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Item 8. Financial Statements and Supplementary Data

2023-03-23 compared with 2022-03-31 · 627 added, 414 removed, 151 unchanged (87% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations and Comprehensive Loss

Statements of Redeemable Convertible Preferred Stock and Stockholders’

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’

Equity (Deficit)

Statements of Cash Flows

Consolidated Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Silverback Therapeutics, Inc.:

To the Shareholders and the Board of Directors of ARS Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Silverback Therapeutics, Inc.

(the Company), as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’

equity (deficit) and cash flows for each of the two years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years then ended in conformity with U.S.

We have audited the accompanying consolidated balance sheets of ARS Pharmaceuticals, Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’

equity (deficit) and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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We have served as the Company’s auditor since 2019.

Seattle, Washington

San Diego, California

March 23, 2023

Silverback Therapeutics, Inc.

Balance Sheets

(in thousands, except share and par value data)

ARS Pharmaceuticals, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

Current assets:

Cash and cash equivalents

Short-term investments

Prepaid expenses and other current assets

Total current assets

Restricted cash

Right-of-use assets

Property and equipment, net

Liabilities and stockholders’

Right-of-use asset

Fixed assets, net

Liabilities, convertible preferred stock and stockholders’

equity (deficit)

Current liabilities:

Accounts payable

Accrued expenses

Term loan payable, net

Current portion of lease liability

Accounts payable and accrued liabilities (including related party amounts of $ 16 in 2022 and $ 159 in 2021)

Lease liability, current

Contract liability, current

Note payable, current

Total current liabilities

Lease liability, net of current portion

Contract liability, net of current portion

Note payable, net of current portion

Preferred stock warrant liability

Total liabilities

Commitments and contingencies (Note 7)

Convertible preferred stock and stockholders’

equity (deficit):

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized at December 31, 2022 and 2021;

no shares issued and outstanding at December 31, 2022 and 2021

Series A convertible preferred stock, $ 0.01 par value;

no shares and 4,764,000 shares authorized at December 31, 2022 and 2021, respectively;

no shares and 4,764,000 shares issued and outstanding at December 31, 2022 and 2021, respectively

Series B convertible preferred stock, $ 0.01 par value;

no shares and 606,060 shares authorized at December 31, 2022 and 2021, respectively;

no shares and 606,060 shares issued and outstanding at December 31, 2022 and 2021, respectively

Series C convertible preferred stock, $ 0.01 par value;

no shares and 7,749,999 shares authorized at December 31, 2022 and 2021, respectively;

no shares and 7,692,309 shares issued and outstanding at December 31, 2022 and 2021, respectively

Series D convertible preferred stock, $ 0.01 par value;

no shares and 9,337,066 shares authorized at December 31, 2022 and 2021, respectively;

no shares and 9,337,066 shares issued and outstanding at December 31, 2022 and 2021, respectively

Stockholders’

Preferred Stock, $ 0.0001 par value per share;

10,000,000 shares authorized at

December 31, 2021 and 2020;

no shares issued and outstanding at December 31, 2021

Common stock, $ 0.0001 par value per share;

200,000,000 shares authorized at

December 31, 2021 and 2020, 35,133,934 and 34,801,537 shares issued and 35,107,651

and 34,701,274 shares outstanding at December 31, 2021 and 2020, respectively

equity (deficit)

Common stock, $ 0.0001 par value;

200,000,000 and 56,000,000 shares authorized at December 31, 2022 and 2021, respectively;

93,943,316 and 30,369,413 shares issued and outstanding at December 31, 2022 and 2021, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive gain

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

equity (deficit)

Total liabilities, convertible preferred stock and stockholders’

equity (deficit)

The accompanying notes are an integral part of these financial statements.

Silverback Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

ARS Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share information)

Years Ended December 31,

Revenue under collaboration agreements

Operating expenses:

Research and development

General and administrative

Research and development (including related party amounts of $ 2,144 in 2022 and $ 1,072 in 2021)

General and administrative (including related party amounts of $ 603 in 2022 and $ 476 in 2021)

Total operating expenses

Loss from operations

Interest income (expense), net

Unrealized loss on available-for-sale securities

Other income (expense):

Other income (expense), net

Change in fair value of financial instruments

Total other income (expense):

Unrealized gain on available-for-sale securities

Comprehensive loss attributable to common stockholders

Net loss per share attributable to common stockholders,

basic and diluted

Weighted-average shares used in computing net loss per share

attributable to common stockholders, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted

The accompanying notes are an integral part of these financial statements.

Silverback Therapeutics, Inc.

Statements of Redeemable Convertible Preferred Stock and Stockholders’

ARS Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

EQUITY (DEFICIT)

(in thousands, except share data)

Redeemable Convertible

(In thousands, except share amounts)

Preferred Stock

Accumulated Other

Stockholders’

Comprehensive Loss

Balance as of January 1, 2020

Issuance of Series B redeemable convertible preferred

stock for cash, net of $ 76 in issuance costs (Note 8)

Issuance of Series B redeemable convertible preferred

stock upon conversion of convertible notes

Issuance of Series C redeemable convertible preferred stock upon conversion of convertible notes

Redeemable convertible preferred stock converted into shares of common stock

Initial public offering of common stock, net of $ 22,386 in issuance costs

Exercise of common stock options and vesting of early

exercised common stock options

Comprehensive Gain

Balance at December 31, 2020

Issuance of Series D convertible preferred stock for cash, net of issuance costs of $ 194

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation

Net loss and comprehensive loss

Balance as of December 31, 2020

Exercise of common stock options, shares issued

under the employee stock purchase plan, and

vesting of early exercised common stock

Net loss and comprehensive net loss

Balance at December 31, 2021

Conversion of preferred stock to common stock as a result of the Merger

Issuance of common stock to Silverback stockholders as a result of the Merger

Reclassification of warrant liability to equity

Exercise of common stock options, shares issued under the employee stock purchase plan, and release of restricted stock units

Stock-based compensation

Net loss and comprehensive loss

Balance as of December 31, 2021

Balance at December 31, 2022

The accompanying notes are an integral part of these financial statements

Silverback Therapeutics, Inc.

Statements of Cash Flows

ARS Pharmaceuticals, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

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Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation expense

Stock-based compensation

Non-cash lease expense

Amortization of debt issuance costs

Non-cash adjustments to reconcile net loss to net cash provided by (used) in operating activities:

Stock-based compensation expense

Acquired in-process research and development

Change in fair value of warrant liability

Depreciation, amortization and accretion expense

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Lease liability

Prepaid and other assets

Accounts payable and accrued liabilities (including related party amounts of $( 143 ) in 2022 and $ 13 in 2021)

Operating right-of-use assets and lease liabilities, net

Contract liability

Net cash used in operating activities

Cash flows from investing activities:

Purchases of available-for-sale securities

Purchase of property and equipment

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Cash flows from financing activities:

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions

Payment of deferred offering costs

Principal payments on term loan payable

Proceeds from exercise of common stock options and employee stock purchase plan

Cash proceeds from the Merger, net of transaction costs

Proceeds from exercise of common stock options

Repayment of bank note payable

Proceeds from issuance of preferred stock, net

Net cash provided by financing activities

Change in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Supplemental disclosure of cash flow information:

Unpaid initial public offering costs included in accounts payable and accrued expenses

Right-of-use assets and lease liabilities recognized

Issuance of Series B redeemable convertible preferred stock upon conversion of

convertible notes

Conversion of redeemable convertible preferred stock upon closing of initial public offering

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental cash flow information:

Conversion of Series A, B, C, and D convertible preferred stock to common stock

Short-term investments assumed in the Merger

Prepaid expense and other current assets assumed in the Merger

Accounts payable and accrued liabilities assumed in the Merger

Reclassification of warrant liability to equity

Purchases of property and equipment included in accounts payable

Interest paid

The accompanying notes are an integral part of these financial statements.

Silverback Therapeutics, Inc.

ARS Pharmaceuticals, Inc.

Notes to Financial Statements

Nature of Business

Silverback Therapeutics, Inc.

(“Silverback”

or “the Company”) is a biopharmaceutical company focused on leveraging its proprietary ImmunoTAC technology platform to develop systemically delivered, tissue targeted therapeutics for the treatment of chronic viral infections, cancer, and other serious diseases.

The Company’s 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.

The Company’s platform enables it to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed to specific disease sites.

The Company was formed in Seattle, Washington and incorporated in the state of Delaware on January 4, 2016.

Initial Public Offering

In December 2020, the Company completed its initial public offering of common stock (“IPO”) of 13,225,000 shares of common stock at a public offering price of $ 21.00 per share, resulting in net proceeds of $ 255.3 million after deducting underwriting discounts and commissions and offering expenses paid by the Company.

In connection with the IPO, all 77,074,884 shares of redeemable convertible preferred stock outstanding at the time of the IPO converted into 20,758,098 shares of the Company’s common stock.

Additionally, in November 2020, the Company’s Board of Directors approved an amendment to the Company’s certificate of incorporation to effect a reverse split of shares of the Company’s common stock on a one-for-3.713 basis, which was effected on November 30, 2020 (the “Reverse Stock Split”) in anticipation of the IPO.

All references to common stock and options to purchase common stock share data, per share data, and related information contained in the financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Risks and Uncertainties

The Company is subject to a number of inherent risks which include, but are not limited to, the need to obtain adequate additional funding, possible failure of clinical trials or other events demonstrating a lack of clinical safety or efficacy of its product candidates, dependence on key personnel, reliance on third-party service providers for manufacturing drug product and conducting clinical trials, the ability to successfully secure its proprietary technology, and risks related to the regulatory approval and commercialization of a product candidate.

Additionally, the development and commercialization of new drug products is highly competitive.

Products or technologies developed by competitors may diminish or render obsolete the Company’s existing products under development.

Nat ure of Business

Description of Business

ARS Pharmaceuticals, Inc.

(“ARS”

or the “Company”) is focused on the development of ARS-1 (brand name neffy ®), a proprietary product candidate for the needle-free intranasal delivery of epinephrine for the emergency treatment of type 1 allergic reactions including anaphylaxis.

The Company incorporated in Delaware in January 2016 and is located in San Diego, California.

The Company has a wholly owned subsidiary, ARS Pharmaceuticals Operations, Inc., incorporated in Delaware in August 2015 through which it conducts substantially all its operations, which survived the Merger as more fully described below.

ARS Pharmaceuticals Operations, Inc.

has a wholly owned subsidiary in Ireland, ARS Pharmaceuticals IRL, Limited, to facilitate the filing of regulatory approval for neffy in European countries.

Merger Transaction

On November 8, 2022 (the “Closing Date”), Silverback Therapeutics, Inc., a Delaware corporation (“Silverback”), now known as ARS Pharmaceuticals, Inc., completed its reverse merger (the “Merger”) with privately-held ARS Pharmaceuticals, Inc.

(“ARS Pharma”), 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”), whereby Sabre Merger Sub, Inc.

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

ARS Pharma was renamed ARS Subsidiary, Inc.

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.

The Merger was accounted for as a reverse recapitalization, with ARS Pharma being treated as the acquirer for accounting purposes.

Pursuant to the Merger Agreement, Silverback changed its name to ARS Pharmaceuticals, Inc., and changed its corporate ticker symbol on the Nasdaq Global Market to “SPRY”.

See discussions of the transactions in connection with the Merger at Note 3- Merger and Related Transactions .

Liquidity and Capital Resources

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The Company has incurred net operating losses since its inception and had an accumulated deficit of $ 76.9 million as of December 31, 2022.

The Company had cash, cash equivalents, restricted cash, and investments of $ 319.1 million as of December 31, 2021 and has not generated positive cash flows from operations.

To date, the Company has funded its operations primarily through the issuance of redeemable convertible preferred stock, convertible notes, and the sale of common stock in connection with the IPO.

The Company’s currently available cash, cash equivalents, restricted cash, and investments as of December 31, 2021 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date the financial statements are issued.

Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least 12 months from the date the financial statements are issued.

Management expects operating losses to continue for the foreseeable future.

There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that they will be sustained on a continuing basis.

In addition, the manufacturing, clinical and preclinical development activities as well as the commercialization of the Company’s products, if approved, will require significant additional financing.

The Company may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders.

If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations.

The Company had cash, cash equivalents, and short-term investments of $ 274.4 million as of December 31, 2022 and has not generated positive cash flows from operations.

To date, the Company has funded its operations primarily with proceeds from the Merger, the issuance of convertible preferred stock, payments earned under collaboration agreements and bank debt.

The Company’s currently available cash, cash equivalents, and investments as of December 31, 2022 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date the financial statements are issued.

From August 5, 2015 (inception) through December 31, 2022, the Company has devoted substantially all of its efforts to developing intellectual property and conducting product development and clinical trials, raising capital, and building infrastructure.

The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven.

If the Company does not successfully commercialize any product candidates for which it receives regulatory approval, it will be unable to generate recurring product revenue or achieve profitability.

Management expects operating expenses to increase for the foreseeable future and there can be no assurance that the Company will ever achieve profitability, or if achieved, that it will be sustained on a continuing basis.

T he novel coronavirus-2019 (“COVID-19”) epidemic and geopolitical events have resulted in a significant disruption of global financial markets.

The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and further disruptions to, and volatility in, the credit and financial markets in the United States, including recent bank failures, and worldwide resulting from a resurgence of COVID-19, future health epidemics or pandemics, geopolitical actions or other macroeconomic factors.

If such further disruption occurs, the Company could experience an inability to access additional capital.

If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs.

Any of these actions could materially harm the Company’s business, results of operations, and future prospects.

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation and Principles of Consolidation

The financial statements have been prepared in conformity with U.S.

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GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”).

The consolidated financial statements include the accounts of the Company and ARS Pharmaceuticals IRL, Limited for the year ended December 31, 2022.

All intercompany accounts and transactions have been eliminated in consolidation.

The Company’s functional and reporting currency is the U.S.

Assets and liabilities that are not denominated in the functional currency are remeasured into U.S.

dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction.

Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense) in the consolidated statements of operations and comprehensive loss.

All adjustments considered necessary for a fair presentation have been included.

Since ARS Pharma was determined to be the accounting acquirer in connection with the Merger, for periods prior to the Merger the consolidated financial statements were prepared on a stand-alone basis for ARS Pharma and did not include the combined entities activity or financial position.

Subsequent to the Merger, the consolidated financial statements as of and for the year ended December 31, 2022 include Silverback’s activity and Silverback’s assets and liabilities at their acquisition date fair value.

Historical share and per share figures of ARS Pharma have been retroactively restated based on the exchange ratio of 1.1819 .

Use of Estimates

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in the Company’s financial statements and accompanying notes.

The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of equity awards, and valuation allowances for deferred tax assets.

These estimates and assumptions are based on current facts, historical experience and various other factors 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 and the recording of expenses that are not readily apparent from other sources.

The preparation of the Company’s consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes.

The most significant estimates in the Company’s consolidated financial statements relate to revenue recognized for its collaboration agreements, accruals for research and development expenses and valuation of equity awards.

These estimates and assumptions are based on current facts, historical experience and various other factors 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 and the recording of revenue and expenses that are not readily apparent from other sources.

Actual results may differ materially and adversely from these estimates.

The full extent to which the coronavirus (“COVID-19”) pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trial and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.

The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing tissue targeted therapeutics.

The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.

Fair Value of Financial Instruments

Cash and cash equivalents, restricted cash, and investments are carried at fair value.

Accounts payable and accrued expenses are carried at cost, which approximates fair value given their short-term nature.

The term loan payable is carried at cost, which approximates fair value as its effective interest rate approximates current market rates.

Cash and Cash Equivalents

Cash equivalents are comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase.

At December 31, 2021 and December 31, 2020 , the Company’s cash equivalents consisted of money market funds.

Restricted Cash

Restricted cash consists of a deposit securing a collateral letter of credit issued in connection with the operating lease for the Company’s headquarters.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the amounts shown in the statements of cash flows (in thousands):

To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Cash and Cash Equivalents

Restricted cash

Total cash and cash equivalents and restricted cash

Cash and cash equivalents include cash readily available in checking, money market and sweep accounts.

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

The Company invests excess cash in investment grade intermediate-term fixed income securities.

These investments are included in long-term investments on the balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive loss.

These investments are included in short-term investments on the balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive loss.

Realized gains and losses on the sale of these securities are recognized in net loss.

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs.

Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any investment before recovery of its amortized cost basis.

Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the investments, duration and severity of the decline in value, and the Company's strategy and intentions for holding the investment.

Fair Value of Financial Instruments

Cash and cash equivalents and investments are carried at fair value.

The carrying amounts of all prepaid expenses and other current assets, accounts payable, accrued liabilities, and contract liability, are considered to be representative of their respective fair values because of the short-term nature of those instruments.

Concentrations of Credit Risk

The Company is subject to credit risk from holding its cash and cash equivalents at a limited number of commercial banks.

The Company limits its exposure to credit losses by investing in money market funds through a U.S.

bank with high credit ratings and U.S.

Treasury securities.

Cash may consist of deposits held with banks that may at times exceed federally insured limits, however, exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the balance sheets.

The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Prepaid Expenses and Other Assets

Prepaid expenses consist primarily of operating expenses paid in advance of when services are provided.

Property and Equipment, Net

Property and equipment, net consists of furniture and fixtures and laboratory equipment and is stated at cost, less accumulated

depreciation.

Furniture and fixtures and laboratory equipment are depreciated over the estimated useful lives of the assets (each three to five years) using the straight-line method.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations in the period realized.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents.

The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and limits its exposure to cash risk by placing its cash with high credit quality financial institutions.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years.

Repairs and maintenance costs are charged to expense as incurred.

Leases consist of the Company’s operating leases.

In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at inception and evaluates each lease agreement to determine whether the lease is an operating or finance lease.

For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

Operating lease ROU assets also include any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease.

The Company’s leases include options to extend or terminate the leases.

Periods covered by an option to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise that option.

Periods covered by an option to terminate a lease are included in the lease term when it is reasonably certain that the Company will not exercise that option.

Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company does not have material short-term lease costs.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

For real estate leases, the Company does not separate lease and non-lease components.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment and ROU assets.

These assets are reviewed for impairment whenever facts

or circumstances either internally or externally may suggest that the carrying value of an asset or asset group may not be recoverable.

An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets.

The Company has not recognized any impairment losses through December 31, 2021.

Research and Development Expenses

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

Research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of the Company’s ImmunoTAC technology platform, discovery efforts, and preclinical study and clinical trial activities related to the Company’s program pipeline.

Direct costs include expenses incurred under agreements with CROs and other vendors that conduct the Company’s preclinical and clinical activities, expenses associated with manufacturing the Company’s product candidates including under agreements with contract development and manufacturing organizations (“CDMOs”) and other vendors, and consulting fees.

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, and other unallocated research and development expenses incurred in connection with the Company’s research and development programs, including laboratory materials and supplies and license fees.

Research and development expenses are charged to operating expenses as incurred when these expenditures relate to the Company’s research and development efforts and have no alternative future uses.

The Company is obligated to make upfront payments upon execution of certain research and development agreements.

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 the Company does not expect the goods to be delivered or services to be performed.

The Company estimates 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, the Company will adjust the amounts recorded accordingly.

Since inception, the Company has not experienced any material differences between accrued or prepaid costs and actual costs.

General and Administrative Expenses

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.

General and administrative costs are expensed as incurred.

Long-lived assets consist primarily of property and equipment.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate.

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value.

The Company has not recognized any impairment losses from inception through December 31, 2022 .

Effective January 1, 2021, the Company early adopted ASC No.

2016-02, Leases (Topic 842) (“ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method.

The Company has elected to apply the practical expedients allowed by the standard for existing leases.

The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard.

The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified.

The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months.

The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise.

The lease liability is calculated by using the present value of all lease payments, with the present value determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment as well as a review of peer companies.

Variable charges for common area maintenance and other variable costs are recognized as expense as incurred.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the consolidated statements of operations and comprehensive loss.

Warrant Liability

The Company has issued freestanding warrants to purchase shares of its Series C convertible preferred stock.

Prior to the Merger, the Company adjusted the carrying value of such Series C convertible preferred stock warrants to the estimated fair value at each reporting date, with any related increases or decreases in the fair value being recorded within other income (expense) in the consolidated statements of operations and comprehensive loss.

Pursuant to the Merger Agreement the Series C convertible preferred stock warrants became warrants to purchase shares of the combined company's common stock.

As a result of the Merger, the warrants no longer meet the requirements for liability accounting, as such, the Company adjusted the value of the warrants to the estimated fair value as of the Merger date and reclassified them to equity.

Revenue Recognitio n

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.

Research and Development Costs

Research and development are expensed in the period incurred.

Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct our clinical studies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates for clinical trials and other allocated expenses.

Payments for research and development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses.

The Company records accruals for estimated costs incurred for ongoing research and development activities.

When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs.

The Company uses judgments and estimates to determine the prepaid or accrued balances at the end of any reporting period.

Actual results could differ from the Company’s estimates.

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statements of operations and expensed as incurred since recoverability of such expenditures is uncertain.

Costs incurred to acquire technology licenses and milestone payments made on existing agreements are charged to research and development expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use.

Stock-Based Compensation

The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date based on the award’s estimated fair value using the Black-Scholes option pricing model.

The estimated fair value of the awards is recognized into expense on a straight-line basis over the requisite service period.

Stock-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.

If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed.

Management evaluates when the achievement of a performance condition is probable based on the expected satisfaction of the performance condition at each reporting date.

Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.

The option plan permits, but does not require, the inclusion of early exercise provisions in individual awards.

Proceeds from early option exercises are recorded as a liability until the underlying restricted shares vest.

While the restricted shares have voting rights, they are not considered outstanding for accounting purposes.

Employee Stock Purchase Plan

In December 2020, the Company’s Employee Stock Purchase Plan (“ESPP”) became effective, pursuant to which eligible employees can purchase shares of the Company’s common stock at a discount to the fair market value at semi-annual intervals.

In determining the grant date fair value of shares expected to be purchased under the ESPP, the Company uses the Black-Scholes option pricing model.

Black-Scholes inputs are determined in the same manner as for stock option awards.

The estimated grant date fair value of shares expected to be purchased is recognized into expense on a straight-line basis over the requisite service period.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Stock-based compensation expense represents the cost of the grant date fair value of stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis.

The Company recognizes expense for awards subject to performance-based milestones over the remaining service period when management determines that achievement of the milestone is probable.

Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur.

The Company’s equity incentive plans allow for the issuance of restricted stock awards that may be subject to vesting.

The unvested shares of any restricted stock awards are held in escrow as the stock award vests or until the holder’s termination of services, whichever occurs first.

In the event the holder’s services terminate, the Company has the right of repurchase, at its option, the portion of unvested stock awards.

For all early exercised unvested stock awards, a liability is established related to the cash received for the unvested portion of the stock award, which represents the Company’s repurchase rights if the award holders were to be terminated and their stock repurchased.

Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

If management determines that the Company is more likely than not able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes in the period in which the adjustment is made.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense.

Any accrued interest and penalties are included within the related tax liability.

The Company did not have any uncertain tax positions as of December 31, 2021 and 2020.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company presents one continuous Statement of Operations and Comprehensive Loss.

The Company’s comprehensive loss includes unrealized gains and losses on investments.

Net Loss Per Share Attributable to Common Stockholders

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company’s comprehensive loss was the same as its reported net loss for all periods presented.

Segment Reporting

Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker for purposes of making decisions regarding resource allocation and assessing performance.

The Company views its operations and manages its business as one operating segment.

Net Loss Per Common Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities.

Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

For purposes of this calculation, redeemable convertible preferred stock, stock options, employee stock purchase rights, and unvested common stock subject to repurchase are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”).

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.

The Company has 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 it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

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

Recently Issued Accounting Pronouncements Not Yet Adopted

For purposes of this calculation, convertible preferred stock, stock options, and preferred stock warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.

The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been anti-dilutive.

Historical share figures have been retroactively restated based on the exchange ratio of 1.1819 .

December 31, 2022

December 31, 2021

Convertible preferred stock

Warrants to purchase convertible preferred stock

Warrants to purchase common stock

Common stock options granted and outstanding

Recently Issued Accounting Pronouncements —

Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded.

The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted.

Measurement of Credit Losses on Financial Instruments, which changes the accounting for recognizing impairments of financial assets.

Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses.

The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination.

This update is effective for the Company beginning January 1, 2023.

The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.

Merger and Related Transactions

As described in Note 1- Nature of Business , ARS Pharma merged with Silverback on November 8, 2022.

The Merger was accounted for as a reverse recapitalization under U.S.

ARS Pharma was considered the accounting acquirer for financial reporting purposes.

This determination was based on the facts that, immediately following the Merger:

(i) ARS Pharma stockholders own a substantial majority of the voting rights of the combined organization;

(ii) ARS Pharma has designated a majority (eight of eleven) of the initial members of the board of directors of the combined organization;

and (iii) ARS Pharma’s senior management holds all key positions in senior management of the combined organization.

The transaction was accounted for as a reverse recapitalization because on the effective date of the Merger, the pre-combination assets of Silverback were primarily cash and other non-operating assets.

Additionally, the Company concluded that the in-process research and development ( “

IPR&D ”

) assets that remained as of the combination were not significant when compared to the cash and investments obtained through the transaction.

Under reverse recapitalization accounting, the assets and liabilities of Silverback were recorded at their fair value which approximated book value due to the short-term nature of the instruments.

No goodwill or intangible assets were recognized.

Consequently, the Company's consolidated financial statements reflect the issuance of 36,535,541 shares to the former stockholders of Silverback.

Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, each share of ARS Pharma’s preferred stock was converted into a share of ARS Pharma’s common stock.

As the accounting acquirer, ARS Pharma is deemed to have assumed all of Silverback’s outstanding and unexercised stock options.

The assumed options continue to be governed by the terms of the 2016 and 2020 Equity Incentive Plans of Silverback (as discussed more in Note 10- Stock-Based Compensation ) under which the options were originally granted.

As part of the reverse recapitalization, ARS Pharma obtained $ 262.3 million in cash, cash equivalents and short-term investments, net of transaction costs.

ARS Pharma also obtained prepaids and other current assets of approximately $ 4.4 million and assumed payables and accruals of approximately $ 12.0 million.

ARS Pharma also obtained $ 1.1 million in IPR&D assets that have no alternative future use.

The fair value attributable to these assets was recorded as research and development expense in the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2022.

ARS Pharma also incurred transaction costs of approximately $ 2.1 million and this amount is recorded as a reduction to additional paid-in capital in th e accompanying consolidated statement of convertible preferred stock and stockholders’

equity (deficit) for the year ended December 31, 2022.

Fair Value Measurements

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The three levels of inputs that may be used to measure fair value include:

Quoted prices in Active Markets for identical assets or liabilities.

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Unobservable inputs that are supported by little or no market activity.

The following table identifies the Company’s assets and liabilities that were measured at fair value on a recurring basis (in thousands):

The Company categorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance that establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.

Fair value is defined as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1- Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2- Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3- Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

In 2021, based on the borrowing rates currently available to the Company for loans with similar terms, management believe the fair value of the note payable approximates its carrying value.

In 2022, the note payable was fully paid off.

The following table identifies the Company’s assets that were measured at fair value on a recurring basis (in thousands):

December 31, 2022

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Money market funds

Long-term investments - U.S.

Short-term investments - U.S.

Treasury securities

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There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented.

The Company’s long-term investments portfolio contains investments in U.S.

Treasury securities that have an effective maturity date that is more than one year, but less than two years, from the respective balance sheet date.

The Company evaluated its investments for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions.

For the investments, it is not more-likely-than-not that the Company will be required to sell the investments, and the Company does not intend to do so prior to the recovery of the amortized cost basis.

Property and Equipment, Net

Property and equipment are summarized as follows (in thousands):

The Company’s short-term investments portfolio contains investments in U.S.

Treasury securities that have an effective maturity date that is less than one year from the respective balance sheet date.

As of December 31, 2022, the Company did not have any investments in an unrealized loss position.

As of December 31, 2022, the Company did not have any liabilities that were measured at fair value on a recurring basis.

As a result of the Merger, the preferred stock warrant liability that was outstanding was remeasured as of the Merger date and reclassified to equity.

During 2022, the Company recorded total other expense relating to this warrant of $ 0.1 million.

There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented.

Balance Sheet Details

Prepaid expenses and other current assets consisted of the following (in thou sands):

December 31, 2022

December 31, 2021

Furniture and fixtures

Laboratory equipment

Property and equipment, gross

Prepaid insurance

Prepaid expenses

Interest receivable

Other receivables

Property and equipment consisted of the following (in thousands):

December 31, 2022

December 31, 2021

Less accumulated depreciation

Total property and equipment, net

Depreciation expense was $ 0.8 million and $ 0.6 million for the years ended December 31, 2021 and 2020, respectively.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

Depreciation expense was immaterial for the years ended December 31, 2022 and 2021.

Other assets consisted of the following (in thousands):

December 31, 2022

December 31, 2021

Research and development expenses

Employee compensation and benefits

Professional services and other

Total accrued expenses

The Company leases office and laboratory space in Seattle, Washington.

The components of lease expense and related cash flows were as follows (in thousands):

Years Ended December 31,

Lease expense

Operating lease expense

Variable lease expense

Total lease expense

Operating cash outflows from operating leases

On July 1, 2021, the Company entered into a sublease agreement for additional office space in Seattle, Washington.

The commencement date of the sublease was August 1, 2021.

The contractual term of the sublease is two years with an option to extend for one additional year and an option to terminate after one year subject to a termination fee .

The annual minimum rent payable by the Company under the sublease is $ 0.3 million annually.

The ROU asset obtained in exchange for the new operating lease liability was $ 0.6 million as of the lease commencement date.

The weighted-average remaining term on the Company's leases was 4.7 years and 1.8 years as of December 31, 2021 and 2020, respectively.

To compute the present value of the lease liabilities, the Company used weighted average discount rates of 7.5 % and 8.5 % as of December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, there was a change in the expected lease term of the Company’s Seattle, Washington headquarters, whereby the Company became reasonably certain that it will not exercise its option to terminate the lease.

As a result, the ROU asset and lease liability were remeasured using the present value of the remaining lease payments.

The re-measurement resulted in an addition to the ROU asset and lease liability of $ 3.1 million.

The change in the expected lease term has no effect on the classification of the lease.

Future minimum commitments due under the operating lease agreements as of December 31, 2021 are as follows (in thousands):

Years Ended December 31,

Total undiscounted lease payments

Present value adjustment

Total present value of lease payments

Term Loan Payable

In November 2016, the Company entered into a loan and security agreement with Silicon Valley Bank (“SVB”) and borrowed $ 3.5 million as a term loan.

The outstanding principal amount of the term loan accrued interest at an annual rate of 1.75 % per annum.

At closing, the Company incurred de minimis debt issuance costs and owed a final payment fee of $ 0.3 million, both of which are amortized to interest expense over the remaining term of the debt under the effective interest method.

The effective interest rate of the Company’s term loan was 5.14 %.

The term loan’s original maturity date was November 1, 2020 .

However, in April 2020, the Company amended the loan and security agreement to defer principal payments for six months and extend the maturity date to May 1, 2021 .

There were no costs or additional warrant issuances in connection with this amendment.

The Company accounted for the amendment as a debt modification and amortized the remaining debt discount over the remaining term.

On May 1, 2021, the Company made its final scheduled payment to SVB under the loan and security agreement including the final payment fee.

Stockholders’

Prepaid insurance

Security deposit

Accounts payable and accrued liabilities consisted of the following (in thousands):

December 31, 2022

December 31, 2021

Accounts payable

Accrued legal and professional fees

Accrued clinical expenses

Accrued compensation

Accrued tax expenses

Accrued development expenses

Collaboration and Out-Licensing

The Company has entered into collaboration and licensing agreements to license certain rights to neffy to third parties.

The terms of these arrangements typically include payment to the Company of one or more of the following:

non-refundable, up-front license fees;

clinical, regulatory, and/or commercial milestone payments;

payment for clinical and commercial supply and royalties or a transfer price on the net sales of licensed products.

Licenses of Intellectual Property.

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from non-refundable, up-front payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

If the license is not a distinct performance obligation, the Company evaluates the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees.

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

Milestone Payments.

At the inception of each arrangement that includes clinical, regulatory or commercial milestone payments, the Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method.

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

Milestone payments that are not within the Company’s control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs.

Revenue is recognized when the underlying performance obligation has been transferred to the customer.

Research and Development Revenues.

For arrangements that contain research and development commitments, any arrangement consideration allocated to the research and development work is recognized as the underlying services are performed over the research and development term.

Clinical and Commercial Supply.

Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options.

We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

The Company has not earned revenues for clinical or commercial supply sales as of December 31, 2022.

Royalty/Transfer Price Revenues.

For arrangements that include sales-based royalties or transfer price, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

The Company has not received any royalty or transfer price revenues as of December 31, 2022.

Alfresa Agreement

In March 2020, the Company signed a Letter of Intent (“LOI”) with Alfresa Pharma Corporation (“Alfresa”) for the right to negotiate a definitive agreement for the exclusive license and sublicensable right to develop, register, import, manufacture and commercialize neffy in Japan in exchange for an upfront payment of $ 2.0 million.

In April 2020, the Company entered into a Collaboration and License Agreement for the rights pursuant to the LOI.

Under the agreement, the Company delivered a license to the neffy technology and is responsible for completion of a certain clinical study and for the manufacturing of development and commercial drug supply.

The parties agreed to share the cost of any additional clinical studies required for approval of neffy in Japan.

Alfresa is solely responsible for regulatory and commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use in Japan.

Either party may terminate the agreement for certain breaches of the agreement.

Unless terminated earlier by either or both parties, the term of the agreement will continue until the later of (i) expiration of the last-to-expire patent in Japan;

or (ii) 10 years after the commercial sale of neffy in Japan.

In addition to the $ 2.0 million received under the LOI, the Company is eligible to receive up to $ 13.0 million of milestone payments upon achievement of certain clinical and regulatory milestones.

Further, the Company is eligible to receive a negotiable transfer price expected to be in the low double-digit percentage on net sales subject to the regulatory approval to commercialize neffy in Japan.

In July 2020, the Company earned a $ 5.0 million milestone payment upon the completion of a clinical milestone in Japan.

At the commencement of this collaboration, the Company identified the following performance obligations:

the license for neffy and research and development services.

The Company determined the initial transaction price to be the $ 7.0 million, which includes a clinical milestone as it was deemed not probable of significant reversal at the inception of the agreement.

Due to the uncertainty in the achievement of the regulatory and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur.

These estimates will be re-assessed at each reporting period.

The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation.

The Company recognized revenue of $ 0.1 million and $ 0.2 million for the years ended December 31, 2022 and 2021 , respectively and had a contract liability of an immaterial amount and $ 0.1 million as of December 31, 2022 and 2021, respectively.

Recordati Agreement

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

(“Recordati”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in Europe and certain European Free Trade Association, Russia/the Commonwealth of Independent States, Middle East and African countries (the “Recordati Territory”).

Under the Recordati Agreement, the Company is responsible for completion of any clinical studies for neffy required by the European Medicines Agency (“EMA”) before granting European Union Marketing Authorization, and by the Medicines and Healthcare products Regulatory Agency (“MHRA”) prior to granting United Kingdom Marketing Authorization.

The Company filed the initial regulatory submissions with the EMA in the fourth quarter of 2022 and will file the initial regulatory submissions with the MHRA for neffy and is responsible for the manufacturing of commercial supply.

Recordati is solely responsible all regulatory activities in the region after the Company’s initial regulatory submissions to the EMA and MHRA, for any post-approval clinical studies and commercialization activities.

Either party may terminate the Recordati Agreement for certain breaches.

Unless terminated earlier by either or both parties, the term of the Recordati Agreement will continue as long as Recordati has commercial sales of neffy in the region.

Under the terms of the Recordati Agreement, the Company received an upfront payment of $ 11.8 million and a regulatory milestone payment of $ 6.0 million during 2020.

In addition, the Company is eligible to receive up to 90.0 million euros of milestone payments upon achievement of certain regulatory and commercial sales milestones.

Subject to regulatory approval, the Company will earn tiered royalties in the low double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Recordati.

The per unit commercial supply costs are subject to a cap.

The combined tiered royalty and supply price have a low double-digit cap.

At the commencement of this collaboration, the Company identified the following performance obligations:

the license for neffy in the defined territory and the research and development services.

The Company determined the initial transaction price to be the $ 11.8 million.

Due to the uncertainty in the achievement of all the developmental and commercial milestones, at inception of the contract, the variable consideration associated with future milestone payments was fully constrained and excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur.

These estimates will be re-assessed at each reporting period.

The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation.

In November 2020, the Company earned a regulatory milestone of $ 6.0 million.

The Company recognized revenue of $ 1.2 million and $ 2.3 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021 , there was a contract liability of $ 3.1 million and $ 4.4 million, respectively.

On February 22, 2023, the Company and Recordati entered into a termination agreement (the “Termination Agreement”), pursuant to which, among other things, the Company and Recordati agreed to terminate the Recordati Agreement and the Company will reacquire all of the Recordati’s rights under the Recordati Agreement, as described in Note 14- Subsequent Events .

Pediatrix Agreement

In March 2021, the Company entered into a Collaboration and Distribution Agreement with Pediatrix Therapeutics, Inc.

(“Pediatrix”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in the People’s Republic of China, Taiwan, Macau, and Hong Kong.

Under the agreement, Pediatrix is responsible, at its sole cost and expense, for all ongoing development work that is necessary for or otherwise supports regulatory approval in the defined territory, including all clinical trials, and activities related to post approval commitments and commercialization tests.

In addition, Pediatrix is responsible for commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use.

The Company is responsible for the manufacturing of product for clinical studies as well as commercial supply, all at a negotiated transfer price.

Either party may terminate the agreement for certain breaches of the agreement.

Unless terminated earlier by either or both parties, the term of the agreement will continue as long as Pediatrix has commercial sales of neffy in the region, or 10 years after the first commercial sale.

Under the terms of the agreement, the Company received an upfront payment of $ 3.0 million.

In addition, the Company is eligible to receive up to $ 84.0 million of milestone payments upon achievement of certain regulatory and commercial sales milestones.

At the commencement of this collaboration, the Company identified performance obligations related to the delivery of the license for neffy in the defined territory and manufacturing of product for clinical studies and commercial supply.

The Company concluded that the license was distinct from potential supply obligation.

The supply provisions are effectively options granted to Pediatrix to purchase future goods and would only constitute a performance obligation if they contain a material right.

The Company determined the option to purchase the clinical and commercial supply was not at a significantly discounted price and does not represent a material right, therefore does not constitute a performance obligation.

The Company determined the initial transaction price to be the $ 3.0 million.

Due to the uncertainty in the achievement of all the developmental and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur.

These estimates will be re-assessed at each reporting period.

The Company recognized revenue of the full $ 3.0 million during the year ended December 31, 2021.

A reconciliation of contract liability from collaboration agreements was as follows (in thousands):

Balance at December 31, 2021

Revenue recognized

Balance at December 31, 2022

Commitments and Contingencies

In September 2019, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank for working capital in the principal amount, as amended, of $ 10.0 million (the “Note”).

The Note required interest only payments through June 30, 2021 and had a maturity date of March 1, 2024.

In addition, there was a final payment (“Balloon Payment”) of $ 0.3 million at maturity.

In connection with the Note, the lender received warrants to purchase 38,460 shares of Series C convertible preferred stock at $ 2.60 per share.

The warrants were immediately exercisable and will expire on September 30, 2029.

The estimated fair value of the warrants at issuance was $ 86,000 which was recorded as a debt discount.

In addition, the Company recorded debt issuance costs totaling $ 47,000 .

The debt discount, debt issuance costs and Balloon Payment were amortized to interest expense using the effective interest rate method over the loan term.

The Company recognized interest expense of $ 0.6 million and $ 0.8 million for the years ended December 31, 2022 and 2021 , respectively, and debt discount amortization of $ 0.3 million and $ 0.2 million for the years ended December 31, 2022 and 2021, respectively.

On November 7, 2022, the Company paid off the remaining balance of $ 5.4 million on its loans with Silicon Valley Bank, including all principal and interest and the Balloon Payment.

The warrants issued to Silicon Valley Bank in connection with the loans continue to be outstanding.

In October 2021, the Company entered into a 38 -month noncancelable lease for its current headquarters location consisting of 4,047 rentable square feet of office space in San Diego, California.

Under the terms of the agreement, there is no option to extend the lease , and the Company is subject to additional charges for common area maintenance and other costs.

Monthly rental payments due under the lease commenced on December 6, 2021 and escalate through the lease term.

The Company prepaid the first month’s rent upon execution of the lease, and the lease agreement provided full rent abatement for the second and third months of the rental term.

As of December 31, 2022, the remaining lease term of the Company’s operating lease was 26 months, and the discount rate on the Company’s operating lease was 8 %.

As there was not an implicit rate within the lease, the discount rate was determined by using a set of peer companies incremental borrowing rates.

The Company's operating lease expense was $ 0.2 million and immaterial for the years ended December 31, 2022 and 2021 , respectively.

The Company's variable lease expense was $ 0.1 million and immaterial for the years ended December 31, 2022 and 2021 , respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 0.2 million and zero for the years ended December 31, 2022 and 2021, respectively.

Future minimum noncancelable operating lease payments are as follows (in thousands):

Year ended December 31,

Total lease payments

Less imputed interest

Lease liability

Less current portion of lease liability

Lease liability, net of current portion

Contingencies

From time to time, the Company may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.

On August 12, 2021, Amphastar Pharmaceuticals, Inc.

(“Amphastar”) filed a Petition for Inter Partes Review (“IPR”) with the United States Patent and Trademark Office (“USPTO”), seeking to invalidate claims 1-20 of United States Patent No.

10,682,414 (the “‘414 patent”).

The ‘414 patent issued on June 16, 2020 and is entitled “Intranasal Epinephrine Formulations and Methods for the Treatment of Disease.”

The claims of the ‘414 patent are directed to methods of treating a type-1 hypersensitivity reaction, including anaphylaxis, using an aqueous nasal spray pharmaceutical formulation containing epinephrine or a salt thereof, including the Company’s neffy product candidate, in a single dose.

On February 9, 2023, the USPTO issued a Final Written Decision finding claims 3-6 and 18-20, which encompass the Company’s neffy product candidate, patentable, and claims 1-2 and 7-17 unpatentable.

Both the Company and Amphastar have the right to file a motion for reconsideration with the USPTO in addition to a notice of appeal with the United States Court of Appeals for the Federal Circuit.

Although the results of any motion for reconsideration or notice of appeal are inherently unpredictable and uncertain, and could result in either the USPTO or the Federal Circuit finding some or all of claims 1-20 of the ‘414 patent to be invalid or unenforceable, the Company does not believe that an adverse outcome will have a material adverse effect on its business, operating results, cash flows or financial condition.

On November 5, 2021, a securities class action complaint was filed against Silverback and certain of Silverback’s former officers and directors in the U.S.

District for the Western District of Washington, captioned Dresner v.

Silverback Therapeutics, Inc., et al., Case No.

2:21-cv-01499 (the “Dresner Case”).

The court has appointed lead plaintiff and lead plaintiff's counsel, and plaintiff's counsel then filed the amended complaint on April 11, 2022.

The amended complaint alleges that between December 3, 2020 and March 31, 2022, Silverback and certain of its officers and directors violated (1) Sections 11 and 15 of the Securities Act of 1933, as amended;

and (2) Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Securities and Exchange Commission (“SEC”) Rule 10b-5 promulgated thereunder, by making allegedly false and misleading statements in various SEC filings and press releases regarding the clinical and commercial prospects of its product candidate, SBT6050, which is now discontinued.

The complaint seeks unspecified damages and interest, as well as attorneys’

fees and other costs.

Silverback and the other defendants filed a motion to dismiss on May 26, 2022 and lead plaintiff filed an opposition brief on July 11, 2022.

On August 10, 2022, Silverback and the other defendants filed a reply brief.

The court held a hearing on October 28, 2022 and issued an order granting defendants’

motion to dismiss without prejudice on November 4, 2022.

Plaintiffs were given leave to amend and filed a Second Amended Complaint (“SAC”) on December 5, 2022, which asserted Section 11 claims only with respect to Silverback’s December 3, 2020 IPO and Section 10(b) claims during a shorter class period of March 29, 2021 through March 31, 2022.

Defendants filed a motion to dismiss the SAC on January 2, 2023.

Lead plaintiff filed an opposition brief on January 23, 2023, and defendants filed a reply brief January 27, 2023.

The court is expected to issue a ruling on the motion to dismiss in the first half of 2023.

Regardless of the outcome, involvement in legal proceedings may have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

The Company cannot predict the outcome of these suits, and failure by the Company to obtain favorable resolutions could have a material adverse effect on its business, results of operations, and financial condition.

The Company’s chances of success on the merits of either of these suits are still uncertain and any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of December 31, 2022.

Except as described above, the Company is not currently involved in any legal proceeding that it believes could have a materially adverse effect on its financial condition or results of operations.

Except as described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or other body pending or, to the knowledge of the Company’s executive officers, threatened against or affecting the Company, the Company’s common stock, any of its subsidiaries or its subsidiaries’

officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

In-Licensing and Supply

License Agreement with Aegis

In June 2018, the Company entered into a License Agreement (the “Aegis Agreement”) with Aegis Therapeutics, LLC (“Aegis”).

Under the Aegis Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable, rights to certain proprietary Aegis technology, patent rights and know-how to develop and commercialize epinephrine products.

The Company utilizes this technology for the development of its lead product candidate, neffy .

As consideration for the license, the Company paid an upfront license fee of $ 50,000 , which was recorded in research and development expenses in the consolidated statement of operations.

The Company is required to make aggregate milestone payments of up to $ 20.0 million upon achievement of certain regulatory and commercial milestones.

The regulatory milestone payments under the Aegis Agreement will be recognized as research and development expense upon completion of the required events, as the triggering events are not considered to be probable until they are achieved.

The Company made a $ 0.5 million milestone payment to Aegis upon the achievement of a regulatory milestone during 2019, and a $ 1.0 million payment to Aegis upon the FDA’s acceptance of the Company’s New Drug Application (“NDA”) submission for neffy, which occurred in the third quarter of 2022.

The Company may be required to pay royalties based on annual net product sales in the low to mid-single digits on its or its sublicensees’

net sales of the Licensed Products (as defined in the Aegis Agreement) on a country-by-country and product-by-product basis.

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

There were no expenses recognized in connection with legal patent fees for the years ended December 31, 2022 and 2021.

The Company may terminate the Aegis Agreement with 30 days written notice or either party may terminate the Aegis Agreement for certain breaches of the Aegis Agreement.

Unless terminated earlier by either or both parties, the term of the Aegis Agreement will continue until the final expiration of all royalty obligations under the Aegis Agreement.

In conjunction with the Aegis Agreement, the Company also entered into a Supply Agreement (the “Supply Agreement”) with Aegis that allows the Company to purchase materials for preclinical, development and commercial use at predetermined prices.

The Company may elect to have Aegis supply minimum quantities but there are no minimum or maximum purchase obligations under the Supply Agreement unless this election is made.

The parties may terminate the Supply Agreement at any time by mutual agreement.

In addition, the parties may terminate the Supply Agreement in the event of certain breaches of the Supply Agreement or upon the earlier of the expiration or termination of the Aegis Agreement or June 2028.

The Supply Agreement term may be extended by mutual written agreement.

Expense recognized under the Supply Agreement was $ 1.0 million and $ 0.2 million for the years ended December 31, 2022 and 2021, respectively.

Manufacturing Agreement with Renaissance

In September 2020, the Company entered into a manufacturing agreement (the “Renaissance Agreement”) with Renaissance Lakewood, LLC (“Renaissance”).

Pursuant to the Renaissance Agreement, Renaissance agreed to manufacture for, and provide to the Company, neffy nasal unit dose sprays (“Renaissance Products”).

The Company is obligated to provide Renaissance with certain supplies to manufacture the Renaissance Products and to purchase from Renaissance a mid double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the E.U., and a high double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the U.S.

The Renaissance Agreement contains conventional commercial pharmaceutical manufacturing provisions including certain minimum purchase amounts to be determined in the future based on forecast needs and minimum batch size projections.

The Company may also request Renaissance to perform certain services related to the Renaissance Product, for which the Company will pay reasonable compensation to Renaissance.

The initial term of the Renaissance Agreement commenced on September 9, 2020 and continues (a) for Renaissance Product designated for commercial sale in the U.S.

until the earlier of the fifth anniversary of the (i) target U.S.

launch date and (ii) the initial U.S.

launch date (“U.S.

Initial Term”), and (b) for Renaissance Product designated for commercial sale in the E.U.

and other countries, the earlier of the fifth anniversary of (i) the target E.U.

launch date and (ii) the initial E.U.

launch date (“E.U.

Initial Term”), in each case unless earlier terminated by one of the parties.

Initial Term and E.U.

Initial Term automatically renew for successive two-year terms (“Renewal Term”).

Either party may elect not to renew the U.S.

Renewal Term and/or the E.U.

Renewal Term by providing the requisite prior notice to the other party.

Either party may terminate the Renaissance Agreement (1) for uncured material breach of the other party, (2) upon notice for insolvency-related events of the other party that are not discharged within a defined time period, (3) on a product-by-product basis if the manufacture, distribution or sale would materially contravene any applicable law, (4) by providing the requisite notice if (a) the Company has not submitted a regulatory filing for any Renaissance Product in the U.S.

on or before June 30, 2022, (b) the authorization and approval to distribute or sell Renaissance Product in the U.S.

is not granted on or before the target U.S.

launch date, (c) the authorization and approval representing more than a targeted number of units of Renaissance Product sold in the U.S.

during the last calendar year is withdrawn by the FDA, or (d) the Company decided in its sole discretion to cease commercializing the Renaissance Product in the U.S., (5) in the case of a force majeure event that continues for six months or more, or (6) a violation by the other party of trade control or anti-corruption laws.

Expense recognized under the Renaissance Agreement was $ 2.0 million and $ 3.1 million for the years ended December 31, 2022 and 2021 , respectively.

Convertible Preferred Stock and Common Stock and Stockholders’

Equity (Deficit)

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The Company’s current Amended and Restated Certificate of Incorporation authorizes 200,000,000 shares of common stock, par value $ 0.0001 per share, and 10,000,000 shares of preferred stock, par value $ 0.0001 per share.

Redeemable Convertible Preferred Stock

Prior to its conversion to common stock in December 2020, the Company’s redeemable convertible preferred stock was classified as mezzanine equity on the Company’s balance sheets as the shares are contingently redeemable upon a deemed liquidation such as a change in control and in that event, there is no guarantee that all stockholders would be entitled to receive the same form of consideration.

No accretion to redemption value was recorded during the year ended December 31, 2020 as a deemed liquidation event was not considered probable.

During the year ended December 31, 2020, the Company issued convertible preferred stock as follows:

In March 2020, the Company issued 14,701,054 shares of its Series B redeemable convertible preferred stock, including 4,673,388 shares issued upon conversion of then outstanding convertible notes and accrued interest, and 10,027,666 shares issued for cash at a purchase price of $ 2.16 per share, resulting in gross proceeds of $ 21.5 million.

The Series B purchase agreement provided that the Company would issue, and the Series B holders would purchase, an additional 21,732,862 shares of the Company’s Series B redeemable convertible preferred stock across two tranches for aggregate proceeds of $ 46.9 million in the event that certain agreed upon milestones were achieved or the preferred majority approved their closing.

The Series B tranches did not meet the definition of freestanding instruments or the definition of derivatives, therefore, they were not accounted for separately or bifurcated.

On July 1, 2020, the Company issued 10,669,834 shares of its Series B redeemable convertible preferred stock for cash at a purchase price of $ 2.16 per share, resulting in gross proceeds of $ 23.0 million.

In September 2020, the Company issued 11,063,028 additional shares of its Series B redeemable convertible preferred stock for cash at a purchase price of $ 2.16 per share, resulting in gross proceeds of $ 23.9 million, and 24,926,685 shares of its Series C redeemable convertible preferred stock for cash at a purchase price of $ 3.41 per share, resulting in gross proceeds of $ 84.9 million.

The Series C purchase agreement did not contain any embedded features that meet the definition of freestanding instruments or the definition of derivatives, therefore, they were not accounted for separately or bifurcated.

The Company has reserved shares of common stock for the following potential future issuances:

Shares underlying outstanding equity awards

Shares available for future equity award grants

Shares underlying early exercised equity awards

Shares underlying ESPP withholdings

Convertible Preferred Stock

In April 2016, the ARS Pharma issued 3,600,000 shares of Series A convertible preferred stock at $ 0.0833 per share for net cash proceeds of $ 0.3 million.

Subsequently, in July 2017, an additional 1,164,000 shares of Series A convertible preferred stock were issued at $ 0.0833 per share for net cash proceeds of $ 0.1 million.

In March, June and July 2018, ARS Pharma issued a total of 606,060 shares of Series B convertible preferred stock at $ 1.65 per share for net cash proceeds of $ 1.0 million.

In September and December 2018, ARS Pharma issued 7,692,309 shares of Series C convertible preferred stock at $ 2.60 per share for net cash proceeds of $ 19.8 million.

In August 2021, ARS Pharma issued 9,337,066 shares of Series D convertible preferred stock at $ 5.89 per share for net cash proceeds of $ 54.8 million.

Collectively, the Series A, B, C and D convertible preferred stock issuances will be referred to as “Series Convertible Preferred Stock.”

On November 8, 2022, ARS Pharma completed the Merger with Silverback in accordance with the Merger Agreement.

Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, 22,399,435 shares of ARS Pharma’s preferred stock were converted into 26,473,899 shares of ARS Pharma’s common stock.

Upon completion of the Merger on November 8, 2022, as the accounting acquirer, ARS Pharma is deemed to have issued 36,535,541 shares of its common stock to Silverback stockholders.

Common stock reserved for future issuance consisted of the following:

Common stock options granted and outstanding

Common stock reserved for future awards or option grants

Stock-Based Compensation

Stock-based compensation expense recognized for all equity awards has been reported in the statements of operations and comprehensive loss as follows (in thousands):

Stock-based compensation expense recognized for all equity awards has been reported in the consolidated statements of operations and comprehensive loss as follows (in thousands):

Years Ended December 31,

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As of December 31, 2022 , the total unrecognized stock-based compensation expense was $ 4.6 million, which is expected to be recognized over a remaining weighted-average period of approximately 2.48 years.

Stock Option Awards

As of December 31, 2021 , the Company’s equity incentive plans authorized a total of 9,564,798 shares, of which 2,931,012 shares are available for future grant, and 6,370,873 shares are outstanding.

Not included in the outstanding option balance are 26,283 shares pursuant to stock options that were early exercised and subject to repurchase that remain unvested as of December 31, 2021.

Stock options granted under the Company’s equity incentive plans expire no later than 10 years from the date of grant and generally vest over a four year period, with vesting either occurring at a rate of 25 % at the end of the first and thereafter in 36 equal monthly installments or on a monthly basis.

For the year ended December 31, 2022, ARS Pharma recognized $ 1.3 million in stock-based compensation expense for 236,380 performance-based option s that vested upon the closing of the Merger.

For the year ended December 31, 2021, no performance-based stock-based compensation was recognized.

In connection with the Merger, the Company repl aced (only for accounting purposes) 6,599,068 stock options and 493,456 restricted stock units held by Silverback employees and directors.

The replacement awards were revalued at their acquisition-date fair value and then attributed to pre and post-combination service.

This resulted in $ 3.1 million in expense attributed to post-combination service to be recognized as compensation cost by the Company, of which $ 3.0 million has been recognized in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2022.

482,805 replaced restricted stock units vested in connection with the Merger and the remaining 10,651 are outstanding as of December 31, 2022.

Equity Incentive Plans

In September 2018, ARS Pharma adopted the 2018 Equity Incentive Plan.

As a result of the Merger, on November 8, 2022 ARS Pharma, as the accounting acquirer, is deemed to have assumed Silverback's 2016 and 2020 Equity Incentive Plans, and Employee Stock Purchase Plan (“ESPP”).

For the year ended December 31, 2022 , ESPP activity is not material to the consolidated financial statements .

As of December 31, 2022 , the 2016 and 2020 Equity Incentive Plans authorized a total of 11,321,495 shares, of which 3,079,688 shares are available for future grant, and 6,439,311 shares are outstanding.

As of December 31, 2022 , the 2018 Equity Incentive Plan authorized a total of 6,634,333 shares, of which 294,113 shares are available for future grant, and 5,634,900 shares are outstanding.

The Company does not intend to grant future stock options or other equity awards under the 2018 Equity Incentive Plan.

Stock Options

Stock options granted under the Company’s equity incentive plans expire no later than 10 years from the date of grant and generally vest over a four-year period, with vesting either occurring at a rate of 25 % at the end of the first year and thereafter in 36 equal monthly installments or on a monthly basis.

In the case of awards granted to our non-employee board members, vesting generally occurs on a monthly basis over three years or in full on an annual basis.

The Company issues new shares of common stock upon the exercise of stock options.

A summary of the Company’s stock option activity for the year ended December 31, 2021 is as follows (in thousands, except share and per share data and years):

Stock Options Outstanding

Balance at December 31, 2020

Balance at December 31, 2021

Vested at December 31, 2021

A summary of the Company’s stock option activity for the year ended December 31, 2022 is as follows:

Value (in thousands)

Outstanding at December 31, 2021

Assumed in the Merger

Outstanding at December 31, 2022

Vested and expected to vest at December 31, 2022

Exercisable at December 31, 2022

The exercisable shares subject to options outstanding at December 31, 2022 in the table above include vested and early exercisable awards.

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company’s common stock for all options that were in-the-money at December 31, 2022.

2 unchanged sentences

The total fair value of shares vested during the years ended December 31, 2022 and 2021 was $ 2.7 million and $ 0.4 million, respectively.

The grant date fair value of stock options was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:

The fair value of stock options granted or assumed in connection with the Merger was estimated using a Black-Scholes option-pricing model ( “Black-Scholes”) with the following weighted-average assumptions:

Years Ended December 31,

November 8, 2022

Expected term (in years)

2 unchanged sentences

Expected dividend yield

The fair value of stock options was determined using the Black-Scholes option-pricing model and the assumptions below.

The fair value of stock options was determined using the Black-Scholes assumptions below.

Each of these inputs is subjective and generally requires significant judgement.

Fair Value of Common Stock .

Prior to the Company's initial public offering in 2020, the grant date fair market value of the shares of common stock underlying stock options was determined by the Company’s board of directors.

Following the closing of the Company’s IPO, the fair market value of the Company's common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded.

Prior to the Company’s IPO, because there was no public market for the Company’s common stock, the board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included contemporaneous valuations performed by an independent third-party, the Company’s results of operations and financial position, including its levels of available capital resources, its stage of development and material risks related to the Company’s business, progress of the Company’s research and development activities, the Company’s business conditions and projections, the lack of marketability of the Company’s common stock and preferred stock as a private company, the prices at which the Company sold shares of its redeemable convertible preferred stock to outside investors in arms-length transactions, the rights, preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock, the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry, the likelihood of achieving a liquidity event for the Company’s securityholders, such as an IPO or a sale of the company, given prevailing market conditions, the hiring of key personnel and the experience of management, trends and developments in the Company’s industry and external market conditions affecting the life sciences and biotechnology industry sectors.

Prior to the Merger on November 8, 2022, grant date fair market value of the shares of common stock underlying stock options was determined by ARS Pharma’s Board of Directors.

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

Prior to the Merger, there was no public market for the ARS Pharma’s common stock, therefore the ARS Pharma Board of Directors determined the fair value of common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of the ARS Pharma common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors.

Expected Term .

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Therefore, the Company uses an expected dividend yield of zero .

Employee Stock Purchase Plan

In November 2020, the Company’s board of directors and stockholders approved and adopted the 2020 ESPP.

The ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to 15 % of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP.

The price of common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant date of purchase.

As of December 31, 2021, a total of 698,015 shares were reserved under the ESPP, of which 627,185 shares are available for future issuance and 70,830 shares have been issued.

The weighted average per share fair value rights granted during the year ended December 31, 2021 was $ 15.95 .

In determining the grant date fair value of shares to be issued under the ESPP, the Company uses the Black-Scholes option pricing model.

The Black-Scholes inputs are determined in the same manner as for stock option awards.

The weighted average inputs used for the ESPP for the year ended December 31, 2021, were as follows:

Years Ended December 31,

Expected term (in years)

Expected volatility

Risk-free interest rate

Expected dividend yield

The Company’s effective tax rates for the years ended December 31, 2021 and 2020 differ from the U.S.

federal statutory rate as follows (in thousands):

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows (in thousands):

Years Ended December 31,

Tax at the federal statutory rate

Benefit from R&D tax credits

Stock-based compensation

Non-deductible executive compensation

Other temporary and permanent differences

Change in valuation allowance

Total provision for income taxes

The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

Tax computed at federal statutory rate

State income taxes, net of federal benefit

Equity compensation

Research and development credits

Valuation allowance

Provision for income taxes

Significant components of the Company’s net deferred tax assets were as follows (in thousands):

Years Ended December 31,

Deferred tax assets:

Net operating loss carryforward

Lease liability

R&D tax credit carryforward

Share-based compensation

Other deferred tax assets

Net operating losses

Research and development credits

Intangible assets

Equity compensation

Contract liability

Total deferred tax assets

Deferred tax liabilities - Right of use asset

Deferred tax liabilities:

Total deferred liabilities

Gross deferred tax assets

Valuation allowance

Net deferred tax assets

At December 31, 2021, the Company 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.

At December 31, 2021, the Company also had research and development tax credits of approximately $ 2.7 million which will begin to expire in 2037 if left unused.

The Company did not have any foreign tax provision and did not generate material net operating losses in any states with an income tax.

FASB ASC 740 requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses the realization is “more likely than not.”

Realization of the future tax benefits from the net operating losses or credit carryforwards, if any, is dependent on the Company’s ability to generate sufficient taxable income within the applicable carryforward period.

Because of the Company’s recent history of operating losses, the Company maintains a full valuation allowance in the amount of $ 39.0 million and $ 20.9 million for the years ended December 31, 2021 and 2020, respectively.

The Company may have already experienced one or more ownership changes.

Depending on the timing of any future utilization of its carryforwards, the Company may be limited as to the amount that can be utilized each year as a result of such previous ownership changes.

However, the Company does not believe such limitations will cause its carryforwards to expire unutilized.

Future changes in the Company’s stock ownership as well as other changes that may be outside the Company’s control could potentially result in further limitations on the Company’s ability to utilize its net operating loss and tax credit carryforwards.

As of December 31, 2021 and 2020, the Company did no t have any liabilities for unrecognized income tax benefits associated with uncertain tax positions, including any interest and penalties.

Licensing Agreement

Cell Line License Agreement with WuXi Biologics (Hong Kong) Limited

In October 2019, the Company entered into a cell line license agreement with WuXi Biologics (Hong Kong) Limited (“WuXi Bio”).

Under the license agreement, WuXi Bio granted the Company a non-exclusive, worldwide, sublicensable, under certain of WuXi Bio’s intellectual property rights, know-how and biological materials (“WuXi Bio Licensed Technology”), to make, use, sell, offer for sale and import a product developed through the use of the WuXi Bio Licensed Technology (“WuXi Bio Licensed Product”).

The WuXi Bio Licensed Technology is currently used to manufacture a component of the Company’s ImmunoTAC platform.

The Company has paid an aggregate of $ 150,000 in license fees that were recorded in research and development expense when incurred.

In the event the Company manufactures its commercial supplies of a product produced by the Licensed Cell Line using a manufacturer other than WuXi Bio or its affiliates, the Company will become obligated to pay WuXi Bio aggregate milestone payments, upon achievement of certain sales milestones, of up to $ 10.8 million.

The Company has the right to terminate the license by giving at least six months prior written notice to WuXi Bio and paying all amounts due to them through the termination date.

In the event the Company fails to pay all amounts due to WuXi Bio under the license agreement, and fails to pay the amounts within 30 days after receiving written notice of such failure, WuXi Bio may terminate the license with 45 days written notice to the Company.

In the event either party commits a material breach under the license and fails to cure the breach within 30 days after receiving written notice from the other party of such breach, either party may terminate the license immediately upon written notice to the other party.

Commitments and Contingencies

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities.

The Company accrues a liability for such matters when it is probable that future expenditures will be made and can be reasonably estimated.

Significant judgment is required to determine both probability and the estimated amount.

On November 5, 2021, a securities class action complaint was filed against the Company and certain of the Company's officers and directors in the U.S.

District for the Western District of Washington, captioned Dresner v.

Silverback Therapeutics, Inc., et al., Case No.

2:21-cv-01499.

The complaint alleges that between December 3, 2020 and September 10, 2021, the Company and certain of the Company's officers and directors violated (1) Sections 11 and 15 of the Securities Act of 1933, as amended;

and (2) Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Securities and Exchange Commission (“SEC”) Rule 10b-5 promulgated thereunder, by making allegedly false and misleading statements in various SEC filings and press releases regarding the clinical and commercial prospects of the Company’s product candidate, SBT6050, which is now discontinued.

The complaint seeks unspecified damages and interest, as well as attorneys’

fees and other costs.

The court recently appointed lead plaintiff and lead plaintiff's counsel.

The Company and the other defendants have not yet filed a response to the complaint, and do not anticipate doing so until after the filing of an amended complaint.

The Company cannot predict the outcome of this suit, and failure by the Company to obtain a favorable resolution could have a material adverse effect on its business, results of operations and financial condition.

The Company’s chances of success on the merits are still uncertain and any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of December 31, 2021.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.

Pursuant to such agreements, the Company may indemnify, hold harmless, and defend an indemnified party for losses suffered or incurred by the indemnified party.

Some of the provisions will limit losses to those arising from third party actions.

In some cases, the indemnification will continue after the termination of the agreement.

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions or related to any indemnification agreements.

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law.

The Company currently has directors’

and officers’

insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid.

The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

The global COVID-19 pandemic continues to rapidly evolve, and management continue to monitor the situation closely.

The extent of the impact of COVID-19 on the Company’s business, operations, planned preclinical studies and clinical trials, and manufacturing timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s CROs, third-party manufacturers, supply chains necessary for research and development and manufacturing, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel.

For example, the COVID-19 pandemic has caused the cost of obtaining animals for our preclinical studies to increase dramatically and, if the shortage continues, could also result in delays to our development timelines.

To the extent possible, management is conducting business as usual, with necessary or advisable modifications to employee travel and some of the Company’s non-lab based employees working remotely.

Management will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter Company operations, including those that may be required by federal, state or local authorities, or that management determines are in the best interests of the Company’s employees and other third parties with whom the Company does business.

At this point, the extent to which the COVID-19 pandemic may further affect the Company’s business, operations and clinical development timelines and plans, including the resulting impact on Company expenditures and capital needs, remains uncertain and is subject to change.

The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized.

The Company periodically evaluates the recoverability of the deferred assets.

At such time as it is determined that it is more likely than not that the deferred tax asset will be realized, the valuation allowance will be reduced.

The change in the valuation allowance for the year ended December 31, 2022 was an increase of $ 8.6 million.

At December 31, 2022, the Company had federal and state net operating loss carryforwards (“NOL”) of $ 38.9 million and $ 7.2 million, respectively.

Federal NOL carryforwards of $ 38.9 million, generated after 2017, may be carryforward indefinitely but can only be utilized to offset 80 % of future taxa ble income.

The state NOL carryforwards begin expiring in 2036.

State NOLs totaling $ 1.6 million may be carried forward indefinitely.

In addition, the Company also has federal and California research and development credit carryforwards totaling $ 3.4 million and $ 0.7 million, respectively.

The federal research and development credit carryforwards will begin to expire in 2035 unless previously utilized.

The California research credits do not expire.

The NOL and credit carryovers noted above do not include the pre-Merger amounts attributable to Silverback as noted in the IRC Section 382 disclosure in the paragraph below.

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the company's NOL and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

The Company has not completed an ownership change analysis pursuant to IRC Section 382.

If ownership changes have occurred or occurs in the future, the amount of remaining tax attribute carryforwards available to offset taxable income and income tax expense in future years may be restricted or eliminated.

If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance.

Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

Additionally, as part of the transaction with Silverback, certain deferred tax assets generated in the Silverback pre-Merger periods were acquired by the Company consisting of federal and state net operation loss carryovers, research tax credit carryovers, and other tax attributes.

These deferred tax assets will be subject to limitations on future use under IRC Section 382 and some of the attributes may expire unused.

The Company has not completed an analysis under IRC Section 382 to determine the amount of such tax attributes that will be available annually and how much, if any, of the tax attributes may expire unused.

As a result, the Company has not included any of these deferred tax assets in its components of deferred tax asset in the table above.

Once the analysis is complete, to the extent that such deferred tax assets are available for future utilization, such assets will be included in the deferred tax assets and will be fully offset by valuation allowance as of December 31, 2022.

The evaluation of uncertainty in a tax position is a two-step process.

The first step involves recognition.

The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position.

The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position.

If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements.

The second step is measurement.

A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.

The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2022 and 2021 (in thousands):

Years Ended December 31,

Unrecognized tax benefits - beginning

Gross increase –

current-period tax positions

Unrecognized tax benefits - ending

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets.

If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance.

The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company files income tax returns in the United States, various states within the United States, and Ireland.

Due to the Company’s losses incurred, the Company’s income tax returns for all jurisdictions are subject to examination by tax authorities from inception.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense.

As of December 31, 2022, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.

The Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.

The Company does not expect that there will be unrecognized tax benefits of a significant nature that will increase or decrease within 12 months of the reporting date.

Employee Benefit Plans

The Company maintains a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company’s U.S.

The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the IRS annual limits.

The Company did not match contributions made by employees through December 31, 2021.

The Company began matching 4 % of employee contributions in 2022.

Net Loss Per Share Attributable to Common Stockholders

The following outstanding shares of potentially dilutive securities were excluded from the computation of the diluted net loss per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive:

As of December 31,

Common stock options

Unvested common stock

ESPP withholdings

Total potentially dilutive shares

In June 2022, the Company adopted a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company’s U.S.

The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the Internal Revenue Service (the “IRS”) annual limits.

The Company matches up to 5 % of an employee’s contributions, subject to IRS limitations.

Expense associated with the Company’s matching contribution totaled $ 0.1 million for the year ended December 31, 2022 .

Related-Party Transactions

In September 2015, the Company entered into a consulting agreement, superseded in July 2022, for regulatory and development services with Pacific-Link Consulting, LLC, an entity owned by the President/Chief Executive Officer/director and the Chief Medical Officer of the Company.

The Company incurred consulting expense related to this agreement totaling $ 2.1 million and $ 1.1 million during the years ended December 31, 2022 and 2021, respectively.

In September 2018, the Company entered into a consulting agreement with Marlinspike Group, LLC (“Marlinspike Group”) to provide management, business consulting services and business development support.

In addition, Marlinspike Group provides the use of its facilities to the Company from time to time.

The managing member of Marlinspike Group is the Chair of the Board of Directors of the Company and one of its stockholders.

The Company incurred annual expenses related to this agreement totaling $ 0.2 million for both of the years ended December 31, 2022 and 2021.

In November 2018, the Company entered into a consulting agreement for commercial and marketing consulting services with Red Team Associates, LLC (“Red Team”), an entity controlled by the Executive Vice President of Commercial Strategy of the Company.

The Company incurred consulting expense related to this agreement totaling $ 0.2 million and $ 0.1 million during the years ended December 31, 2022 and 2021, respectively.

In April 2021, the Company entered into a consulting agreement, as amended in April 2022, with a member of the Board of Directors of the Company for general advice and assistance with the development of its current and future product candidates.

As compensation for the consulting services the Company granted the member of the Board of Directors 590,950 stock options that vest over a four-year period.

The Company incurred stock-based compensation expense related to this agreement totaling $ 0.1 million for both of the years ended December 31, 2022 and 2021.

Subsequent Events

Subsequent to December 31, 2021 through March 31, 2022, the Company’s board of directors approved the grant of options to purchase an aggregate of 1,815,926 shares of common stock at an exercise price of $ 4.85 per share.

The unrecognized stock-based compensation expense for these grants is approximately $ 5.9 million.

Additionally, the Company’s board of directors approved the grant of 266,744 restricted stock units.

The unrecognized stock-based compensation expense for these awards is approximately $ 1.3 million.

On March 28, 2022, the Company’s board of directors approved a corporate restructuring plan to discontinue the Company’s 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, the Company’s workforce will be reduced by 27 %, with substantially all of the reduction in personnel expected to be completed by July 15, 2022 .

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

The Company currently estimates that it 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.

Termination Agreement

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

Pursuant to the Termination Agreement, the Company will reacquire all of the Recordati Rights and has 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.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data