worldwide, sublicensable license under certain of WuXi Bio’s intellectual property rights, know-how and biological materials (the WuXi Bio Licensed Technology) to make, use, sell, offer for sale and import developed through the use of the WuXi Bio Licensed Technology (the WuXi Bio Licensed Product).

In consideration for the license, we paid a license fee of $100,000 to WuXi Bio which was recorded in research and development expense in 2019.

In 2020 we incurred an additional license fee of $50,000 to WuXi Bio which was recorded in research and development expense in 2020.

Additionally, if we do not engage WuXi Bio to manufacture the WuXi Bio Licensed Products for our clinical and commercial supplies, we are required to make aggregate milestone payments of up to $10.8 million to WuXi Bio upon the achievement of certain sales milestones.

To date, other than the license fee, no payments have been made under this agreement.

We enter into contracts in the normal course of business with vendors for clinical studies, preclinical studies, research supplies and other services and products for operating purposes.

These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (GAAP).

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

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation, and valuation allowances for deferred tax assets.

Under our license agreement with Aegis, we have payment obligations of up to $20.0 million contingent upon our achievement of certain regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under that agreement.

We are unable to estimate the timing or likelihood of achieving additional milestones or royalty payments under this agreement.

We are also responsible for reimbursing Aegis for patent costs incurred in connection with prosecuting and maintaining patent rights that are specific to epinephrine or epinephrine products.

Pursuant to the Termination Agreement with Recordati, we have payment obligations of up to €10.0 million contingent upon our achievement of certain regulatory and commercial milestones, and up to €5.0 million based on a low double-digit percentage of sales of sales of Recordati Licensed Product(s) in the Recordati Territory We are unable to estimate the timing or likelihood of achieving these milestones and sales-based payments under this agreement.

In October 2021, we entered into a lease agreement to rent office space with a lease commencement date of December 2021.

The lease has a term of 38 months.

Annual rent expense is $0.2 million and is subject to annual increases of 3%, plus our share of operating expenses and taxes.

We enter into contracts in the normal course of business with third-party contract organizations and vendors for clinical studies, manufacturing and other services and products.

These contracts generally provide for termination after a notice period.

To date, we have not recognized any reserves related to uncertain tax positions.

As of December 31, 2022, we had no accrued interest or penalties related to uncertain tax positions.

Critical Accounting Policies and Significant Judgements and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

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

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenues recognized under collaboration agreements, accruals for research and development expenses and valuation of equity awards.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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

Our significant accounting policies are more fully described in Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form-10-K.

Not all of our significant accounting policies require that we make estimates and assumptions that we believe are critical accounting estimates.

Our estimates relating to research and development expenses, stock-based compensation, and income taxes have had or are reasonably likely to have a material impact on our financial statements and we consider them to be our critical accounting policies and critical accounting estimates.

Research and Development Expenses

All research and development costs are expensed in the period incurred.

Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when we do not expect the goods to be delivered or services to be performed.

We estimate the period over which such services will be performed and the level of effort to be expended in each period.

If actual timing of performance or the level of effort varies from the estimate, we will adjust the amounts recorded accordingly.

We have not experienced any material differences between accrued or prepaid costs and actual costs since our inception.

While our significant accounting policies and estimates are described in more detail in Note 2- Summary of Significant Accounting Policies to our consolidated financial statements, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.

Our revenues generally consist of licenses and research services under license and collaboration agreements.

We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

To determine revenue recognition for contracts with customers we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligation(s) in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligation(s) in the contract;

and (v) recognize revenue when (or as) we satisfy the performance obligation(s).

At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations.

We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The upfront payments and fees received prior to satisfying the relevant revenue recognition criteria are recorded as contract liability in the balance sheet and recognized as revenue when the related revenue recognition criteria are met.

Collaboration agreements typically contain multiple elements, or performance obligations, including research and development services and technology licenses.

Our assessment of what constitutes a separate performance obligation requires us to apply judgement.

Specifically, we have to identify which goods and services we are required to provide under the contract are distinct.

For our collaboration agreements, we have identified several performance obligations at the inception of the contract since the delivered elements are deemed capable of being distinct within the context of the contract.

Accordingly, the initial transaction price is allocated to the various performance obligations where we recognized revenue related to the license, which was delivered upon contract inception, and the remaining performance obligation is recognized as the underlying services are provided under the cost-based input method over the research terms.

Using the cost-based input method, we recognize revenue based on actual costs incurred as a percentage of total estimated costs as we complete our performance obligations.

Any cumulative effect of revisions to estimated costs to complete our performance obligations is recorded in the period in which changes are identified and amounts can be reasonably estimated.

This approach requires us to use significant judgement and make estimates of future expenditures.

If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that it recognizes in the current and future periods.

The transaction price for a contract represents the amount to which we are entitled in exchange for providing goods and services to the customer.

The transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved.

Apart from the upfront license payment and certain milestones, all other fees we may earn under our collaborative agreements are subject to significant uncertainties of product development and commercial sales targets.

The transaction price of an agreement is allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied.

Accrued Research and Development

We have entered into various agreements with CROs, CMOs, and other service providers.

Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs.

The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet.

If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly.

Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

To date, our estimated accruals have not differed materially from actual costs incurred.

Stock-Based Compensation

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as a reduction of stock-based compensation expense as they occur.

Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.

Stock-based compensation expense represents the grant date fair value of equity awards recognized in the period using the Black-Scholes option pricing model.

We recognize the expense for equity awards on a straight-line basis over the requisite service periods of the awards, which is usually the vesting period.

Forfeitures are recognized as they occur.

Estimating the fair value of equity awards pursuant to the Black-Scholes option pricing model requires us to make assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant.

Changes in these assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment.

These assumptions include:

We determine these assumptions in the following manner:

Fair Value of Common Stock.

For all periods prior to our initial public offering, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors.

To determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, input from management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Practice Aid).

Following the closing of our initial public offering, the fair market value of our common stock is based on its closing price as reported on the primary stock exchange on which our common stock is traded.

Prior to the Merger, since there was no public market for our common stock, our board of directors, with input from management, determined the fair value of our common stock on each grant date by considering a number of objective and subjective factors, including the most recent independent third-party valuation of our common stock, sales of our convertible preferred stock to unrelated third-parties, our operating and financial performance, the lack of liquidity of our capital stock and general and industry-specific economic outlook, and our board of directors’

assessment of additional objective and subjective factors that it believed were relevant and that may have changed from the date of the most recent valuation through the date of the grant.

Historically, these independent third-party valuations of our equity instruments were generally performed contemporaneously with identified value inflection points.

Following the Merger, the fair market value of our common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Expected Term.

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The risk-free interest rate is based on the U.S.

Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.

Treasury rate, with maturities similar to the expected term of the stock options.

Expected Dividend Yield.

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Therefore, we used an expected dividend yield of zero.

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2021, we had net operating loss carryforwards for income tax purposes of approximately $160.3 million.

If not used, $18.2 million of this carryforward will begin to expire in 2036 and $142.1 million has no expiration.

We also have research and development tax credits of approximately $2.7 million which will begin to expire in 2037 if left unused.

Under Sections 382 and 383 of the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income.

The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period.

We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and credit carryforwards.

If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.

As of December 31, 2021, we did not have any liabilities for unrecognized income tax benefits associated with uncertain tax positions, including any interest and penalties.

Recent Accounting Pronouncements

See Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of:

(i) the last day of the fiscal year in which we have at least $1.07 billion in annual revenue;

(ii) the date upon which we are deemed to be a “large accelerated filer,”

as defined in Rule 12b-2 under the Exchange Act;

(iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period;

and (iv) December 31, 2025.

See Note 2- Summary of Significant Accounting Policies to our consolidated financial statements for information about recent accounting pronouncements, the timing of their adoption, and our assessment, if any, of their potential impact on our financial condition and results of operations.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-K

Item 5. Market for Registrant’s Common Equity