What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-25 compared with 2021-03-11 · 223 added, 197 removed, 214 unchanged (66% of the section changed)

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In addition, this section discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 are not included in this Annual Report 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 year ended December 31, 2019, filed with the SEC on March 10, 2020.

We are a clinical-stage biotechnology company developing therapeutics for immuno-oncology, genetic disorders and other indications based on our proprietary Spherical Nucleic Acid, or SNA, technology.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Annual Report 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 year ended December 31, 2020, filed with the SEC on March 11, 2021.

We are an early-stage biotechnology company developing nucleic acid therapies targeting ribonucleic acid against validated targets to neurological disorders and hair loss.

Our team includes a diverse scientific group with expertise in nucleic acid chemistry, drug development and neuroscience.

Headquartered in Chicago, Illinois, we conduct our discovery and development efforts in-house with a dedicated 30,000 square foot facility, including rapid and automated high throughput nucleic acid synthesis and screening.

Our therapeutic discovery and development efforts are supported by our proprietary Spherical Nucleic Acid, or SNA, technology.

SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions.

We believe the design of our SNAs gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver.

We are conducting IND-enabling studies for XCUR-FXN, an SNA-based therapeutic candidate, for the treatment of Friedreich’s ataxia (FA) and expect to initiate a first-in-patient Phase 1b clinical trial in 2022.

We are also working to advance our SNA-based therapeutic candidate cavrotolimod (AST-008) in an ongoing Phase 1b/2 clinical trial in cancer patients.

We believe that one of the key strengths of our proprietary SNAs is that they have the potential for increased cellular uptake compared to conventional linear oligonucleotides and as a result the potential to achieve higher efficacy at the same doses of oligonucleotide administered.

We have shown in clinical and preclinical studies that SNAs may have therapeutic potential in neurology, immuno-oncology and dermatology.

In addition, we have shown in preclinical studies that SNAs may have therapeutic potential in ophthalmology, pulmonology, and gastroenterology.

As a consequence, we have expanded our pipeline into neurology, and are conducting early stage research activities in ophthalmology, pulmonology, and gastroenterology.

Our platform for therapeutic nucleic acids has demonstrated potential high potency, broad uptake, and prolonged efficacy in both in vitro and in vivo neurological models.

The basis of our discovery approach harnesses our expertise in oligonucleotide chemistry for use against validated targets where we can screen thousands of oligonucleotides efficiently and identify top candidates in the appropriate cell and live animal models.

We are conducting preclinical studies for a non-opioid analgesic directed against SCN9A (Nav1.7);

undisclosed targets in Huntington’s disease and Angelman syndrome as part of our collaboration with Ipsen;

and undisclosed targets in hair loss disorders as part of our collaboration with AbbVie.

Operating, financing, and cash flow considerations

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Through December 31, 2021, we have raised gross proceeds of $201.6 million from the sale of common stock and preferred stock.

We have also received $36.0 million in upfront payments under our current collaborations, including an upfront payment of $25.0 million we received in November 2019 in connection with the AbbVie Collaboration Agreement and an upfront payment of $1.0 million we received in February 2019 in connection with the Dermelix Collaboration Agreement.

We have also received $56.0 million in upfront payments from collaborations, including an upfront payment of $20.0 million we received in August 2021 in connection with our research collaboration, license, and option agreement with Ipsen, or the Ipsen Collaboration Agreement and an upfront payment of $25.0 million we received in November 2019 in connection with our research collaboration license and option agreement with AbbVie, or the AbbVie Collaboration Agreement.

On September 25, 2020, we also borrowed $17.5 million under the terms of a credit and security agreement with MidCap Financial Trust (as described further below).

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Substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant and increasing losses in the foreseeable future.

We expect to continue to incur losses for the foreseeable future.

Our net losses may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially as we:

• continue to advance cavrotolimod (AST-008) through clinical development for immuno-oncology applications;

• continue research and development of XCUR-FXN and other neurological therapeutic candidates;

• advance our SNA platform in dermatological indications with suitable collaboration partners;

• advance preclinical development targeting SCN9A in pain to drug candidate selection and IND-enabling studies;

• advance our SNA platform with our current and prospective suitable collaboration partners;

• initiate research and development, preclinical studies and clinical trials for any additional therapeutic candidates that we may pursue in the future;

• advance other therapeutic candidates through preclinical and clinical development;

• increase our research and development activities to enhance our technology;

• increase our research and development activities to enhance our technology platform;

• continue to manufacture increasing quantities of drug substance and drug product material for use in preclinical studies and clinical trials;

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COVID-19 Business Update

With the global spread of the COVID-19 pandemic during 2020, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, our communities, as well as our clinical trial investigators, patients, and caregivers.

As of March 5, 2021, Illinois is under “Phase 4” of the Restore Illinois Plan, which is intended to permit the expansion of business and community operations based on their compliance with the safety guidelines described in the regulations, with new mitigation measures that may require additional restrictions or adaptations being applied on a regional basis within the State of Illinois based on risk levels depending on the health progress of each region to prevent the ongoing spread of COVID-19.

Business and R&D operations

Under social distancing guidelines for COVID-19, we were typically operating with less than 50% of our R&D staff on-site at any one time through June 30, 2020.

As of July 1, 2020, we took occupancy of approximately 30,000 square feet of laboratory and office space in our new headquarters in Chicago, Illinois.

Since then, we have operated under COVID-19 social distancing guidelines and have generally operated with 100% of our R&D staff on-site.

Our office and general and administrative team continues to work predominantly from home.

Our preclinical development program in FA is ongoing and we began IND-enabling studies for XCUR-FXN in late 2020.

We also continue to progress our collaborations with AbbVie and Dermelix.

If the COVID-19 pandemic or its impact or effects continues to persist for an extended period of time, we could experience additional delays in our enrollment of patients for the Phase 2 trial of cavrotolimod (AST-008) and significant disruptions to our preclinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Our principal accounting systems are cloud-based and have been fully operational during the stay at home order.

We believe that all of our fundamental internal control disciplines are being maintained despite work being conducted from our employees’ homes.

As the global spread of the COVID-19 pandemic continues to affect our economy and our industry, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, and our communities.

Our on-site activities continue with protocols for safely accessing and working within our facilities.

While we continue to conduct research and development activities, the COVID-19 pandemic has impacted, and may continue to impact, certain of our early-stage discovery efforts.

We are working closely with our third-party manufacturers and other partners to manage our supply chain activities and mitigate potential disruptions as a result of the COVID-19 pandemic.

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If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, we could experience future disruptions to our supply chain and operations and associated delays in the manufacturing and our clinical supply, which would adversely impact our preclinical and clinical development activities.

Clinical operations

We have one active clinical program, cavrotolimod (AST-008).

We have completed enrollment for the Phase 1b stage of the clinical trial and have begun the Phase 2 dose expansion phase in patients with advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma.

During the third quarter of 2020 and through December 31, 2020, we observed delays in our enrollment plans and clinical trial site start-ups for the Phase 2 dose expansion phase of the trial.

We believe the effects of the COVID-19 pandemic or its impact contributed to such delays.

As a result, we have taken additional measures to increase the enrollment of patients, including frequent interaction with our clinical trial sites currently open as well as increasing the number of clinical trial sites that potentially are activated for this trial so that we may continue to enroll patients as initially planned.

However, these delays have caused us to lengthen our clinical development timeline for cavrotolimod (AST-008), and we now expect to report overall response rate, or ORR, results in the first half of 2022 rather than by year end 2021 as previously guided in September 2020.

We remain committed to maintaining our development plans for cavrotolimod (AST-008) and continue to monitor and manage the rapidly evolving situation.

We have taken and continue to take measures to implement remote and virtual approaches, including remote patient monitoring where possible, to maintain patient safety and trial continuity and to preserve study integrity.

Should the COVID-19 pandemic or its impact or effects continue, our ability to maintain patient enrollment and our clinical development timeline could continue to be negatively impacted.

We could also see an impact on our ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise.

In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

As the COVID-19 pandemic continues to persist for an extended period of time, we continue to be impacted and could experience additional delays in patient enrollment for our Phase 2 clinical trial of cavrotolimod (AST-008).

Any significant disruptions to our clinical development timelines would further delay our anticipated timeline for results and adversely affect our business, financial condition, results of operations and growth prospects.

Liquidity and capital resources

As of December 31, 2020, our cash, cash equivalents, short-term investments, and restricted cash were $83.3 million.

Based on our current operating plans, we believe that existing working capital at December 31, 2020, including amounts borrowed and available under the MidCap Credit Facility (see below), is sufficient to fund our operations for at least 12 months from the date of this report.

However, our operating plan may change as a result of many factors currently unknown to us including due to the effects of COVID-19, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.

We have historically principally raised capital through the sale of our securities.

However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

We believe raising capital in the current market could be very difficult for early stage biotech companies like us.

If the disruption continues to persist and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

Given the global risks and uncertainties associated with COVID-19, our business, results of operations, and prospects could be materially adversely affected.

For additional information, see “Item 1A.

Risk Factors” of this Annual Report on Form 10-K.

Recent Developments

Therapeutic Development Program Updates

Cavrotolimod (AST-008)

As of February 23, 2021, we had 16 clinical trial sites open for enrollment and 7 additional sites pending activation.

We expect to open up to 30 sites for the Phase 2 stage of the clinical trial.

We anticipate all sites will be activated by the end of 2021.

As of February 23, 2021, we had dosed 16 patients with 32 mg of cavrotolimod (AST-008) in the Phase 2 portion of the clinical trial, including the primary and exploratory cohorts.

Including the six patients dosed with 32 mg of cavrotolimod (AST-008) in the Phase 1b portion of the clinical trial, a total of 22 patients have been dosed with 32 mg of cavrotolimod (AST-008).

As of February 23, 2021, 1 of the 22 patients dosed with 32 mg of cavrotolimod (AST-008) has experienced a treatment-related SAE as determined by the clinical trial investigator.

This patient, enrolled in the Phase 2 stage of the clinical trial, reported a treatment-related SAE of hypotension, flu-like symptoms which subsequently resolved.

None of the 14 patients dosed in the Phase 1b portion of the clinical trial with doses of cavrotolimod (AST-008) less than 32 mg experienced a treatment related SAE.

Thus, as of February 23, 2021, in total, 1 of 36 patients treated with cavrotolimod (AST-008) have experienced a treatment related SAE.

Restructuring

On December 10, 2021, we announced our commitment to a plan to wind down our immuno-oncology program for cavrotolimod (AST-008) and our XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia.

We intend to realign our research and development resources to support (i) the development of our preclinical program targeting SCN9A for neuropathic pain, (ii) the continued advancement of our partnered programs with Ipsen to develop SNA-based treatments in neuroscience targeting Huntington’s disease and Angelman syndrome, (iii) our continued advancement of our partnered program with AbbVie to develop SNA-based treatments for hair loss disorders, as well as (iv) the continued research and development of other undisclosed therapeutic product candidates.

This plan resulted in a reduction in force where we eliminated approximately 50% of our existing workforce on a staggered basis through January 2022 as well as other cost-cutting measures.

At December 31, 2021, the accrued liability balance associated with the strategic reduction in force announced in the fourth quarter of 2021 is $1.2 million, presented within accrued expense and other current liabilities on the accompanying consolidated balance sheet.

As previously reported in our Quarterly Report on Form 10-Q filed with the U.S.

Securities and Exchange Commission, or SEC, on November 19, 2021, on November 9, 2021, the Audit Committee of the Board was notified of a claim regarding alleged improprieties that a former senior researcher of us claimed to have committed with respect to our XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia.

The senior researcher had voluntarily resigned from the Company on November 8, 2021.

The Audit Committee retained outside counsel to conduct an internal investigation of the claims.

Based on the results of outside counsel’s investigation, the Audit Committee and we concluded that the subject matters under investigation did not have a material adverse impact on our financial condition or results of operations, and did not require any change in our financial statements.

The Audit Committee and we investigated statements made by Dr.

Grant Corbett, our former Group Leader of Neuroscience.

As a part of his resignation from the Company on November 8, 2021, Dr.

Corbett claimed that when he was employed by us, he intentionally misreported certain raw data related to the research and development of XCUR-FXN.

The investigation began promptly after the receipt of Dr.

Corbett’s resignation and allegations and was substantially completed in early December 2021.

The Audit Committee provided outside counsel with significant resources, without imposing limitations on the investigation’s scope, timing or access to information.

The investigation involved collection and review of a significant number of documents.

communications and data, and interviews of numerous witnesses.

Corbett was also interviewed during the investigation.

The investigation revealed that:

(1) beginning in the autumn of 2020, Dr.

Corbett misreported raw data from certain research and development experiments related to XCUR-FXN; (2) Dr.

Corbett misreported the results of at least three different experiments that were conducted through at least February 2021;

(3) the misreported data related solely to efficacy rather than safety of XCUR-FXN;

(4) the misreported data was included in various public presentations and SEC filings from as early as January 7, 2021 through as late as August 12, 2021;

Corbett acted alone in misreporting the data, without the assistance or knowledge of anyone else at the Company, including our management and other research and development employees and did not inform anyone at the Company of his actions until his resignation in November 2021;

(6) our management reasonably relied on Dr.

Corbett’s analysis when making public statements that included Dr.

Corbett’s misreported data;

and (7) none of our other programs were impacted by Dr.

Corbett’s misreporting of the XCUR-FXN data.

The Board and the Audit Committee began a process with the assistance of counsel to address the results of the investigation and intend to continue to enhance our policies and procedures regarding data management and integrity.

Registered Direct Offering

On December 16, 2021, we completed a securities purchase agreement, or Purchase Agreement, with certain institutional purchasers, or Purchasers, entered into on December 14, 2021, pursuant to which we offered to the Purchasers, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market, or the Registered Direct Offering, (i) an aggregate of 13,006,614 shares of our common stock, $0.0001 par value per share, (ii) pre-funded warrants to purchase up to an aggregate of 21,569,454 shares of our common stock Pre-Funded Warrants, and (iii) warrants to purchase up to 17,288,034 shares of common stock, Warrants.

The combined purchase price of each share of common stock and accompanying Warrant is $0.3326 per share.

The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $0.3316 (equal to the combined purchase price per share of common stock and accompanying Warrant, minus $0.001).

The per share exercise price for the Warrants is $0.2701, the closing bid price of our common stock on December 13, 2021.

The Warrants will be exercisable immediately from the closing on December 16, 2021, and will expire on the five-year anniversary of the date of issuance, or December 16, 2026.

The gross proceeds to us from the Registered Direct Offering were $11.5 million and net proceeds after deducting the placement agent’s fees and other offering expenses payable by us were $10.2 million.

The securities were offered by us pursuant to an effective shelf registration statement on Form S-3 (File No.

333-251555) previously filed with the SEC on December 21, 2020, and which was declared effective by the SEC on January 7, 2021.

MidCap Credit Agreement

On December 10, 2021, we entered into Amendment No.

4 to our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021 and September 30, 2021, with MidCap Financial Trust, as agent, or MidCap, and the lenders party thereto from time to time, or as amended, the MidCap Credit Agreement, amongst other things, provide for the prepayment of $10 million of our outstanding loans under the MidCap Credit Agreement.

On March 15, 2022, pursuant to the terms of the MidCap Credit Agreement, we repaid in full all outstanding indebtedness and other obligations under the MidCap Credit Agreement and the other Financial Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder.

Changes in Board of Directors

Effective March 5, 2021, Elizabeth Garofalo, M.D.

and Andrew Sassine were appointed to our Board, each to serve as directors and as members of the Audit Committee.

Effective January 2, 2021, James Sulat was appointed to our Board, to serve as a director and chairperson of the Audit Committee.

On March 8, 2021, David R.

notified the Board of his intention not to stand for re-election as a director when his term expires at our upcoming 2021 Annual Meeting of Stockholders.

At-the-Market Offering Agreement

In December 2020, we entered into an equity distribution agreement with BMO Capital Markets Corp., or BMO, with respect to an “at the market offering” program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through BMO as our distribution agent.

We are not obligated to sell any shares under the equity distribution agreement.

As of December 31, 2020, no shares had been sold under the equity distribution agreement.

On February 4, 2022, we announced that Andrew Sassine, a member of the Board and a member of the Audit Committee, resigned from the Board and the Audit Committee of the Board, effective February 3, 2022.

On February 4, 2022, we announced that Timothy P.

Walbert, our then chair of the Board, resigned from the Board, effective February 4, 2022 and Bosun Hau, a member of the Board and chair of the Board’s Compensation Committee, resigned from the Board and the Compensation Committee of the Board, effective February 4, 2022.

Upon recommendation of the Nominating and Corporate Governance Committee of the Board, the Board appointed Elizabeth (“Betsy”) Garofalo, M.D.

to serve as chair of the Board to succeed Mr.

Walbert and to serve on the Compensation Committee to fill the vacancy on the Compensation Committee resulting from Mr.

Hau’s resignation from the Board, effective February 4, 2022.

Nasdaq Listing Requirements Deficiency Notice

On December 30, 2021, we received a letter from the staff of The Nasdaq Stock Market LLC, or Nasdaq, notifying us that, for the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Global Select Market under Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A) we have been provided an initial period of 180 calendar days, or until June 28, 2022, to regain compliance with Nasdaq’s bid price requirement.

If, at any time before June 28, 2022, the bid price for our common stock closes at $1.00 or more for a

minimum of 10 consecutive business days, we will regain compliance with the bid price requirement, unless the Nasdaq staff exercises its discretion to extend this 10-day period pursuant to Nasdaq rules.

We have not regained compliance with Nasdaq Listing Rules as of the filing date of this Annual Report.

If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2) by June 28, 2022, we may be eligible for additional time to comply.

To qualify, we will be required to meet certain continued listing requirements for market value of publicly held shares and all other initial listing standards for Nasdaq.

If we meet these requirements, Nasdaq may grant us an additional 180 calendar days to regain compliance with the bid price requirement.

If we do not regain compliance with the bid price requirement and are not eligible for an additional compliance period our common stock may be delisted.

Basis of Presentation

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A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights and obligations regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

We apply judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

We apply judgment in determining the customer’s intent and ability to pay, which is based on a variety of

factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

Identify the performance obligations in the contract.

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Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Any estimates, including the effect of the constraint on variable

consideration, are evaluated at each reporting period for any changes.

Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes.

Determining the transaction price requires significant judgment.

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Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset.

Revenue allocated to performance obligations relating to provision of research and development activities is recognized as the performance obligations are satisfied using an input method to measure progress, based on an estimate of the percentage of completion of the project based on the actual hours incurred on the project as a percentage of the total expected project hours.

The determination of the percentage of completion requires management to estimate the total expected project hours.

A detailed estimate of the total expected project hours is re-assessed every reporting period based on the latest project plan and discussions with project teams.

If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate.

The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs.

Determining the estimate of total project hours requires significant judgment and may have a significant impact on the amount and timing of revenue recognition.

For example, revenue recognized

under the AbbVie Collaboration Agreement for the year ended December 31, 2021 was $(2.8) million due primarily to the cumulative catchup adjustment (reduction) of revenue recorded in connection with a change in estimate that occurred during the third quarter of 2021(see Note 3 to the accompanying consolidated financial statements).

A 10% increase in the estimate of total projected hours for the AbbVie Collaboration Agreement at December 31, 2021 would decrease collaboration revenue by approximately $1.3 million.

A 10% decrease in the estimate of total projected hours for the AbbVie Collaboration Agreement at December 31, 2021 would increase collaboration revenue by approximately $1.5 million.

A 10% increase or decrease in the estimate of total projected hours for the Ipsen Collaboration Agreement at December 31, 2021 would decrease or increase, respectively, the collaboration revenue by less than $0.3 million.

Licenses of intellectual property :

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To date, we have not recognized any royalty revenue resulting from any of its collaboration agreements.

During the years ended December 31, 2020 and 2019, we have primarily earned revenue under the collaboration agreements with AbbVie and Dermelix (see Note 3 to the accompanying consolidated financial statements).

Equity-based compensation

We measure the cost of common stock option awards at fair value and record the cost of the awards, net of estimated forfeitures, on a straight-line basis over the requisite service period.

We measure fair value for all common stock options using the Black-Scholes option-pricing model.

For all common stock option awards, the fair value measurement date is the date of grant and the requisite service period is the period over which the option recipient is required to provide service in exchange for the common stock option awards, which is generally the vesting period.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions, including:

(1) the estimated grant date fair value of our common stock;

(2) the option exercise price;

(3) the expected term of the option in years;

(4) the annualized volatility of the stock;

(5) the risk-free interest rate;

and (6) the annual rate of quarterly dividends on the stock.

The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2.

Currently, we do not have sufficient experience to provide a reasonable estimate of an expected term of its common stock options.

We will continue to use the “simplified method” until there is sufficient experience to provide a more reasonable estimate in conformance with ASC 718-10-30-25 through 30-26.

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

Treasury bond rate appropriate for the expected term in effect at the time of grant.

The expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development.

The estimated forfeiture rates were based on historical experience for similar classes of employees.

The dividend yield was based on expected dividends at the time of grant.

Recently adopted accounting pronouncements

Refer to Note 2 of the accompanying consolidated financial statements for a description of recently adopted accounting pronouncements.

Recent accounting pronouncements not yet adopted

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Components of Statements of Operations

We have earned all of our revenue through December 31, 2020 through our research collaboration license and option agreement with AbbVie, or the AbbVie Collaboration Agreement, our research collaboration, license, and option agreement with Purdue Pharma L.P., or the Purdue Collaboration Agreement, or through our research collaboration license and option agreement with Dermelix.

We have earned all of our revenue through December 31, 2021 through the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, our research collaboration, license, and option agreement with Purdue Pharma L.P., or the Purdue Collaboration Agreement, or through our research collaboration license and option agreement with Dermelix.

We have also earned revenue as a primary contractor or as a subcontractor on government grants.

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We have not generated any commercial product revenue and do not expect to generate any product revenue for the foreseeable future.

In the future, we may generate revenue from partnership activities including a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement, the Dermelix Collaboration Agreement, or any future collaborations and licenses.

In the future, we may generate revenue from partnership activities including a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, the Dermelix Collaboration Agreement, or any future collaborations and licenses.

We expect that any such revenue we generate will fluctuate in future periods as a result of the timing of achievement, if at all, of preclinical, clinical, regulatory and commercialization milestones, the timing and amount of any payments to us relating to such milestones and the extent to which any of our therapeutic candidates are approved and successfully commercialized by us or potential development partners.

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Interest expense

Interest expense includes amounts pursuant to the loan and security agreement with Hercules Technology Growth Capital, or Hercules, for which we repaid all remaining outstanding obligations under the Hercules loan agreement at its maturity on March 1, 2020.

Interest expense also includes amounts pursuant to the MidCap Credit Agreement.

See “—MidCap Credit Agreement” below for additional information.

Interest expense includes amounts pursuant to the MidCap Credit Agreement and also the loan and security agreement with Hercules Technology Growth Capital, or Hercules, for which we repaid all remaining outstanding obligations under the Hercules loan agreement at its maturity on March 1, 2020.

Other income (loss), net

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Collaboration revenue:

AbbVie Collaboration Agreement $ 16,486 $ 171 $ 16,315 n/m

Dermelix Collaboration Agreement 127 1,125 (998) n/m

AbbVie Collaboration Agreement $ (2,792) $ 16,486 $ (19,278) (117) %

Ipsen Collaboration Agreement

2,309 — 2,309 n/m

Dermelix Collaboration Agreement — 127 (127) (100) %

Total collaboration revenue $ (483) $ 16,613 $ (17,096) (103) %

Total revenue $ (483) $ 16,613 $ (17,096) (103) %

We recognized collaboration revenue in the amount of $16.6 million during the year ended December 31, 2020, which is primarily related to activities performed under the AbbVie Collaboration Agreement.

In November 2019, we received an upfront payment of $25.0 million in connection with the AbbVie Collaboration Agreement for which revenue has been deferred and will be recognized as revenue in future periods as we satisfy our obligations under the AbbVie Collaboration Agreement.

At December 31, 2020, deferred revenue under the AbbVie Collaboration Agreement was $8.3 million and is expected to be recognized as revenue over the next twelve months as we satisfy our obligations under the AbbVie Collaboration Agreement.

Refer to Note 3 of the accompanying consolidated financial statements for more information regarding revenue recognition for the AbbVie Collaboration Agreement.

The collaboration revenue of $1.3 million during the year ended December 31, 2019 related to the reimbursable research and development activities performed under the Dermelix Collaboration Agreement, for which related costs are presented on a gross basis in the accompanying consolidated statement of operations.

Collaboration revenue was $(0.5) million during the year ended December 31, 2021, reflecting a decrease of $17.1 million, or 103%, from collaboration revenue of $16.6 million for the year ended December 31, 2020.

The decrease in collaboration revenue of $17.1 million is mostly due to a decrease in revenue related to the AbbVie Collaboration Agreement of $19.3 million partially offset by revenue related to the Ipsen Collaboration Agreement of $2.3 million.

As discussed further in Note 3, Collaborative Research and License Agreements , of the accompanying consolidated financial statements, revenue recognized under the AbbVie Collaboration Agreement for the year ended December 31, 2021 reflects the cumulative catchup adjustment (reduction) of revenue in connection with the change in estimate that resulted from a change in workplan during the third quarter of 2021.

We currently estimate

significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement.

These increased estimated efforts in connection with the change in workplan resulted in less progress occurring relative to the increased estimate of total project hours to complete the research services during the year ended December 31, 2021 as compared to the amount of revenue recognized at December 31, 2020, which led to a full year revenue reversal of $(2.8) million in the current year As of December 31, 2021, deferred revenue under the AbbVie Collaboration Agreement was $11.1 million and is expected to be recognized as revenue over the next 21 to 24 months as we satisfy our obligations under the AbbVie Collaboration Agreement.

In August 2021, we received an upfront payment of $20.0 million in connection with the Ipsen Collaboration Agreement for which revenue has been deferred and will be recognized as revenue in future periods as we satisfy our obligations under the Ipsen Collaboration Agreement.

At December 31, 2021, deferred revenue under the Ipsen Collaboration Agreement was $17.7 million and is expected to be recognized as revenue over the next 30 to 39 months as we satisfy our obligations under the Ipsen Collaboration Agreement.

Refer to Note 3, Collaborative Research and License Agreements , of the accompanying consolidated financial statements for more information regarding revenue recognition for the AbbVie Collaboration Agreement and Ipsen Collaboration Agreement.

We do not expect to generate any product revenue for the foreseeable future.

However, future revenue may include amounts attributable to partnership activities including, a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement or the Dermelix License Agreement or any future collaboration and licenses.

However, future revenue may include amounts attributable to partnership activities including, a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, the Dermelix Collaboration Agreement or any future collaboration and licenses.

Research and development expense

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(dollars in thousands) 2021 2020 Change

Platform and discovery-related expense $ 13,361 $ 8,442 $ 4,919 58 %

Clinical development programs expense $ 18,899 $ 8,259 $ 10,640 129 %

Platform and discovery-related expense 13,650 13,361 289 2 %

Employee-related expense 12,362 7,725 4,637 60 %

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Research and development expense was $49.0 million for the year ended December 31, 2021, reflecting an increase of $16.9 million, or 53%, from research and development expense of $32.1 million for the year ended December 31, 2020.

Since December 31, 2019, we have increased our headcount in research and development from 29 to 54 at December 31, 2020.

The increase in research and development expense for the year ended December 31, 2020 of $12.8 million reflects this increased staffing level and the related increase in research and development activities, in addition to the growth in clinical trial activities.

More specifically, the increase in research and development expense for the year ended December 31, 2020 of $12.8 million was primarily due to higher platform and discovery-related expense of $4.9 million, a net increase in costs related to our clinical development programs of $3.2 million, higher employee-related expenses of $3.0 million, and higher facilities, depreciation, and other expenses in the amount of $1.6 million.

The increase in platform and discovery-related expense of $4.9 million is mostly due to higher costs for materials, reagents, lab supplies, and contract research organizations, all in connection with increased research and development activities related to the AbbVie Collaboration Agreement, our FA program, XCUR-FXN, and our discovery efforts for other therapeutic candidates for neurology and ophthalmology, partially offset by the absence of a license fee of $3.8 million paid in 2019 to Northwestern University in connection with the receipt of the $25.0 million upfront payment from AbbVie.

The net increase in clinical development programs expense for the year ended December 31, 2020 of $3.2 million was primarily due to manufacturing costs in connection with the initiation of the upcoming Phase 2 phase of our Phase 1b/2 clinical trial for cavrotolimod (AST-008) and other higher clinical trial expenses, as well as manufacturing costs in connection with the preparation of IND-enabling and Phase 1 clinical trial activities for XCUR-FXN, partially offset by lower clinical trial expenses for XCUR17.

The increase in employee-related expense for the year ended December 31, 2020 of $3.0 million was due to higher compensation and related costs in connection with the net increase in headcount during the period presented as well as certain salary increases in 2020 for existing employees and higher recruiting costs.

The increase in facilities, depreciation, and other expenses for the year ended December 31, 2020 of $1.6 million was mostly due to the acceleration of amortization expense for our right-of-use asset related to our Skokie lease which we no longer

use effective July 1, 2020 due to our move to our Chicago headquarters, higher lease costs related to our Chicago Lease that commenced on July 1, 2020 as well as higher depreciation expense in connection with the acquisition of additional scientific equipment that were placed in service since the prior-year period.

We expect our research and development expenses to increase during 2021 as we broaden our pipeline of SNA-based therapeutic candidates, continue spending on our clinical development programs, and further develop our SNA technology platform.

The increase in research and development expense for the year ended December 31, 2021 of $16.9 million reflects an increase in clinical trial activities during the year as well as the impact of higher average headcount during 2021 as compared to the prior year period.

More specifically, the increase in research and development expense for the year ended December 31, 2021 of $16.9 million was primarily due to a net increase in costs related to our clinical development programs of $10.6 million, higher employee-related expenses of $4.6 million, higher facilities, depreciation, and other expenses of $1.3 million, and higher platform and discovery-related expense of $0.3 million.

The net increase in clinical development programs expense for the year ended December 31, 2021 of $10.6 million was primarily due to manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for XCUR-FXN, in addition to higher clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), partially offset by lower manufacturing costs for cavrotolimod

In December 2021, we began the winding down of the cavrotolimod (AST-008) and XCUR-FXN programs.

The increase in employee-related expense for the year ended December 31, 2021 of $4.6 million was due to higher compensation and related costs in connection with a higher average headcount during the period as well as certain salary increases in 2021 for existing employees, in addition to one-time severance costs of approximately $0.6 million associated with the December 2021 restructuring.

These higher costs in 2021 were partially offset by lower bonus expense of $0.5 million in 2021 resulting from the reduction of the 2021 bonus liability to zero at December 31, 2021.

The increase in platform and discovery-related expense of $0.3 million was mostly due to the license fee paid to Northwestern University of $3.0 million in connection with the receipt of the upfront payment of $20.0 million from Ipsen, mostly offset by lower costs for materials and reagents, as well as lower intellectual property costs.

The increase in facilities, depreciation, and other expenses for the year ended December 31, 2021 of $1.3 million was mostly due to higher lease costs related to our Chicago lease that commenced on July 1, 2020 as well as higher depreciation expense in connection with the acquisition of additional scientific equipment that were placed in service since the prior-year period.

In connection with the restructuring activities discussed further above in “Recent Developments – Restructuring” and based on our current operating plan, we expect our research and development expenses to decrease by approximately 30-35% during 2022 as compared to 2021.

General and administrative expense

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General and administrative expense was $13.1 million for the year ended December 31, 2021, representing an increase of $3.1 million, or 31%, from $10.0 million for the year ended December 31, 2020.

The increase for the year ended December 31, 2020 is mostly due to higher legal and accounting costs associated with operating as a public company, higher franchise tax costs, higher D&O insurance premium costs, partially offset by lower travel and related costs.

Dividend income

The decrease in dividend income of $0.5 million for the year ended December 31, 2020 was the result of lower average balances invested in money market funds during 2020 as compared to 2019.

The increase for the year ended December 31, 2021 is mostly due to higher compensation and related costs mostly due to salary increases in 2021 and an increase in headcount, in addition to one-time severance costs of approximately $0.6 million associated with the December 2021 restructuring, higher legal and consulting costs, higher D&O insurance premium costs, and higher recruiting costs.

This increase was partially offset by lower bonus expense of $0.5 million in 2021 resulting from the reduction of the 2021 bonus liability to zero at December 31, 2021, as well as lower investor relations and franchise tax costs.

Interest income

The increase in interest income of $0.8 million for the year ended December 31, 2020 was the result of higher average balances invested in available for sale securities during 2020 as compared to 2019.

The decrease in interest income of $0.8 million for the year ended December 31, 2021 was primarily the result of lower average balances invested in available for sale securities during the year ended December 31, 2021 as compared to the prior-year period.

Interest expense

The decrease in interest expense of $0.2 million for the year ended December 31, 2020 was mostly due to lower interest expense resulting from the repayment of outstanding obligations under the Hercules Loan Agreement upon maturity on March 2, 2020, partially offset by incremental interest expense resulting from $17.5 million borrowed on September 25, 2020 under the MidCap Credit Agreement.

The increase in interest expense of $1.1 million for the year ended December 31, 2021 was the result of a higher average debt balance during the year ended December 31, 2021 as compared to the prior-year period.

Liquidity and Capital Resources

As of December 31, 2020, our cash, cash equivalents, short-term investments, and restricted cash were $83.3 million.

We have historically principally raised capital through the sale of our securities.

However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

We believe raising capital in the current market could be very difficult for early stage biotech companies like us.

If the disruption continues to persist and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

On September 25, 2020, we borrowed the first advance of $17.5 million (Tranche 1) under the terms of the MidCap Credit Agreement (as discussed further below).

The second advance of $7.5 million (Tranche 2) will be available to us from April 1, 2021 to September 30, 2021, subject to our satisfaction of certain conditions described in the MidCap Credit Agreement.

See “—MidCap Credit Agreement” below for additional information.

In December 2020, we entered into an equity distribution agreement with BMO under which we may offer and sell in “at the market offerings” (as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended) from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through BMO acting as our distribution agent, or the ATM Offering.

During the year ended December 31, 2020, we did not sell any shares under the equity distribution agreement.

In March 2019, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on July 24, 2019.

The shelf registration statement allows us to sell from time-to-time up to $125.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for our own account in one or more offerings;

the remaining amount available under this shelf registration is approximately $31.3 million.

On January 6, 2020, we sold 1,081,184 shares of our common stock at a price of $2.75 per share pursuant to the exercise of the underwriters’ option to purchase additional shares at the public offering price in connection with the December 2019 Offering.

We received gross proceeds of $3.0 million before deducting underwriting discounts and commissions and offering expenses of $0.2 million in January 2020 in connection with the December 2019 offering.

Similar to other development stage biotechnology companies, we have not generated any revenue since inception.

We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years.

As of December 31, 2020, we have generated an accumulated deficit of 124.8 million.

Since our inception, we have incurred significant operating losses.

We have generated limited revenue to date from our collaboration agreements.

We have not yet commercialized any of our product candidates, which are in various phases of preclinical development and clinical trials;

and we do not expect to generate revenue from sales of any product for several years, if at all.

We have funded our operations to date with proceeds received from equity financings and payments received in connection with collaboration agreements.

As of December 31, 2021, our cash, cash equivalents, short-term investments, and restricted cash were $48.3 million as compared to $83.3 million as of December 31, 2020.

To date, we have funded our operations primarily with proceeds received from equity financings and to a lesser extent, payments received in connection with collaboration agreements.

We have generated limited revenue to date from our collaboration agreements.

We have no products approved for commercial sale and have not generated any product revenues from product sales to date, and we do not expect to generate revenue from sales of any product for several years, if at all.

In December 2021, we closed a registered direct offering with certain institutional investors where we sold (i) an aggregate of 13,006,614 shares of our common stock, (ii) pre-funded warrants to purchase up to an aggregate of 21,569,454 shares of common stock, and (iii) warrants to purchase up to 17,288,034 shares of common stock, for net proceeds of $10.4 million, after deducting placement agent fees and other offering expenses payable by us.

We have incurred significant operating losses since inception.

We incurred net losses of approximately $64.1 million and $24.7 million for the year ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we have generated an accumulated deficit of $188.9 million since inception and expect to incur significant expenses and negative cash flows for the foreseeable future.

Based on our current operating plans and existing working capital at December 31, 2021, it is uncertain whether our current liquidity is sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements.

As a result, there is substantial doubt about our ability to continue as a going concern.

We have no committed sources of additional capital at this time and substantial additional financing will be needed by us to fund our operations.

If we are unable to raise capital, we may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to assets or preclinical programs that we might otherwise seek to develop independently.

See “—Funding Requirements” below for additional information on our future capital needs.

The following table shows a summary of our cash flows for the years ended December 31, 2020 and 2019:

(in thousands) 2020 2019

Net cash (used in) provided by operating activities $ (39,270) $ 1,317

Net cash provided by (used in) investing activities 10,142 (63,432)

Net cash provided by financing activities 15,130 84,307

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (13,998) $ 22,192

Operating activities

Net cash (used in) provided by operating activities was $(39.3) million and $1.3 million for the years ended December 31, 2020 and 2019, respectively.

The increase in cash used in operating activities of $40.6 million was primarily due to higher cash used for working capital and the absence of a $25.0 million upfront payment received in 2019 in connection with the AbbVie Collaboration Agreement.

Investing activities

Net cash provided by (used in) investing activities was $10.1 million and $(63.4) million for the years ended December 31, 2020 and 2019, respectively.

The increase in cash provided by investing activities of $73.6 million was primarily due to lower purchases, net of maturities, of available-for-sale securities.

Financing activities

Net cash provided by financing activities of $15.1 million for the year ended December 31, 2020 is primarily due to the net proceeds we received of $17.3 million during the period in connection with the MidCap Credit Agreement, as well as the net proceeds received from the sale of shares of our common stock in the amount of $2.8 million pursuant to the partial exercise of the option to purchase additional shares by the underwriters from our December 2019 financing, partially offset by the repayment of the Hercules loan in the amount of $5.0 million upon the loan’s maturity.

Net cash provided by financing activities of $84.3 million for the year ended December 31, 2019 is primarily due to the sale of common stock in our December 2019 and August 2019 offerings.

In December 2019 , we completed the offering and sale of 10,000,000 shares of our common stock at a public offering price of $2.75 per share, resulting in net proceeds of approximately $25.3 million.

In August 2019 , we completed the offering and sale of 31,625,000 shares of our common stock at a public offering price of $2.00 per share, resulting in net proceeds of approximately $58.9 million.

MidCap Credit and Security Agreement

On September 25, 2020, the Company and its wholly owned subsidiary , Exicure Operating Company, entered into the MidCap Credit Agreement, with MidCap , as agent, and the lenders party thereto from time to time.

MidCap Credit Facility

On December 10, 2021, we entered into Amendment No.

4 to our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021 and September 30, 2021, with MidCap Financial Trust, as agent, or MidCap, and the lenders party thereto from time to time, or the MidCap Credit Agreement), to prepay $10.0 million of our outstanding loans under the MidCap Credit Agreement.

Additionally, in connection with Amendment No.

4, we are required to maintain a balance of $20.0 million in accounts at Silicon Valley Bank, including $8.0 million in a blocked account at Silicon Valley Bank.

The balance of $8.0 million in the blocked account at Silicon Valley Bank is restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet.

The MidCap Credit Agreement provides for a secured term loan facility in an aggregate principal amount of up to $25.0 million, or the MidCap Credit Facility.

We borrowed the first advance of $17.5 million, or Tranche 1, on September 25, 2020, or the Closing Date.

Under the terms of the MidCap Credit Agreement, the second advance of $7.5 million, or Tranche 2, will be available to us from April 1, 2021 to September 30, 2021, subject to our satisfaction of certain conditions described in the MidCap Credit Agreement.

The proceeds from the MidCap Credit Facility are expected to be used for working capital and general corporate purposes.

Tranche 1, and if borrowed Tranche 2, each bear interest at a floating rate equal to 6.25% per annum, plus the greater of (i) 1.50% or (ii) one-month LIBOR.

Amendment No.

4 terminated the availability of the second advance of $7.5 million, or Tranche 2, effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions.

Tranche 1 bears interest at a floating rate equal to 6.25% per annum, plus the greater of (i) 1.50% or (ii) one-month LIBOR.

Interest on each loan advance is due and payable monthly in arrears.

Principal on each loan advance is payable in 36 equal monthly installments beginning October 1, 2022 until paid in full on October 1, 2025, or Maturity Date.

Principal on each loan advance is payable in 36 equal monthly installments beginning October 1, 2022 until paid in full on October 1, 2025, or the

Maturity Date.

Prepayments of the loans under the MidCap Credit Agreement, in whole or in part, will be subject to early termination fees in an amount equal to 3.0% of principal prepaid if prepayment occurs on or prior to the first anniversary of the Closing Date and 1.0% of principal prepaid if prepayment occurs after the first anniversary of the Closing Date and prior to the maturity date.

In connection with execution of the MidCap Credit Agreement, we paid MidCap a $125,000 origination fee.

In connection with Amendment No.

4, the early termination fee associated with the prepayment of $10.0 million made in December 2021 was waived and if the remaining principal amount is repaid on or prior to March 31, 2022, the associated early termination fee for that prepayment will be waived.

In connection with execution of the MidCap Credit Agreement, the Company paid MidCap a $0.1 million origination fee.

At the Maturity Date or on any earlier date on which all amounts advanced to us become due and payable in full, or are otherwise paid in full, we are required to pay an exit fee equal to 3.75% of the principal amount of all loans advanced to us under the MidCap Credit Agreement.

Our obligations under the MidCap Credit Agreement are secured by a security interest in substantially all of our assets, excluding intellectual property (which is subject to a negative pledge).

Additionally, our future subsidiaries, if any, may be required to become co-borrowers or guarantors under the MidCap Credit Agreement.

Upon the advance of Tranche 1, we accrued $0.7 million for the related exit fee.

In connection with Amendment No.

4, if the remaining principal amount is repaid on or prior to March 31, 2022, a portion of the related exit fee that has not been earned by MidCap will be waived.

Our obligations under the MidCap Credit Agreement are secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge).

Additionally, the Company’s future subsidiaries, if any, may be required to become co-borrowers or guarantors under the MidCap Credit Agreement.

The MidCap Credit Agreement contains customary affirmative covenants and customary negative covenants limiting our ability and the ability of our subsidiaries, if any, to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The MidCap Credit Agreement also contains customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, delisting of our common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties.

Upon an event of default, the agent and the lenders may declare all or a portion of our outstanding obligations to be immediately due and payable and exercise other rights and remedies

provided for under the agreement.

Upon an event of default, the agent and the lenders may declare all or a portion of our outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the agreement.

During the existence of an event of default, interest on the obligations could be increased by 2.0%.

Hercules Loan and Security Agreement

On March 2, 2020, pursuant to the terms of the loan agreement with Hercules Technology Growth Capital, or Hercules, and subsequent amendments thereto, or Hercules Loan Agreement, we repaid all remaining outstanding obligations under the Hercules Loan Agreement, to include the outstanding principal balance of $5.0 million and a deferred end of term fee of $0.1 million.

As a result, Hercules no longer has a security interest in any of our assets.

On March 15, 2022, we repaid in full all outstanding indebtedness and other obligations under the MidCap Credit Agreement and the other Financing Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder.

At-the-Market Facility Program

On December 21, 2020, we entered into an equity distribution agreement, or the Sales Agreement, with BMO Capital Markets Corp., a Delaware corporation, or BMO, with respect to an “at-the-market offering” program under which we could offer and sell, from time to time at its sole discretion, shares of our common stock, par value $0.0001 per share, having aggregate gross proceeds of up to $50.0 million through BMO as its sales agent.

On January 4, 2022, BMO delivered written notice to us, effective as of such date, to terminate the Sales Agreement pursuant to Section 6(b) thereof.

We and BMO agreed to terminate the Sales Agreement, effective as of such date.

Through the date of termination of the Sales Agreement, we have not sold any shares under the Sales Agreement.

The following table shows a summary of our cash flows for the years ended December 31, 2021 and 2020:

(in thousands) 2021 2020

Net cash used in operating activities $ (34,819) $ (39,270)

Net cash provided by investing activities 43,085 10,142

Net cash provided by financing activities 1,116 15,130

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 9,382 $ (13,998)

Operating activities

Net cash used in operating activities was $34.8 million and $39.3 million for the years ended December 31, 2021 and 2020, respectively.

The decrease in cash used in operating activities for the years ended December 31, 2021 of $4.5 million was primarily due to the receipt of the upfront payment of $20.0 million from Ipsen in connection with the Ipsen Collaboration Agreement, partially offset by higher cash used for working capital and the license fee paid to Northwestern University of $3.0 million in connection with receipt of the Ipsen Upfront Payment.

Investing activities

Net cash provided by investing activities was $43.1 million and $10.1 million for the years ended December 31, 2021 and 2020, respectively.

The increase in cash provided by investing activities of $32.9 million was primarily due to higher proceeds from the maturity, net of purchases, of available-for-sale securities, as well as a decrease in the purchase of scientific equipment of $2.2 million.

Financing activities

Net cash provided by financing activities of $1.1 million for year ended December 31, 2021 is due primarily due to the net proceeds we received of $10.4 million in connection with the sale of common stock and warrants in the registered direct offering in December 2021, as well as proceeds received from the exercise of stock options and the issuance of common stock in connection with our employee stock purchase plan, mostly offset by the prepayment of $10 million of the outstanding principal balance associated with our MidCap Credit Agreement (as discussed above) in December 2021.

Funding Requirements

We expect that our primary uses of capital will continue to be third-party clinical and research and development services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general overhead costs.

Because of the numerous risks and uncertainties associated with research, development and commercialization of therapeutic candidates, we are unable to estimate the exact amount of our working capital requirements.

We expect our expenses to increase as we continue our ongoing activities, particularly as we continue our research and development, initiate preclinical studies or clinical trials, and seek marketing approval for our current and any of our future product candidates.

In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties.

In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing and expenditures of our preclinical studies and our research and development activities.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022.

However, we have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

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• the initiation, progress, timing and completion of preclinical studies and clinical trials for our potential therapeutic candidates;

• the effects of health epidemics, including the ongoing COVID-19 pandemic, on our operations or the business or operations of our CROs or other third parties with whom we conduct business;

• the effects of health epidemics, including the ongoing COVID-19 pandemic, on our operations or the business or operations of our contract research organizations, or CROs, or other third parties with whom we conduct business;

• the number and characteristics of therapeutic candidates that we pursue;

• the progress, costs and results of our preclinical studies and clinical trials;

• the progress, costs and results of our preclinical studies;

• the outcome, timing and cost of regulatory approvals;

• delays that may be caused by changing regulatory requirements;

• the cost and timing of hiring new employees to support our continued growth;

• the cost and timing of hiring new employees to support our growth;

• unknown legal, administrative, regulatory, accounting, and information technology costs as well as additional costs associated with operating as a public company;

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• the extent to which we acquire or invest in other businesses, therapeutic candidates or technologies.

Based on our current operating plans, we believe that our existing working capital at December 31, 2020, including amounts borrowed and available under the MidCap Credit Facility is sufficient to fund our operations for at least 12 months from the date of this report.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties.

The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

If the disruption continues to persist and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

To the extent that we raise additional capital through future equity financings, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders.

If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development efforts or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and distribution or licensing arrangements with third parties.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic and most recently, the conflict between Russia and Ukraine.

Any further disruption or slowdown in the global financial markets and economy may negatively affect our ability to raise funding through equity or debt financings on attractive terms or at all, which could in the future negatively affect our operations.

If we raise funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our research and development programs, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Going Concern

In accordance with Accounting Standards Codification 205-40, Going Concern , we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

In the absence of a significant source of recurring revenue, our continued viability is dependent on our ability to continue to raise additional capital to finance our operations.

We have no committed sources of additional capital at this time and substantial additional financing will be needed by us to fund our operations.

Changes in our business strategy, our operating plans, our existing and anticipated working capital needs, increased expenses, or other events will also affect our ability to continue as a going concern.

If we are unable to obtain additional funding, we may be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Contractual Obligations and Commitments

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During the first 12 months, the base rent and our proportionate share of operating expenses and taxes are subject to certain abatements.

In connection with the Chicago Lease, we will maintain a letter of credit for the benefit of the landlord in an initial amount of $1.2 million, which amount is subject to reduction over time.

In connection with the Chicago Lease, we will maintain a letter of credit for the benefit of the landlord in an initial amount of $1.2 million, which amount is subject to reduction over time, which is secured by a restricted certificate of deposit account and presented within other noncurrent assets on our consolidated balance sheet at December 31, 2021.

MidCap Credit and Security Agreement

On September 25, 2020, we borrowed the first advance of $17.5 million (Tranche 1) under the terms of the MidCap Credit Agreement (as discussed further above).

Tranche 1 bears interest at a floating rate equal to 6.25% per annum, plus the greater of (i) 1.50% or (ii) one-month LIBOR.

Interest on each loan advance is due and payable monthly in arrears.

Principal on the Tranche 1 loan advance is payable in 36 equal monthly installments beginning October 1, 2022 until paid in full on October 1, 2025.

Upon termination of the MidCap Credit Agreement, we are required to pay an exit fee equal to 3.75% of the principal amount of all loans advanced to us under the MidCap Credit Agreement.

We enter into agreements in the normal course of business with contract research organizations and vendors for clinical trials, preclinical studies, and other services and products for operating purposes which are cancelable at any

time by us, generally upon 30 days prior written notice.

We also have obligations to make future payments to Northwestern University that become due and payable on the achievement of certain commercial milestones.

On December 10, 2021, we entered into Amendment No.

4 to the MidCap Credit Agreement to prepay $10.0 million of our outstanding loans under the MidCap Credit Agreement.

Additionally, in connection with Amendment No.

4, we are required to maintain a balance of $20.0 million in accounts at Silicon Valley Bank, including $8.0 million in a blocked account at Silicon Valley Bank.

The balance of $8.0 million in the blocked account at Silicon Valley Bank is restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet.

The MidCap Credit Agreement provides for a secured term loan facility in an aggregate principal amount of up to $25.0 million.

We borrowed the first advance of $17.5 million on September 25, 2020.

Amendment No.

4 terminated the availability of the second advance of $7.5 million effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions.

We also have obligations to make future payments to Northwestern that become due and payable on the achievement of certain commercial milestones.

These payments are not included in this table of contractual obligations.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

4 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis