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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-03-09 · 116 added, 68 removed, 126 unchanged (59% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Annual Report.

This section discusses 2023 and 2022 items and year-to-year comparisons between the years ended December 31, 2023 and 2022.

Discussions of the year ended December 31, 2021 and year-to-year comparisons between the years ended December 31, 2022 and 2021 have been excluded from this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 9, 2023.

We are a biopharmaceutical company focused on discovering and developing potential best-in-class medicines for serious and rare diseases.

We target under-competitive disease areas where marketed therapies often leave room for improvements in efficacy, safety, and/or dosing convenience.

We target disease areas where marketed therapies often leave room for improvements in efficacy, safety, and/or dosing convenience.

We believe that first-generation medicines rarely represent optimal solutions, especially in rare disease areas, and that there is potential to develop differentiated, best-in-class medicines that could lead to improved patient outcomes, reduced side effects, improved quality of life, expanded market access, and augmented market competition.

Our business model is designed to identify and evaluate product opportunities in disease areas where trial data establishes proof-of-concept for a drug target in the clinic, but the competitive evolution of the product life cycle management and number of entrants appears incomplete.

Our business model is designed to identify and evaluate product opportunities in disease areas where trial data establishes proof-of-concept for a

drug target in the clinic, but the competitive evolution of the product life cycle management and number of entrants appears incomplete.

We intend to prioritize indications where a fast-follower and a potentially differentiated drug candidate, or overall product profile, could create significant medical benefit for patients.

We are engineering medicines to address unmet medical needs for patients and further advance drug innovation.

We are developing three product candidates, VRDN-001, VRDN-002 and VRDN-003, that are being developed for intravenous or subcutaneous administration to treat patients who suffer from thyroid eye disease (“TED”).

Our goal is to identify and evaluate product concepts leveraging clinically validated molecular targets using established therapeutic modalities.

We prioritize product concepts that are aligned with clinical and commercial hypotheses, which we expect will provide an attractive balance of risk and opportunity, thereby representing a compelling allocation of our resources.

We focus on advancing therapeutic proteins, including antibodies, that we either in-license or discover internally, incorporating proprietary therapeutic protein and antibody discovery and optimization platforms to advance clinical candidates with unique characteristics.

We have built relevant expertise in protein and antibody discovery and engineering, biologics manufacturing, nonclinical and clinical development for TED, development of anti-neonatal Fc receptor therapies, and nonclinical and clinical development for indications in rare and autoimmune diseases.

Our approach to rapidly discovering and developing novel therapeutics relies on our scientific expertise in evaluating pre-existing clinical proof-of-concept data for the drug targets we are pursuing, and opportunities to improve upon existing investigational and/or approved therapies.

This approach informs how we design, select, and develop our product candidates, including in critical areas such as pharmacokinetics, pharmacodynamics, clinical trial design, trial endpoints, and the selection and recruitment of patients.

We believe this strategy reduces the risks associated with discovering and developing novel therapeutics.

We have first prioritized the development of therapies for the treatment of TED, a serious and debilitating rare autoimmune disease that causes inflammation within the orbit of the eye that can cause bulging of the eyes, redness and swelling, double vision, pain, and potential blindness.

TED significantly impacts quality of life, imposing a high burden on activities of daily living and mental health for patients suffering from the disease.

TED is a progressive disease consisting of an initial active phase, followed by a transition to a secondary chronic phase.

The only medicine approved by the FDA for TED is Tepezza® (teprotumumab), which is an intravenously administered monoclonal antibody that targets IGF-1R.

Tepezza® is marketed in the United States by Horizon, which was acquired by Amgen in October 2023.

The results from clinical trials of teprotumumab conducted by Horizon provide strong clinical validation linking the targeting of IGF-1R to clinical benefit in patients with TED.

However, clinical trials evaluating teprotumumab in patients with TED reported to date used a single dosing regimen, providing little guidance as to the optimal dosing required for clinical activity in TED.

We believe that there are multiple opportunities to develop fast-follower therapeutics that improve on teprotumumab’s features, including dosing schedule, route of administration, and safety profile.

We are developing two product candidates, VRDN-001 for intravenous and VRDN-003 for subcutaneous administration, to treat patients who suffer from TED.

Our most advanced program, VRDN-001, is a differentiated humanized monoclonal antibody targeting IGF-1R intravenously administered for the treatment of TED.

In previously presented in vitro preclinical data, we showed that VRDN-001 is a potentially differentiated full antagonist of IGF-1R, compared to teprotumumab’s incomplete antagonism of IGF-1R.

We also conducted Phase 1/2 clinical trials of VRDN-001 in patients with active or chronic TED.

In the active TED portion of the Phase 1/2 clinical trials, data reported from all three dose cohorts of VRDN-001 (n=21) showed significant and rapid improvement in both the signs and symptoms of TED after two infusions of VRDN-001 compared to placebo.

Across all VRDN-001 treated patients in the active TED trial, 71% were proptosis responders, 67% were overall responders, 62% achieved a CAS of 0 or 1, and 54% had complete resolution of their diplopia.

In the chronic TED portion of the Phase 1/2 clinical trials, data reported from both dose cohorts of VRDN-001 (n=12) showed significant and rapid improvement in the signs and symptoms of TED after two infusions of VRDN-001 compared to placebo.

Across all VRDN-001 treated patients in the chronic TED trial, 42% were proptosis responders, 40% achieved a CAS of 0 or 1, and no patients had complete resolution of their diplopia.

In the Phase 1/2 clinical trials of both active and chronic TED, VRDN-001 had a favorable safety profile and was well-tolerated by all patients treated in all dose cohorts.

We are evaluating VRDN-001 in two global Phase 3 clinical trials, THRIVE and THRIVE-2, for the treatment of active and chronic TED, respectively.

THRIVE and THRIVE-2 are each designed to compare a five-dose IV treatment arm of VRDN-001 at 10 mg/kg, dosed three weeks apart, to placebo.

This five-dose VRDN-001 regimen features fewer infusions and a shorter time per infusion compared to teprotumumab, the currently marketed IGF-1R inhibitor.

We expect to report topline THRIVE and THRIVE-2 data in the middle of 2024 and by year end 2024, respectively.

We expect that the THRIVE and THRIVE-2 Phase 3 trials, together with a safety database comprising 300 treated patients will support global health authority registration for marketing approval in both active and chronic TED, respectively.

In addition to our VRDN-001 IV program, in December 2023 we selected VRDN-003 as our prioritized subcutaneous program for pivotal development in TED following positive data in a Phase 1 clinical trial in healthy volunteers.

We believe VRDN-003 has the potential to be the best-in-class subcutaneous anti-IGF-1R program by preserving the efficacy of anti-IGF-1Rs in TED, improving safety, and maximizing convenience for patients.

VRDN-003 has the same binding domain as its parent molecule, VRDN-001, and was engineered to have a longer half-life.

VRDN-003 is designed to be a low-volume, self-administered, infrequently-dosed subcutaneous IGF-1R for TED.

The VRDN-003 Phase 1 clinical study showed VRDN-003 to have a prolonged half-life of 40 to 50 days, which is four to five times that of its parent molecule, VRDN-001.

Because of the similarities between the VRDN-001 and VRDN-003 antibodies, we expect VRDN-003 to have similar clinical responses at the exposure levels of VRDN-001 that led to robust clinical activity in its Phase 2 clinical trial in TED.

Further, pharmacokinetic modeling of VRDN-003 predicted that exposure levels of VRDN-003 could be achieved that are equivalent to exposure levels of VRDN-001 that produced clinically meaningful results with multiple dosing regimens of VRDN-003, i.e., subcutaneous injection every two, four, or eight weeks.

Based on these results, we expect to initiate a global pivotal program with VRDN-003 in mid-2024, with planned trials in both active and chronic TED patients, pending regulatory authority alignment.

In addition to developing therapies for TED, we are also developing a portfolio of engineered anti-FcRn inhibitors, including VRDN-006 and VRDN-008.

FcRn inhibitors have the potential to treat a broad array of autoimmune diseases, representing a possible significant commercial market opportunity.

Our multi-pronged engineering approach has resulted in a portfolio of FcRn-targeting molecules that leverage the clinically and commercially validated mechanism of FcRn inhibition while potentially addressing the limitations of current agents such as incomplete IgG suppression, safety, and inconvenience of dosing.

VRDN-006 is a FcRn-targeting Fc fragment, and in non-human primate studies, demonstrated specificity for blocking FcRn-IgG interactions while not showing decreases in albumin or increases in LDL levels, which are known potential side effects associated with certain full-length monoclonal anti-FcRn antibodies.

In our head-to-head non-human primate studies, VRDN-006 demonstrated comparable potency and IgG lowering to Vyvgart® (efgartigimod), the current standard of care in FcRn inhibition, as well as a similar safety profile.

We plan to file an IND for VRDN-006 by the end of 2024 and expect healthy volunteer data for VRDN-006 in the second half of 2025.

VRDN-008 is a novel, first-in-class FcRn inhibitor that aims to pair IgG suppression with extended half-life technology, potentially enabling deeper and more durable suppression of IgG than existing anti-FcRn therapies.

Both molecules are designed to be convenient, self-administered, subcutaneous products.

Global Economic Considerations

The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S.

trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the rising tensions between China and Taiwan and other political tensions, and lingering effects of the COVID-19 pandemic.

trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the rising tensions between China and Taiwan, the conflict in Israel and surrounding area and other political tensions.

Such challenges have caused, and may continue to cause, recession fears, concerns regarding potential sanctions, rising interest rates, foreign exchange volatility and inflationary pressures.

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Zenas BioPharma announced that it had obtained IND approval in China in July 2022.

Under the license agreement, we received a $1.0 million milestone payment from Zenas BioPharma.

Additionally, we are eligible to receive royalty payments based on a percentage of the annual net sales of any licensed products sold on a country-by-country basis in the greater area of China.

The royalty percentage may vary based on different tiers of annual net sales of the licensed products made.

The royalty percentage may vary based on different tiers of annual net sales of the licensed

products made.

Zenas BioPharma is obligated to make royalty payments to us for the royalty term in the Zenas Agreements.

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• employee-related expenses, including salaries, severance, retention, benefits, insurance, and share-based compensation expense;

• expenses incurred under agreements with clinical research organizations (“CROs”), investigative sites that conduct our clinical trials, and other clinical trial-related vendors, and consultants;

• the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with contract manufacturing organizations (“CMOs”);

• expenses incurred under agreements with CROs, investigative sites that conduct our clinical trials, and other clinical trial-related vendors, and consultants;

• the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with CMOs;

• costs associated with non-clinical activities and regulatory operations;

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We record up-front and milestone payments to acquire and retain contractual rights to in-licensed technology and intellectual property rights as research and development expenses when incurred if there is uncertainty in our receiving future economic benefit from the acquired contractual rights.

We consider future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the U.S.

Food and Drug Administration (“FDA”) or when other significant risk factors are abated.

We consider future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the FDA or when other significant risk factors are abated.

We expect that our research and development expenses will increase as we expand our clinical development programs and initiate new clinical trials.

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We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, and ongoing assessments as to each future product candidate’s commercial potential.

For example, upon receipt of topline data from our planned proof of concept trial of VRDN-002 by the end of 2023, we expect to determine which of VRDN-002 or VRDN-003 to advance into a pivotal Phase 3 trial in the first half of 2024.

We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance the various clinical trials that are part of our clinical development program described above.

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The $1.5 million decrease in revenue is due to the timing of activities performed under the collaboration agreement.

During the year ended December 31, 2022, the Company recognized $1.0 million upon Zenas BioPharma’s achievement of a certain development milestone.

During the year ended December 31, 2022, we recognized $1.0 million upon Zenas BioPharma’s achievement of a certain development milestone.

Research and Development Expenses

Research and development expenses were $159.8 million during the year ended December 31, 2023, compared to $100.9 million during the year ended December 31, 2022.

The $44.0 million increase in research and development expenses is primarily attributable to an increase of $8.9 million in clinical trial expenses related to our lead product candidates, VRDN-001 and VRDN-002;

an increase of $8.7 million in costs associated with our preclinical programs;

an increase of $7.8 million in personnel related costs, including share-based compensation, due to an increase in headcount;

an increase of $7.6 million in milestone, license and option fees due to milestone and upfront payments to ImmunoGen and Paragon Therapeutics, Inc.;

an increase of $6.5 million in chemistry, manufacturing and controls costs;

and an increase of $2.4 million in consulting expenses.

We expect our research and development expenses to increase as we work to progress our clinical and preclinical programs.

The $58.9 million increase in research and development expenses is primarily attributable to the following:

• $20.4 million increase in clinical trial costs mainly due to expenses associated with our THRIVE and THRIVE-2 clinical trials;

• $19.0 million increase in personnel related costs, including share-based compensation, due to an increase in headcount;

• $8.0 million increase in milestone, license and option fees due to the $15.0 million upfront payment for development of SC delivery systems, issuance of the equivalent of $5.7 million in shares of our common stock for an exclusive license and collaboration agreement, and a $5.3 million upfront payment for an exclusive license agreement during the year ended December 31, 2023, offset by upfront payments of $4.7 million for certain agreed upon development activities and the $13.0 million milestone payments for clinical trial activities for VRDN-001 during the year ended December 31, 2022;

• $5.1 million increase in professional service fees for consultants and contractors to support ongoing programs;

• $3.6 million increase in chemistry, manufacturing and controls costs for our ongoing and planned clinical trials, SC development costs for VRDN-001, as well as IND-enabling activities for VRDN-003.

We expect our research and development expenses to continue to increase as we work to progress our clinical and preclinical programs.

General and Administrative Expenses

General and administrative expenses were $95.0 million during the year ended December 31, 2023, compared to $35.2 million during the year ended December 31, 2022.

The $9.4 million increase in general and administrative expenses is due primarily to an increase of $6.0 million in personnel costs, including share based compensation, due to an increase in headcount, as well as an increase of $3.1 million in consulting, professional and license fees.

The $59.8 million increase in general and administrative expenses is primarily attributable to the following:

• $25.6 million increase in personnel costs, including share based compensation, due to an increase in headcount;

• $31.0 million of severance costs primarily related to separation agreements with former executive officers, including $26.1 million of incremental share-based compensation related to the modification and acceleration of stock option vesting;

• $7.9 million increase in professional and license fees due to market research, accounting and other professional fees to support the growing organization and prepare for commercial activities.

Other Income, net

Other income, net was $16.7 million during the year ended December 31, 2023 compared to $4.4 million during the year ended December 31, 2022.

Other income, net for the year ended December 31, 2022, is comprised of $4.9 million of interest income earned on short-term investments as well as sub-lease income, offset by $0.5 million in interest expense related to our Hercules

Loan and Security Agreement.

Other income, net for the year ended December 31, 2021, is comprised of interest income earned on short-term investments as well as sub-lease income.

Other income, net for the year ended December 31, 2023 is comprised of $18.2 million of interest income earned on short-term investments as well as $0.3 million of sub-lease income, offset by $1.3 million in interest expense related to our Hercules Loan and Security Agreement, and $0.5 million in other losses.

Other income, net for the year ended December 31, 2022 is comprised of $4.6 million of interest income earned on short-term investments as well as $0.3 million of sub-lease income, offset by $0.5 million in interest expense related to our Hercules Loan and Security Agreement.

The increase in interest income is primarily attributable to higher interest rates and higher average short-term investments balances during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Liquidity and Capital Resources

We have funded our operations to date principally through proceeds received from the sale of our common stock, our Series A Preferred Stock, our Series B Preferred Stock and other equity securities, debt financings, license fees, and reimbursements received under collaboration agreements.

As of December 31, 2022, we had $424.6 million in cash, cash equivalents, and short-term investments.

We expect that our current resources will enable us to fund our planned operations into the second half of 2025.

As of December 31, 2023, we had $477.4 million in cash, cash equivalents, and short-

term investments.

We expect that our current resources, including the gross proceeds of $186.3 million received in January 2024 from the sale of the Company’s common stock, will enable us to fund our planned operations into the second half of 2026.

We have no products approved for commercial sale and have not generated any revenue from product sales.

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Loan and Security Agreement with Hercules Capital, Inc.

On April 1, 2022, we entered into a loan and security agreement (the “Hercules Loan and Security Agreement”) among the Company, certain of our subsidiaries from time to time party thereto (together with the Company, collectively, the “Borrower”), Hercules Capital, Inc.

(“Hercules”) and certain other lenders party thereto (the “Lenders”).

On April 1, 2022, we entered into the Hercules Loan and Security Agreement among the Company, certain of our subsidiaries from time to time party thereto (together with the Company, collectively, the “Borrower”), Hercules and certain other lenders party thereto (the “Lenders”).

Under the Hercules Loan and Security Agreement, the Lenders provided us with access to a term loan with an aggregate principal amount of up to $75.0 million, in four tranches (collectively the “Term Loan”), consisting of:

(1) an initial tranche of $25.0 million, available through June 15, 2023;

(2) a second tranche of $10.0 million, subject to the achievement of certain regulatory milestones, available through June 15, 2023;

(1) an initial tranche of $25.0 million, which was available through June 15, 2023;

(2) a second tranche of $10.0 million, subject to the achievement of certain regulatory milestones, which was available through June 15, 2023;

(3) a third tranche of $15.0 million, subject to the achievement of certain regulatory milestones, available through March 15, 2024;

and (4) a fourth tranche of $25.0 million, subject to approval by the Lenders’ investment committee(s), available through December 15, 2024.

The first tranche of $25.0 million will be available to us through June 15, 2023.

The milestone related to the third tranche was not achieved prior to amendment of the Hercules Loan and Security Agreement in August 2023.

Upon signing we drew an initial principal amount of $5.0 million.

The Term Loan bears interest at a floating per annum rate equal to the greater of (1) 7.45% and (2) 4.2% above the Prime Rate, provided that the Term Loan interest rate shall not exceed a per annum rate of 8.95%.

Interest is payable monthly in arrears on the first day of each month.

Per the terms of the Hercules Loan and Security Agreement, we were originally obligated to make interest-only payments through April 1, 2024.

However, upon the achievement of a development milestone the interest-only

period was extended to October 1, 2024.

If additional development milestones are met, the interest-only period will be extended to April 1, 2025 pursuant to a second extension.

We are required to repay the Term Loan amount in equal monthly installments of the principal amount and interest between the end of the interest-only period and the maturity date of October 1, 2026.

In addition, we are required to pay an end-of-term fee equal to 6% of the principal amount of funded Term Loan Advances at maturity, which are being accreted as additional interest expense over the term of the loan.

However, upon the achievement of a development milestone in August 2022, the interest-only period was extended to October 1, 2024.

If additional development milestones were met, the interest-only period would be further extended to April 1, 2025 pursuant to a second extension.

We were required to repay the Term Loan amount in equal monthly installments of the principal amount and interest between the end of the interest-only period and the maturity date of October 1, 2026.

In addition, we were required to pay an end-of-term fee equal to 6% of the principal amount of funded Term Loan Advances (as defined in the Hercules Loan and Security Agreement) at maturity, which were being accreted as additional interest expense over the term of the loan.

In August 2023, we executed an amendment to the Hercules Loan and Security Agreement (the “Hercules Amendment”).

Under the Hercules Amendment, the Lenders provided the Company access to an increased term loan with an aggregate principal amount of up to $150 million, in four tranches (collectively the “Amended Term Loan”), consisting of (1) an initial tranche of $50.0 million, $5.0 million of which was drawn at closing of the Hercules Loan and Security Agreement in April

2022, $15.0 million of which was drawn at closing of the Hercules Amendment in August 2023, $5.0 million available through December 15, 2023, and $25.0 million available from July 1, 2024 through December 15, 2024;

(2) a second tranche of $20.0 million, subject to achievement of certain regulatory milestones, available through February 15, 2025;

(3) a third tranche of $20.0 million, subject to achievement of certain regulatory milestones, available through March 31, 2025;

and (4) a fourth tranche of $60.0 million subject to approval by the Lenders’ investment committee(s), available through June 15, 2025.

The milestones for the second and third tranches have not yet been achieved.

The obligations of the Borrower under the Hercules Amendment agreement are secured by substantially all of the assets of the Borrower, excluding the Borrower’s intellectual property.

The Amended Term Loan has a maturity date of October 1, 2026.

The Amended Term Loan bears interest at a floating per annum rate equal to the greater of (1) 7.45% and (2) 4.2% above the Prime Rate (as defined therein), provided that the Term Loan interest rate shall not exceed a per annum rate of 8.95%.

Interest is payable monthly in arrears on the first day of each month.

The interest rate as of December 31, 2023 was 8.95%.

Per the terms of the Hercules Amendment, we are obligated to make interest-only payments through April 1, 2025.

If certain development milestones are met, then the interest-only period will be extended to October 1, 2025.

If additional development milestones are met, the interest-only period will be further extended to April 1, 2026.

The Borrower is required to repay the Amended Term Loan amount in equal monthly installments of the principal amount and interest between the end of the interest-only period and the maturity date of October 1, 2026.

In addition, the Borrower is required to pay an end-of-term fee equal to 6% of the principal amount of funded Amended Term Loan advances at maturity, which are being accreted as additional interest expense over the term of the loan.

Upon execution of the Hercules Amendment, we drew a principal amount of $15.0 million.

The Hercules Amendment was determined to substantially alter the Hercules Loan and Security Agreement and therefore was accounted for as a debt extinguishment.

We recognized a loss on debt extinguishment of $0.2 million related to unamortized debt discount and debt issuance costs as a component of other income, net in the consolidated statements of operations and comprehensive loss.

ATM Agreements

In September 2022, we entered into an Open Market Sale Agreement SM (the “September 2022 ATM Agreement”) with Jefferies, LLC (“Jeffries”) pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $175.0 million from time to time at prices and on terms to be determined by market conditions at the time of offering, with Jefferies acting as the sales agent.

In September 2022, we entered into the September 2022 ATM Agreement with Jefferies LLC (“Jefferies”) pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $175.0 million from time to time at prices and on terms to be determined by market conditions at the time of offering, with Jefferies acting as the sales agent.

Jefferies will receive a commission of 3.0% of the gross proceeds of any shares of common stock sold under the September 2022 ATM Agreement.

As of December 31, 2022, 964,357 shares were sold under the September 2022 ATM Agreement at a weighted average price of $26.01 per share, for aggregate net proceeds of approximately $24.2 million, including commissions to Jefferies as a sales agent.

In November 2021, we entered into an Open Market Sale Agreement SM (the “November 2021 ATM Agreement”) with Jefferies, pursuant to which we could offer and sell shares of our common stock having an aggregate offering price of up to $75.0 million from time to time at prices and on terms to be determined by market conditions at the time of offering, with Jefferies acting as sales agent.

The November 2021 ATM Agreement was terminated in connection with the September 2022 ATM Agreement.

No shares were sold under the November 2021 ATM Agreement prior to its termination.

In April 2021, we entered into an Open Market Sale Agreement SM (the “April 2021 ATM Agreement”) with Jefferies pursuant to which we could offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million at prices and on terms to be determined by market conditions at the time of offering, with Jefferies acting as sales agent.

Jefferies received a commission equal to 3.0% of the gross sales proceeds of any common stock sold through Jefferies under the April 2021 ATM Agreement.

The April 2021 ATM Agreement was terminated in connection with the November 2021 ATM Agreement.

An aggregate of 2,551,269 shares of common stock were sold pursuant to the April 2021 ATM Agreement prior to its termination, at a volume weighted-average price of $13.13 per share, for aggregate net proceeds of approximately $32.4 million, including commissions to Jefferies as sales agent.

During the year ended December 31, 2022, 964,357 shares were sold under the September 2022 ATM Agreement at a weighted average price of $26.01 per share, for aggregate net proceeds of approximately $24.2 million, including commissions to Jefferies as a sales agent.

During the quarter ended December 31, 2023, the Company sold 684,298 shares under the September 2022 ATM Agreement with Jefferies at a weighted average price of $22.30 per share, for aggregate net proceeds of approximately $14.8 million, including commissions to Jefferies as a sales agent.

Underwritten Public Offerings

In August 2022, we entered into an underwriting agreement (the “2022 Underwriting Agreement”) with Jefferies, SVB Securities LLC and Evercore Group LLC relating to the offer and sale (the “2022 Offering”) of 11,352,640 shares of our common stock, which includes 1,725,000 shares of common stock issued in connection with the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $23.50 per share, and 28,084 shares of the Company’s Series B Non-Voting Convertible Preferred Stock, at a public offering price of $1,566.745 per share (collectively, the “2022 Public Offering”).

In August 2022, we entered into an underwriting agreement with Jefferies, Leerink Partners LLC and Evercore Group LLC relating to the offer and sale of 11,352,640 shares of our common stock, which includes 1,725,000 shares of common stock issued in connection with the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $23.50 per share, and 28,084 shares of the Company’s Series B Non-Voting Convertible Preferred Stock, at a public offering price of $1,566.745 per share (collectively, the “2022 Public Offering”).

The aggregate gross proceeds to us from the 2022 Public Offering, including the exercise of the option, were approximately $311.0 million, before deducting underwriting discounts and commissions and other offering expenses payable by us.

In September 2021, we entered into an underwriting agreement (the “2021 Underwriting Agreement”) with Jeffries, SVB Leerink LLC and Evercore Group, LLC for the sale and issuance of 7,344,543 shares of common stock, which include 1,159,089 shares of common stock issued in connection with the exercise in full by the underwriters of their option to purchase additional shares at a public offering price of $11.00 per share, and 23,126 shares of Series B Non-Voting Convertible Preferred Stock at a public offering price of $733.37 per share (the “2021 Public Offering”).

Our aggregate gross proceeds from the 2021 Public Offering, including the exercise of the option, were approximately $97.7 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Purchase Agreements

In October 2020, we entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers named therein (the “Investors”).

Pursuant to the Purchase Agreement, we agreed to sell an aggregate of approximately 195,290 shares of Series A Preferred Stock for an aggregate purchase price of approximately $91.0 million.

Each share of Series A Preferred Stock is convertible into 66.67 shares of our common stock, subject to specified conditions.

The powers, preferences, rights, qualifications, limitations, and restrictions applicable to the Series A Preferred Stock are set forth in the applicable certificate of designations.

During the year ended December 31, 2021, 138,050 shares of Series A Preferred Stock were converted into 9,203,732 shares of common stock.

In December 2019, we entered into a common stock purchase agreement (the “Aspire Stock Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”), which provides that, subject to the terms, conditions, and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock over the 30-month term of the Aspire Stock Purchase Agreement.

Upon execution of the Aspire Stock Purchase Agreement, we sold to Aspire Capital 106,564 shares of common stock at $9.38 per share for proceeds of $1.0 million as the Initial Purchase Shares (as defined in the Aspire Stock Purchase Agreement).

During the year ended December 31, 2020, we sold to Aspire Capital 412,187 shares of our common stock at a weighted-average price of $21.35 per share for aggregate net proceeds of $8.8 million.

As of December 31, 2022, we have the ability to sell an additional $10.2 million of shares of our common stock to Aspire Capital.

In October 2023, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) for a private placement (the “2023 Private Placement”) with certain institutional and accredited investors (each, a “Purchaser” and collectively, the “Purchasers”).

Pursuant to the Securities Purchase Agreement, we agreed to sell an aggregate of 8,869,797 shares of common stock at a price of $12.38 per share (the closing price of our common stock on October 27, 2023), and 92,312 shares of the Company’s Series B non-voting convertible preferred stock at a price of $825.3746 per share.

Each share of Series B Preferred Stock is convertible into 66.67 shares of our common stock, subject to certain beneficial ownership limitations.

Our aggregate gross proceeds from the 2023 Private Placement were approximately $186.0 million, before deducting offering expenses payable by us.

Summarized cash flows for the year ended December 31, 2023 and 2022 are as follows:

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Operating Activities

Net cash used in operating activities was $93.8 million for the year ended December 31, 2022, and primarily consisted of a net loss of $129.9 million, adjusted for non-cash items of $20.1 million (primarily share-based compensation of $19.8 million) and working capital adjustments of $16.0 million.

Net cash used in operating activities was $54.6 million for the year ended December 31, 2021, and primarily consisted of a net loss of $79.4 million, adjusted for non-cash items of $23.1 million (primarily share-based compensation of $14.5 million and a $7.5 million non-cash charge related to the issuance of common stock as payment for licensing fees to Xencor, Inc.) and working capital adjustments of $1.7 million.

Net cash used in operating activities was $184.2 million for the year ended December 31, 2023, and primarily consisted of a net loss of $237.7 million, adjusted for non-cash items of $63.0 million, including share-based compensation of $67.2 million and working capital adjustments of $9.4 million.

The change in working capital was primarily related to a decrease of $7.0 million in accounts payable and accrued and other liabilities and an increase of $2.1 million in prepaid expenses and other current assets due to the timing of payments and prepayments to vendors for ongoing clinical trial and manufacturing activities.

Net cash used in operating activities was $93.8 million for the year ended December 31, 2022, and primarily consisted of a net loss of $129.9 million, adjusted for non-cash items of $20.1 million, including share-based compensation of $19.8 million and working capital adjustments of $16.0 million.

The change in working capital was primarily related to an increase of $7.7 million in accrued and other liabilities and an increase of $3.3 million in prepaid expenses and other current assets due to the timing of payments and prepayments to vendors for ongoing clinical trial and manufacturing activities, and an increase of $11.5 million in accounts payable primarily due to a $10.0 million milestone payment due under a license agreement as of December 31, 2022.

Investing Activities

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Financing Activities

Net cash provided by financing activities was $322.2 million for the year ended December 31, 2022.

Net cash provided by financing activities in 2022 was primarily driven by net proceeds of $313.8 million in net proceeds from the 2022 Public Offering and the September 2022 ATM Agreement, $4.6 million in net proceeds from the Hercules Loan and Security Agreement, as well as $2.8 million in proceeds from the exercise of stock options, $0.9 million in proceeds from the exercise of warrants and $0.2 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Net cash provided by financing activities was $225.7 million during the year ended December 31, 2023.

Net cash provided by financing activities in 2023 was primarily driven by net proceeds of $189.5 million from the 2023 Private Placement and the September 2022 ATM Agreement, as well as $19.3 million in proceeds from the exercise of stock options, $14.5 million in net proceeds from the Hercules Amendment, $1.9 million in proceeds from the exercise of warrants and $0.6 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Net cash provided by financing activities was $322.2 million for the year ended December 31, 2022.

Net cash provided by financing activities in 2021 was primarily driven by net proceeds of $107.3 million from the sale of common stock in 2021 through the 2021 Public Offering and the April 2021 ATM Agreement, $15.7 million in net proceeds from the sale of our Series B Preferred Stock, $1.3 million from the exercise of common stock warrants, and $1.0 million in proceeds from employee stock option exercises.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplemental data required by this item are set forth on the pages indicated in Part IV, Item 15(a)(1) of this Annual Report.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Net cash provided by financing activities in 2022 was primarily driven by net proceeds of $313.8 million from the 2022 Public Offering and the September 2022 ATM Agreement, $4.6 million in net proceeds from the Hercules Loan and Security Agreement, as well as $2.8 million in proceeds from the exercise of stock options, $0.9 million in proceeds from the exercise of warrants and $0.2 million in proceeds from the issuance of common stock under our employee stock purchase plan.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis