Vera Therapeutics, Inc. 10-Q

Item 1. Financial Statements VERA THERAPEUTICS, INC. Condensed Balance Sheets (unaudited) (in thousands, except share and per share amounts) June 30, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 91,625 $ 53,654 Restricted cash, current 50 50 Prepaid expenses and other current assets 4,201 557 Total current assets 95,876 54,261 Restricted cash, noncurrent 293 293 Non-marketable equity securities 1,478 — Total assets $ 97,647 $ 54,554 Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 1,723 $ 909 Restructuring liability, current 360 962 Accrued expenses and other current liabilities 1,688 535 Total current liabilities 3,771 2,406 Restructuring liability, noncurrent 1,435 1,634 Accrued and other noncurrent liabilities 286 286 Total liabilities 5,492 4,326 Commitments and contingencies (Note 12) Redeemable convertible preferred stock, $ 0.001 par value; 0 and 182,772,372 shares authorized, issued and outstanding as of June 30, 2021 and December 31, 2020 , respectively — 139,576 Stockholders’ equity (deficit) Preferred stock, $ 0.001 par value; 10,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of June 30, 2021 and December 31, 2020 — — Class A common stock, $ 0.001 par value; 500,000,000 and 273,986,920 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 20,968,376 and 355,296 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 21 — Class B non-voting common stock, $ 0.001 par value; 14,600,000 and 21,593,607 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 309,238 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively — — Additional paid-in capital 191,732 2,099 Accumulated deficit ( 99,598 ) ( 91,447 ) Total stockholders’ equity (deficit) 92,155 ( 89,348 ) Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) $ 97,647 $ 54,554 The accompanying notes are an integral part of these unaudited condensed financial statements. 1 Table of Contents VERA THERAPEUTICS, INC. Condensed Statements of Operations and Comprehensive Loss (unaudited) (in thousands, except share and per share amounts) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Operating expenses: Research and development $ 3,235 $ 1,954 $ 6,167 $ 3,393 General and administrative 2,614 1,219 4,398 2,251 Total operating expenses 5,849 3,173 10,565 5,644 Loss from operations ( 5,849 ) ( 3,173 ) ( 10,565 ) ( 5,644 ) Other income (expense): Interest income 2 — 4 6 Interest expense — ( 63 ) — ( 87 ) Gain on issuance of convertible notes — 1 — 63 Change in fair value of convertible notes — ( 369 ) — ( 416 ) Change in fair value of non-marketable equity securities ( 281 ) — ( 281 ) — Gain on sale of PNAi technology 2,691 — 2,691 — Total other income (expense) 2,412 ( 431 ) 2,414 ( 434 ) Net loss and comprehensive loss $ ( 3,437 ) $ ( 3,604 ) $ ( 8,151 ) $ ( 6,078 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.33 ) $ ( 11.10 ) $ ( 1.49 ) $ ( 18.92 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 10,499,937 324,720 5,470,609 321,207 The accompanying notes are an integral part of these unaudited condensed financial statements. 2 Table of Contents VERA THERAPEUTICS, INC. Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share amounts) Redeemable Convertible Preferred Stock Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Balance as of December 31, 2020 182,772,372 $ 139,576 355,296 $ — — $ — $ 2,099 $ ( 91,447 ) $ ( 89,348 ) Issuance of Class A common stock upon exercise of options — — 113,683 — — — 342 — 342 Stock-based compensation — — — — — — 404 — 404 Net loss — — — — — — — ( 4,714 ) ( 4,714 ) Balances as of March 31, 2021 182,772,372 139,576 468,979 — — — 2,845 ( 96,161 ) ( 93,316 ) Class A common stock issued pursuant to initial public offering, net of issuance costs 5,002,500 5 — — 48,406 — 48,411 Conversion of preferred stock into common stock ( 182,772,372 ) ( 139,576 ) 15,464,775 16 309,238 — 139,560 — 139,576 Issuance of Class A common stock upon exercise of options — — 32,122 — — — 208 — 208 Stock-based compensation — — — — — — 713 — 713 Net loss — — — — — — — ( 3,437 ) ( 3,437 ) Balances as of June 30, 2021 — $ — 20,968,376 $ 21 309,238 $ — $ 191,732 $ ( 99,598 ) $ 92,155 The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Table of Contents VERA THERAPEUTICS, INC. Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Balance as of December 31, 20 19 14,015,773 $ 40,095 322,007 $ — $ 1,486 $ ( 38,034 ) $ ( 36,548 ) Issuance of common stock upon exercise of options — — 2,491 — 15 — 15 Stock-based compensation — — — 61 — 61 Net loss — — — — — ( 2,474 ) ( 2,474 ) Balances as of March 31, 2020 14,015,773 40,095 324,498 — 1,562 ( 40,508 ) ( 38,946 ) Issuance of common stock upon exercise of options — — 1,382 — 7 — 7 Stock-based compensation — — — 72 — 72 Net loss — — — — — ( 3,604 ) ( 3,604 ) Balance as of June 30, 2020 14,015,773 $ 40,095 325,880 $ — $ 1,641 $ ( 44,112 ) $ ( 42,471 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Table of Contents VERA THERAPEUTICS, INC. Condensed Statements of Cash Flows (unaudited) (in thousands) Six Months Ended June 30, 2021 2020 Cash flows from operating activities Net loss $ ( 8,151 ) $ ( 6,078 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation, amortization and accretion 85 220 Stock-based compensation 1,117 72 Restructuring payments ( 750 ) ( 58 ) Non-cash interest expense on convertible notes — 69 Issuance costs for convertible notes — 23 Gain on issuance of convertible notes — ( 63 ) Gain on sale of PNAi technology ( 2,691 ) — Change in fair value of convertible notes — 416 Change in fair value of non-marketable equity securities 281 — Changes in operating assets and liabilities: Prepaid expense and other current assets ( 3,644 ) ( 148 ) Accounts payable 814 386 Accrued and other current liabilities 1,153 173 Other liabilities — 8 Net cash used in operating activities ( 11,786 ) ( 4,980 ) Cash flows from investing activities Proceeds from sale of PNAi technology 796 — Purchase of property and equipment — ( 99 ) Net cash provided by (used in) investing activities 796 ( 99 ) Cash flows from financing activities Proceeds from exercise of stock options 550 84 Proceeds from issuance of convertible notes — 5,602 Proceeds from issuance of Class A common stock upon initial public offering, net of underwriting discounts and commissions 51,176 — Payment of offering costs related to initial public offering ( 2,765 ) — Payment issuance costs related to convertible promissory notes — ( 23 ) Payment on capital lease obligations — ( 80 ) Net cash provided by financing activities 48,961 5,583 Net increase in cash and cash equivalents and restricted cash 37,971 504 Cash, cash equivalents and restricted cash, beginning of period 53,997 3,558 Cash, cash equivalents and restricted cash, end of period $ 91,968 $ 4,062 Reconciliation of cash and cash equivalents and restricted cash to the balance sheets Cash and cash equivalents $ 91,625 $ 3,699 Restricted cash 343 363 Total cash and cash equivalents and restricted cash $ 91,968 $ 4,062 Supplemental disclosure of cash flow information Cash paid for interest $ — $ 18 Reclassification of redeemable convertible preferred stock in to common stock upon initial public offering $ 139,576 $ — Non-marketable equity securities received as partial proceeds from sale of PNAi technology $ 1,759 $ — Lease assignment $ 136 $ — The accompanying notes are an integral part of these unaudited condensed financial statements. 5 Table of Contents VERA THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements (Amounts in thousands, except share and per share data) 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS Description of Business Vera Therapeutics, Inc., (the “Company”) is a clinical stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. The Company is headquartered in South San Francisco, California and was incorporated in May 2016 in Delaware. In 2017, the Company acquired all of the outstanding shares of PNA Innovations, Inc. (“PNAi”), which was based in Woburn, Massachusetts . Reverse Stock Split On May 7, 2021, the Company filed a certificate of amendment to its fourth amended and restated certificate of incorporation to effect a 11.5869 -for-one reverse stock split of its issued and outstanding Class A common stock. Adjustments corresponding to the reverse stock split were made to the ratio at which the Company’s redeemable convertible preferred stock converted into Class A common stock. Accordingly, all share and per share amounts related to Class A common stock, stock options and restricted stock awards for all periods presented in the accompanying unaudited condensed financial statements and notes thereto have been retroactively adjusted, where applicable to reflect the reverse stock split. Initial Public Offering On May 13, 2021, the Company’s registration statement on Form S-1 for its initial public offering (the “IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”), and the shares of its Class A common stock commenced trading on the Nasdaq Global Select Market on May 14, 2021. The IPO closed on May 18, 2021, pursuant to which the Company issued and sold 4,350,000 shares of its Class A common stock at a public offering price of $ 11.00 per share. On May 20, 2021, the Company issued 652,500 shares of its Class A common stock to the underwriters of the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received total net proceeds of $ 48,411 from the IPO, after deducting underwriting discounts and commissions of $ 3,852 , and offering costs of $ 2,765 . Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 15,464,775 shares of Class A common stock and 309,238 shares of Class B common stock. Liquidity Since inception, the Company has been primarily performing research and development activities, establishing and maintaining its intellectual property, hiring personnel and raising capital to support and expand these operations. The Company has incurred recurring net operating losses since its inception and had an accumulated deficit of $ 99,598 as of June 30, 2021. The Company had cash and cash equivalents of $ 91,625 as of June 30, 2021, and has not generated positive cash flow from operations. The Company has funded its operations primarily through the issuance of common stock, redeemable convertible preferred stock and convertible notes. Management believes that the Company’s cash and cash equivalents as of June 30, 2021, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these unaudited condensed financial statements. While the Company believes that its current cash and cash equivalents are adequate to meet its needs for the next 12 months, the Company will need to raise additional capital in order to achieve its longer-term business objectives. 6 Table of Contents 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. The U.S. dollar is the Company’s functional and reporting currency. Unaudited Interim Condensed Financial Statements The accompanying condensed balance sheet as of June 30, 2021, and condensed statements of operations and comprehensive loss, condensed statements of cash flows, and condensed statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended June 30, 2021 and 2020, are unaudited. The balance sheet as of December 31, 2020, was derived from the audited financial statements as of and for the year ended December 31, 2020. The unaudited condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2020 and in the opinion of management, reflect all adjustments consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2021, and the condensed results of its operations and its cash flows for the three and six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020, are also unaudited. The condensed results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2021, or any other period. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2020, included in the Company’s final prospectus dated May 13, 2021, for the IPO filed with the SEC on May 17, 2021, pursuant to Rule 424(b)(4) relating to the Company’s Registration Statement on Form S-1, as amended (File No. 333-255492). 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 (1) is no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited condensed financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Use of Estimates The preparation of the Company’s unaudited condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Management estimates that affect the reported amounts of assets and liabilities include useful lives of fixed and intangible assets, the accrual of research and development expenses, restructuring liabilities, fair value of common stock and stock-based compensation expense, and the valuation allowance for deferred tax assets. The Company evaluates and adjusts its estimates and assumptions on an ongoing basis using historical experience and other factors. Actual results could differ materially from those estimates. Deferred Offering Costs Deferred offering costs consisting of legal, accounting and filing fees relating to the IPO are capitalized. The deferred offering costs were offset against the Company’s IPO proceeds upon the closing of the IPO. Concentrations of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in a federally insured financial institution and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash and cash equivalents to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash and cash equivalents. 7 Table of Contents The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current and potential future product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers. The Company’s product candidates require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed, or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company . Impact of the COVID-19 Pandemic The COVID-19 pandemic continues to evolve. The extent of the impact of the COVID-19 pandemic on the Company’s business, operations, and development 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 development activities, planned clinical trial enrollment, future trial sites, contract research organizations, third-party manufacturers, 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. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with the Company’s employees working remotely. The Company will continue to actively monitor the evolving situation related to the COVID-19 pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business. At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds and are stated at fair value. Restricted Cash Restricted cash represents cash held by a financial institution as collateral for a letter of credit securing its operating lease for office and laboratory space and as collateral for a credit card, which are classified within current and non-current assets on the condensed balance sheets. Comprehensive Loss Comprehensive loss consists of net loss and other gains and losses affecting redeemable convertible preferred stock and stockholders’ equity (deficit) that, under U.S. GAAP, are excluded from net loss. The Company has no items of other comprehensive loss for the three and six months ended June 30, 2021 and 2020. As such, net loss equals comprehensive loss. Research and Development Costs Research and development costs are expensed as incurred and consist primarily of employees’ salaries and related benefits, including stock-based compensation and termination expenses for employees engaged in research and development efforts, allocated overhead including rent, depreciation, information technology and utilities, contracted services, license fees, and external expenses to conduct and support the Company’s operations that are directly attributable to the Company’s research and development efforts. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered. 8 Table of Contents Costs incurred in obtaining technology licenses including upfront and milestone payments incurred under the Company’s licensing agreements are recorded as expense in the period in which they are incurred, provided that the licensed technology, method or process has no alternative future uses other than for the Company’s research and development activities . Research Contract Costs and Accruals The Company enters into various research and development and other agreements with commercial firms, researchers, and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. Redeemable Convertible Preferred Stock The Company records all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The carrying value of the Company’s redeemable convertible preferred stock is adjusted to reflect dividends if and when declared by the Company’s board of directors. No dividends have been declared by the board of directors since inception. The Company classifies its redeemable convertible preferred stock separate from total stockholders’ equity (deficit), as the redemption of such stock is not solely under the control of the Company. Stock-Based Compensation The Company recognizes compensation expense based on estimated fair values for all stock-based payment awards made to the Company’s employees, nonemployee directors and consultants that are expected to vest. The valuation of stock option awards is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the inputs used in the calculations, such as the fair value of the common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. The valuation of restricted stock awards is measured by the fair value of the Company’s common stock on the date of the grant. For all stock options granted, the Company calculated the expected term using the simplified method (derived from the average midpoint between the weighted average vesting period and the contractual term of the award) for “plain vanilla” stock option awards, as the Company has limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. The estimate of expected volatility is based on comparative companies’ volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records forfeitures when they occur. The fair value of the shares of common stock underlying the stock options has historically been determined by the board of directors with the assistance of management and input from an independent third-party valuation firm, as there was no public market for the common stock. The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors, including the valuation of comparable companies, sales of redeemable convertible preferred stock, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors. The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Income Taxes The Company did no t record an income tax provision for the three and six months ended June 30, 2021 and 2020 as net operating losses have been incurred since inception. The net deferred tax assets generated from net operating losses are fully offset by a valuation allowance. 9 Table of Contents Net Loss Per Share Attributable to Common Stockholders Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis. The Company’s participating securities include the Company’s redeemable convertible preferred stock, as the holders were entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of redeemable convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, did not and do not have a contractual obligation to share in losses of the Company, and therefore during periods of loss there is no allocation required under the two-class method. 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 during the period, adjusted for outstanding shares that are subject to repurchase. Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive shares are not assumed to have been issued if their effect is anti-dilutive. Leases The Company leases office and laboratory space under operating leases and laboratory equipment under capital leases. Leases for which the Company assumes substantially all risks and rewards incidental to ownership of the leased assets are classified as capital leases. The leased assets and the corresponding lease liabilities (net of interest charges) are recognized on the balance sheet as property and equipment, based on the cost of the equipment, and borrowings, respectively, at the inception of the related lease. Each lease payment is apportioned between the reduction of the outstanding lease liability and the related interest expense. The interest expense is recorded on a basis that reflects a constant periodic rate of interest on the outstanding finance lease liability. Leases for which substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentive received from the lessors) are recorded on a straight-line basis over the period of the lease. Restructuring Costs Restructuring costs primarily consist of contract termination costs related to leases and employee termination costs. The Company recognizes restructuring charges when the liability has been incurred. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations, cease use date of leased property and equipment, and the timing of employees leaving the Company. Accretion expenses related to restructuring costs are included in general and administrative expenses. Fair Value Option The convertible notes issued in 2020, for which the Company elected the fair value option, are accounted for at fair value on a recurring basis with changes in fair value recognized in the statement of operations and comprehensive loss. Interest accrued on the convertible notes is recorded to interest expense. Fair Value Measurements Fair value is defined as the exchange price to sell an asset or transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value should be based on the assumptions market participants would use when pricing the asset or liability. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. 10 Table of Contents Fair value measurements are classified and disclosed in one of the following three categories: Level 1 – Quoted unadjusted prices for identical instruments in active markets. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets. Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company . The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to their short-term nature. Money market funds are highly liquid investments that are actively traded. The pricing information for the Company’s money market funds are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. The Company’s non-marketable equity securities (Note 5) are measured at fair value using an option pricing valuation methodology. The option pricing methodology relies on risk-neutral valuation which calculates the value of an asset by discounting the expected value of its future payoffs at the risk-free rate of return. The fair value of the non-marketable equity securities is derived from quoted prices for similar instruments and observable inputs in active markets. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. There were no transfers between Levels 1, 2, or 3 for any of the periods presented. As of June 30, 2021, and December 31, 2020, the Company held $ 86,805 and $ 52,301 , respectively, in money market funds with no unrealized gains or losses. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on its unaudited condensed financial statements. On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). This includes allowing for the measurement of awards at the grant date and recognition of awards with performance conditions when those conditions are probable, both of which are earlier than under current guidance for nonemployee awards. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its unaudited condensed financial statements. In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which amends ASC 820, Fair Value Measurement. This standard modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its unaudited condensed financial statements. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , subsequently amended by ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01 and ASU 2019-10, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees of a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification on the balance sheets. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. The Company intends to utilize the modified retrospective approach to adopt this standard effective January 1, 2022. Additionally, the Company intends to utilize the package of available practical expedients, which allows it to (i) not reassess whether any expired or existing contracts are or contain leases; (ii) not reassess the lease classification for expired or existing leases; and (iii) not reassess the treatment of initial direct costs for any existing leases. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures. 11 Table of Contents 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. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity ’ s Own Equity (Subtopic 815-40) . This standard simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. ASU 2020-06 is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its financial statements. 3. OTHER FINANCIAL STATEMENT INFORMATION Prepaid Expense and Other Current Assets Prepaid expenses and other current assets consist of the following. June 30, 2021 December 31, 2020 Prepaid insurance $ 2,509 $ 27 Prepaid contract costs 1,132 — Deposits 85 86 Receivables on exercise of options — 52 Other 475 392 Total prepaid expenses and other current assets $ 4,201 $ 557 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following. June 30, 2021 December 31, 2020 Accrued payroll $ 558 $ 405 Related party payable 717 — Accrued expense and other 413 130 Total accrued expenses and other current liabilities $ 1,688 $ 535 Related party payable represents amounts due to Ares Trading S.A. (“Ares”), an affiliate of Merck KGaA, Darmstadt, Germany, related to manufacturing technology and know-how transfer services performed for atacicept pursuant to the license agreement between the Company and Ares (see Note 11). 4. NEUBASE ASSET SALE On January 27, 2021, the Company entered into an asset purchase agreement with NeuBase Therapeutics, Inc. (“NeuBase”), whereby the Company agreed to sell all assets relating to its investment in PNAi, including all inventory, machinery, intellectual property, goodwill, and licenses, and NeuBase agreed to assume certain related liabilities. The sale of the Company’s investment in PNAi closed on April 26, 2021. The Company received $ 796 in cash and 308,635 shares of NeuBase common stock, with a fair market value of $ 1,759 based on the closing price reported on the Nasdaq Capital Market on the date the sale closed. Of the total NeuBase shares issued to the Company, 162,260 were placed in escrow to secure certain obligations under the asset purchase agreement. In connection with the sale, the Company also assigned certain leases for research and laboratory equipment to NeuBase (see Note 13). The Company recognized a gain of $ 2,691 on the sale of assets to NeuBase. 12 Table of Contents 5. NON-MARKETABLE EQUITY SECURITIES The Company has an investment in NeuBase common stock with restrictions on the sale or transfer of the shares. Fair value is determined using alternative pricing sources and models utilizing market observable inputs. The Company reports the restricted equity securities as non-marketable equity securities on the balance sheet, and determines current or non-current classification based on the expected duration of the restriction. The Company recorded a net unrealized loss of $ 281 in other expense for the three months ended June 30, 2021. The carrying value is measured as the total initial cost, less the cumulative net unrealized loss . The carrying value of the non-marketable equity securities as of June 30, 2021, is summarized below. Initial cost as of April 26, 2021 $ 1,759 Change in fair value ( 281 ) Balance as of June 30, 2021 $ 1,478 6. CONVERTIBLE NOTES In March 2020, the Company issued convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $ 5,000 in the aggregate with a fixed accrued interest rate of 4 % per annum. The convertible notes were either due on or after December 31, 2020, or upon a change of control of the Company, unless earlier converted. No principal or interest was payable prior to maturity as the convertible notes and any accrued interest would automatically convert upon a qualified financing event at a conversion price equal to 85 % of the price per share of the qualified financing. Holders also had the option to convert their notes to shares of Series B redeemable convertible stock at a conversion price equal to $ 4.2926 per share on the maturity date or upon a change of control of the Company, if no qualified financing occurred prior to such date . Due to certain embedded features within the convertible notes, the Company elected to account for the convertible notes under the fair value option. In April and May 2020, the Company issued additional convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $ 602 in the aggregate with the same terms as the convertible notes issued in March 2020. In October 2020, the outstanding principal and accrued interest of $ 134 , were automatically converted into 11,404,246 shares of the Company’s Series C redeemable convertible preferred stock in connection with the closing of the Company’s Series C redeemable convertible preferred stock financing (see Note 7) at a conversion price of $ 0.5030 per share, which was 85 % of the $ 0.5918 original issuance price of the Series C redeemable convertible preferred stock. 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK As of December 31, 2020, the Company’s redeemable convertible preferred stock consisted of the following balances. ISSUE PRICE PER SHARE SHARES AUTHORIZED SHARES ISSUED AND OUTSTANDING CARRYING VALUE AGGREGATE LIQUIDATION PREFERENCE Series Seed $ 1.01 1,010,456 1,010,456 $ 1,789 $ 1,020 Series Seed-1 1.92 1,787,640 1,787,640 3,718 3,430 Series A 2.15 6,120,111 6,120,111 12,851 13,136 Series B 4.29 5,097,566 5,097,566 21,737 21,882 Series C 0.59 168,756,599 168,756,599 99,481 99,870 Total 182,772,372 182,772,372 $ 139,576 $ 139,338 13 Table of Contents In October 2020, the Company issued 135,180,800 shares of Series C redeemable convertible preferred stock for a purchase price of $ 0.5918 per share, payable in cash. Gross proceeds to the Company were $ 80,000 . The Series C redeemable convertible preferred stock financing triggered the automatic conversion of the Company’s outstanding convertible notes into 11,404,246 shares of Series C redeemable convertible preferred stock based on price of $ 0.5030 per share ( 85 % of the $ 0.5918 original issuance price of the Series C redeemable convertible preferred stock). In addition, the Company issued 22,171,553 shares of Series C redeemable convertible preferred stock to Ares as the initial payment for the Company’s license of atacicept from Ares (see Note 11). In May 2021, immediately prior to the completion of the IPO (see Note 1), all outstanding shares of redeemable convertible preferred stock were automatically converted into 15,774,014 shares of common stock. 8. COMMON STOCK As of June 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 500,000,000 shares of Class A common stock and 14,600,000 shares of Class B common stock, each with a par value of $ 0.001 per share. Each share of Class A common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Class B common stock is non-voting. The holders of Class A common stock, voting exclusively and as a separate class, have the exclusive right to vote for the election of one director of the Company. Class A common stockholders and holders of Class B common stock are entitled to receive dividends, as may be declared by the board of directors. Through June 30, 2021, no cash dividends have been declared or paid. 9. STOCK COMPENSATION In April 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”) and the 2021 Equity Incentive Plan (“2021 EIP”), each of which became effective in connection with the IPO. The Company has reserved 220,251 and 2,212,335 shares of Class A common stock for future issuance under the ESPP and 2021 EIP, respectively. The Company may not grant any additional awards under the 2017 Equity Incentive Plan (“2017 EIP”). The 2017 EIP will continue to govern outstanding equity awards granted thereunder. As of June 30, 2021, there were 1,762,009 shares available for issuance under the 2021 EIP. Stock option activity under the 2017 EIP and 2021 EIP was as follows: NUMBER OF OPTIONS WEIGHTED- AVERAGE EXERCISE PRICE PER SHARE WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) AGGREGATE INTRINSIC VALUE (000s) Balance – December 31, 2020 1,855,507 $ 2.99 9.79 $ 8 Granted 935,279 7.33 Exercised ( 145,805 ) 3.77 Cancelled and forfeited ( 1,654 ) 9.64 Balance – June 30, 2021 2,643,327 4.50 9.56 $ 499 Options exercisable – June 30, 2021 57,465 3.54 9.11 $ 22,758 Unvested and expected to vest –June 30, 2021 2,585,862 $ 4.52 9.57 $ 22,259 The aggregate intrinsic value of stock options exercised during the three and si x months ended June 30, 2021, was $ 61 and $ 745 , respectively. The weighted -average grant date fair value of options granted during the three and six months ended June 30, 2021, was $ 8.60 and $ 7.11 , respectively, per share. The weighted -average grant date fair value of options vested during the three and six months ended June 30, 2021, was $ 2.22 and $ 2.42 , respectively, per share. 14 Table of Contents Stock-Based Compensation Expense The following tables summarize the stock-based compensation expense for stock options and restricted stock awards granted to employees and nonemployees that was recorded in the Company’s statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Research and development $ 233 $ 1 $ 293 $ 4 General and administrative 480 71 824 129 Total stock-based compensation expense $ 713 $ 72 $ 1,117 $ 133 THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Employees $ 703 $ 70 $ 1,102 $ 129 Nonemployees 10 2 15 4 Total stock-based compensation expense $ 713 $ 72 $ 1,117 $ 133 As of June 30, 2021, the Company had $ 9,438 of unrecognized stock-based compensation expense related to unvested stock options and restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 1.7 years, respectively. The fair value of stock options granted during the three months ended June 30, 2021 and 2020 was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Expected term (in years) 5.5 – 6.1 5.8 – 6.1 5.5 – 6.1 5.5 – 6.1 Expected volatility 76.3 % – 76.6 % 75.6 % – 75.7 % 76.3 % – 76.6 % 74.0 % – 75.7 % Risk-free rate 1.0 % – 1.1 % 0.4 % – 0.4 % 0.6 % – 1.1 % 0.4 % – 1.7 % Dividend yield — — — — Restricted Stock Awards In October 2020, in conjunction with the Series C redeemable convertible preferred stock issuance, the Company restricted 49,636 shares of fully issued and outstanding Class A common stock held by the Company’s Chief Executive Officer and founder. The restriction allows the Company to repurchase shares that have not vested. The vesting term of restricted stock is one year . The grant date fair value of the restricted shares was $ 6.37 . The following table summarizes the activity for the Company’s restricted stock for the six months ended June 30, 2021. NUMBER OF SHARES Unvested as of December 31, 2020 41,363 Vested ( 24,817 ) Unvested as of June 30, 2021 16,546 For each of the six months ended June 30, 2021 and 2020, the Company recognized $ 157 and $ 0 , respectively, of stock-based compensation expense related to restricted stock awards that vested during the periods. 10. EMPLOYEE BENEFIT PLANS The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. There were no employer contributions under this plan for the three and six months ended June 30, 2021. 15 Table of Contents 11. LICENSES AND COLLABORATIONS Yale University In 2017, PNAi entered into a collaborative research agreement (the “Yale CRA”) and license agreement (the “Yale License Agreement”) with Yale University, which were assigned to the Company upon the closing of the acquisition of PNAi by the Company in 2017. The purpose of the agreements was to fund the Yale University research program in the field of nanoparticle-sized nucleic acid mimics and peptide nucleic acids as gene editing therapeutics in return for an exclusive license to certain related patent rights owned by Yale University and the option to license any patents discovered or generated under the terms of the collaborative research agreement. The Yale CRA required funding the labs of collaborators with $1,500 per year for a minimum of two years. The Yale CRA expired in 2019. No payments were made to Yale University pursuant to the Yale CRA during the year ended December 31, 2019 with no future obligation under this commitment. As consideration for the Yale License Agreement, PNAi paid an initial fee of $ 37 and had the option to issue 5 % of the company’s common stock on a fully diluted, as converted basis. If the shares were not issued, the agreement could be terminated at Yale University’s option. After the completion of the merger with PNAi, the Company exercised the option and issued 264,301 shares of common stock to Yale University with a fair value of $ 100 . Under the Yale License Agreement, the Company reimbursed Yale University for patent related expenses. The Company reimbursed Yale University $ 45 for patent related expenses for the year ended December 31, 2019. The Company and Yale agreed to terminate the Yale License Agreement in 2020 and there are no future payment obligations under the Yale License Agreement. Ares Trading S.A. In October 2020, the Company entered into a license agreement with Ares (the “Ares Agreement”), pursuant to which the Company obtained an exclusive worldwide license to certain patents and related know-how to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases. As consideration for the Ares Agreement, the Company issued to Ares a non-refundable license issue fee of 22,171,553 shares of Series C redeemable convertible preferred stock resulting in Ares becoming a related party to the Company. The Series C redeemable convertible preferred stock had a deemed issuance price of $ 0.5918 per share, or $ 13,121 in the aggregate. In December 2020, the Company paid Ares $ 25,000 in milestone payments upon delivery and initiation of the transfer of specified information and materials. The Company is obligated to pay Ares aggregate milestone payments of up to $ 176,500 upon the achievement of specified BLA filing or regulatory approval milestones and up to $ 515,000 upon the achievement of specified commercial milestones. The non-refundable license issue fee of $ 13,121 and milestone payments of $ 25,000 were recorded to research and development expense. Ares is performing manufacturing technology and know-how transfer to the Company over a period not to exceed two years from the effective date of the Ares Agreement. The Company accrued $ 418 and $ 717 due to Ares for these services during the three and six months ended June 30, 2021, respectively. Commencing on the first commercial sale of licensed products, the Company is obligated to pay Ares tiered royalties of low double-digit to mid-teen percentages on annual net sales of the licensed products covered by the license. The Company is obligated to pay royalties on a licensed product-by- licensed product and country-by-country basis from the first commercial sale of a product in a country until the latest of (i) 15 years after the first commercial sale of such licensed product in such country; (ii) the expiration of the last valid claim of a licensed patent that covers such licensed product in, or its use, importation or manufacture with respect to, such country; and (iii) expiration of all applicable regulatory exclusivity periods, including data exclusivity, in such country with respect to such product. If the Company were to sublicense its rights under the Ares Agreement, the Company is obligated to pay Ares a percentage ranging from the mid single-digit to the low double-digits of specified sublicensing income received. 16 Table of Contents 12. COMMITMENTS AND CONTINGENCIES The aggregate future minimum lease payments for operating leases as of June 30, 2021, are as follows. Operating Leases (1) Sublease Income 2021 (remaining 6 months) $ 1,169 $ ( 928 ) 2022 2,381 ( 1,908 ) 2023 2,458 ( 1,971 ) 2024 2,538 ( 2,036 ) 2025 1,954 ( 1,569 ) Total payments $ 10,500 $ ( 8,412 ) (1) Future minimum lease payments include repayment of outstanding restructuring liabilities Facilities Leases In April 2015, PNAi entered a lease for approximately 3,800 square feet of office and laboratory space for a term of 39 months in Woburn, Massachusetts. In January 2018, the Company elected to renew this lease for three years , beginning in August 2018. In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $ 50 , which is secured by restricted cash that is classified as noncurrent based on the term of the underlying lease. In April 2018, the Company entered into a lease for approximately 24,606 square feet of office and life science research space, which commenced on October 1, 2018, when the Company obtained control of the rented space for a term of 84 months in South San Francisco, California (“the South San Francisco Lease”). In connection with the South San Francisco Lease, the Company maintains a letter of credit issued to the lessor in the amount of $ 293 , which is secured by restricted cash that is classified as noncurrent based on the term of the underlying lease. The Company’s total future minimum commitment due pursuant to the South San Francisco Lease is $ 10,500 as of June 30, 2021. In November 2020, the Company entered into a non-cancellable sublease agreement for the facility, under the terms of which the Company is entitled to receive $ 8,412 in sublease payments over the term of the sublease, which ends concurrently with the original lease in September 2025. As tenant, the Company remains responsible for the $ 10,500 minimum lease commitment on the facilities. The Company recorded rent expense totaling $ 535 and $ 1,070 for the three and six months ended June 30, 2020, respectively. No rent expense was recorded during the three and six months ended June 30, 2021. Equipment Lease The Company had certain leases on research and laboratory equipment which were assigned to a certain third party as of June 30, 2021. The Company recorded rent expense totaling $ 128 and $ 256 for the three and six months ended June 30, 2020, respectively. No rent expense was recorded during the three and six months ended June 30, 2021. 13. RESTRUCTURING AND RELATED ACTIVITIES During the year ended December 31, 2019, the Company completely vacated its leased facilities in Woburn, Massachusetts. In connection with vacating the leased spaces, the Company recorded a discounted lease-related restructuring liability, which was calculated as the present value of the estimated future facility costs for which the Company would obtain no future economic benefit over the term of the lease, reduced for actual or estimated sublease rentals. In July 2020, the Company initiated a restructuring plan to reduce operating expense as a result of the disposal of PNAi technology. The restructuring plan included reducing the number of employees, vacating leased facilities, and ceasing use of leased equipment. As a result of this restructuring plan, the Company completely vacated its leased facilities in South San Francisco, California, which was subleased to a third party in November 2020, and returned certain leased equipment to the lessor. The Company recorded a discounted lease-related restructuring liability of $ 2,228 and $ 768 for the abandonment of the leased facilities and equipment, which was calculated as the present value of the estimated future lease costs for which the Company would obtain with no future economic benefit over the term of the leases. In addition, the Company recognized restructuring liability of $ 321 related to severance and other employee termination costs related to the reduction in the number of employees. 17 Table of Contents The activity related to the restructuring liabilities for the three months ended June 30, 2021, is as follows. Lease – related exit costs Balance as of March 31, 2021 $ 2,041 Accretion 50 Cash payments ( 160 ) Lease assignment to NeuBase ( 136 ) Balance as of June 30, 2021 $ 1,795 The activity related to the restructuring liabilities for the six months ended June 30, 2021, is as follows. Lease – related exit costs Employee termination Total Balance as of December 31, 2020 2,584 12 2,596 Accretion 85 — 85 Cash payments ( 738 ) ( 12 ) ( 750 ) Lease assignment to NeuBase ( 136 ) — ( 136 ) Balance as of June 30, 2021 $ 1,795 $ — $ 1,795 14. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS The following outstanding potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis). THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2021 2020 2021 2020 Redeemable convertible preferred stock — 1,209,599 — 1,209,599 Class A common stock options issued and outstanding 2,643,327 214,138 2,643,327 214,138 Unvested restricted stock awards 16,546 — 16,546 — Total 2,659,873 1,423,737 2,659,873 1,423,737 15. RELATED PARTY TRANSACTIONS In October 2018, the Company entered into a sublease agreement for a portion of its South San Francisco office space, the term for which commenced on December 7, 2018. The Chief Executive Officer of the sublessor is a member of the Company’s board of directors. The initial sublease was established for approximately 400 square feet of space. Prior to the initial expiration of the sublease in April 2019, the space was expanded to approximately 3,700 square feet with the term of the lease extended for an additional two years . The monthly rent charged by the Company to the subtenant is subject to escalating rent payments according to the terms of the Company’s lease agreement, and the subtenant is required to reimburse the Company for monthly facility operating expenses based on its proportionate share of total square footage pursuant to the lease. The Company’s lease agreement provides that 50 % of any profit resulting from the excess of the amount collected from the subtenant less the sum of monthly rent, operating expenses and reimbursement of direct expenditures made by the Company in order to arrange and maintain the sublease is to be shared with the lessor. To date, no profit has been realized on the sublease arrangement as the monthly collections from the subtenant are equivalent to the Company’s cost of rent, operating expense and recovery of professional fees to arrange the sublease. In June 2020, the sublease agreement was terminated. During the three and six months ended June 30, 2020, the Company recognized $ 82 and $ 160 of sublease income under this agreement, which was recorded as a reduction to the Company’s rent expense. In October 2020, the Company entered into the Ares Agreement with Ares, pursuant to which the Company obtained an exclusive worldwide license to certain patents and related know-how to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases (See Note 3 and Note 11). 18 Table of Contents