What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-25 · 126 added, 326 removed, 111 unchanged (80% of the section changed)

5 unchanged sentences

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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, 2021, filed with the SEC on March 25, 2022.

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.

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.

Historically, we have been an early-stage biotechnology company focused on developing nucleic acid therapies targeting ribonucleic acid against validated targets.

In September 2022, we announced a significant reduction in force, suspension of preclinical activities and halting of all research and development, and that we were exploring strategic alternatives to maximize stockholder value.

With respect to our historical assets, this includes continuing to explore out-licensing opportunities for cavrotolimod, our clinical-stage asset in immuno-oncology, as well as for our preclinical candidate associated with the SCN9A program for neuropathic pain.

While the foregoing efforts are continuing, we do not expect they will generate significant value for stockholders, at least in the near term.

Therefore, we are engaging in a broader exploration of strategic alternatives.

This effort involves exploring growth through transactions with potential partners that see opportunity in joining an existing, publicly-traded organization.

We are exploring transactions both within our historical biotechnology and life science industry and in other industries unrelated to our historical operations.

Because we currently have no source of revenue or committed financing, we will require substantial additional funding within the next few months in order to continue our exploration of strategic alternatives and consummate any transactions that we may identify.

Operating, financing, and cash flow considerations

Since our inception in 2011, we have devoted substantial resources to the research and development of SNAs and the protection and enhancement of our intellectual property.

We have no products approved for sale and have primarily funded our operations through sales of our securities and collaborations.

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 $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).

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

Since our inception, we have incurred significant operating losses.

As of December 31, 2021, we have generated an accumulated deficit of $188.9 million.

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 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:

• 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 platform;

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

• seek regulatory approval for our therapeutic candidates that successfully complete clinical trials;

• maintain, expand and protect our intellectual property portfolio;

• acquire or in-license other approved drugs, drug candidates or technologies;

• hire additional operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts;

• incur additional costs associated with operating as a public company.

We have not generated any revenue from commercial drug sales nor do we expect to generate substantial revenue from product sales unless or until we successfully complete development and obtain regulatory approval of and commercialize one or more of our therapeutic candidates.

We do not anticipate generating revenue from drug sales for the next several years, if ever.

If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Other sources of revenue could include a combination of research and development payments, license fees and other upfront payments, milestone payments, and royalties in connection with our current and any future collaborations and licenses.

Until such time, if ever, that we generate revenue from whatever source, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements.

We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms.

Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our therapeutic candidates.

COVID-19 Business Update

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.

We have observed minor delays in receipt of key chemicals, reagents and materials as certain manufacturers have had supply disruptions related to the COVID-19 pandemic.

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.

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.

Since our inception in 2011, we have primarily funded our operations through sales of our securities, loans and collaborations.

As of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million.

Subsequent to December 31, 2022, we raised gross proceeds of $5.4 million on the closing of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Our current liquidity is not 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.

Substantial additional financing will be needed by us within the next few months to fund our operations and ongoing exploration of strategic alternatives and pursue any alternatives that we identify.

If we are unable to raise capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.

We expect to seek financing through a combination of equity offerings, and debt financings.

However, it may be difficult to obtain financing given the Company’s current condition and uncertainty over its future direction.

Therefore, we may be unable to raise capital when needed or on favorable terms.

Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue operations.

Recent Developments

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

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.

On September 26, 2022, we announced our commitment to a plan to wind down our existing preclinical programs, including the development of our SCN9A program, to suspend all of our research and development (“R&D”) activities, including suspension of all partnered programs, and to implement a reduction in force whereby we reduced approximately 66% of our then-existing workforce, as well as other cost-cutting measures (collectively, the “Plan”).

The purpose of the Plan was to decrease expenses, thereby, extending our cash runway, and enable us to maintain a streamlined organization to support key corporate functions.

Change of Control

On February 24, 2023, following the satisfaction of closing conditions, including the approval by our stockholders at a Special Meeting of Stockholders held on December 15, 2022, we closed our private placement (the “Private Placement”) to CBI USA.

Exicure received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expects to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Following the closing of the Private Placement, CBI USA is the beneficial owner of approximately 50.4% of the Company’s outstanding shares, resulting in a "change of control" of Exicure under the applicable rules of Nasdaq.

At closing, CBI USA designated three members to the Company’s board of directors effective as of February 24, 2023.

Additional directors were subsequently appointed by the board, and our board of directors currently includes 6 members, only one of which (Matthias Schroff, our Chief Executive Officer) was a director prior to the closing of the Private Placement.

We are currently relying on Nasdaq’s “controlled company” exception to the requirements that a majority of our board be independent and that we have an independent compensation committee and independent nominating committee or function.

Termination of Collaboration Agreements

On December 12, 2022 (the “Ipsen Termination Agreement Effective Date”), the Company and Ipsen entered into a Mutual Termination Agreement (the “Ipsen Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Ipsen Collaboration Agreement.

Following such termination, the parties will jointly own R&D Term IP (as defined in the Ipsen Collaboration Agreement) and Patents Covering the R&D Term IP (as defined in the Ipsen Collaboration Agreement), with each party owning an equal, undivided interest in and to such R&D Term IP and patents.

As a result of the termination of the Ipsen Collaboration Agreement, the Company regained the ability to independently develop medicines targeting Angelman syndrome and Huntington’s disease while Ipsen retains the right to re-enter into the collaboration with the Company in Huntington’s Disease and Angelman’s Syndrome.

On December 13, 2022 (the “AbbVie Termination Agreement Effective Date”), the Company and Allergan entered into a letter agreement (the “AbbVie Termination Agreement”), pursuant to which the parties mutually agreed to terminate the AbbVie Collaboration Agreement.

Following such termination, the Company transferred to Allergan all data, information, and reports made or generated by the Company in the course of performing activities under the Development Plan (as defined in the AbbVie Collaboration Agreement), and granted to Allergan all rights to transfer, publish, present, or otherwise publicly disclose any Collaboration Technology (as defined in the AbbVie Collaboration Agreement) and data made or generated by the Company in the course of performing activities under the Development Plan.

As a result of the termination of the AbbVie Collaboration Agreement, the Company regained the ability to independently develop medicines targeting hair loss disorders.

Nasdaq Listing Requirements Deficiency Notices

As previously disclosed, the Company has received numerous deficiency notes with respect to various Nasdaq listing requirements in the past year.

These related to:

• Compliance with Nasdaq’s minimum bid price rule due to the Company’s stock trading below $1.00 for a sustained period of time.

The Company effected a one-for-thirty reverse stock split on June 29, 2022 in order to attempt to raise the stock price.

As of March 23, 2023, the Company’s stock price closed at $0.9761.

• Compliance with Nasdaq’s rule requiring stockholders’ equity of at least $2,500,000 based on the Company’s balance sheet as of June 30, 2022.

The Company believes it is in compliance with this requirement based on its December 31, 2022 balance sheet, but there can be no assurance it will remain in compliance.

• Compliance with Nasdaq’s corporate governance requirements with respect to board and committee composition due to (i) the lack of a majority independent board, (ii) the lack of an audit committee comprised of three independent directors and (iii) the lack of a compensation committee comprised of at least two independent directors.

With respect to the majority independence and the audit committee requirements, Nasdaq informed the Company that it was not entitled to a cure period and must submit a plan to regain compliance no later than April 10, 2023.

Following the closing of the Private Placement, the Company qualifies for Nasdaq’s controlled company exemptions from the requirements to have a majority independent board and independent compensation committee.

The Company still must have an audit committee comprised of three independent directors, which it believes it currently does following the additional board appointments after the closing of the Private Placement, and intends to reply to Nasdaq promptly.

Even if the Company regains compliance with Nasdaq’s listing requirements and addresses the outstanding deficiency notices to Nasdaq’s satisfaction, there can be no assurance that the Company will remain in compliance with Nasdaq’s requirements and will not be delisted.

Basis of Presentation

2 unchanged sentences

Segment Reporting

We view our operations and manage our business as one segment, which is the discovery, research and development of treatments based on our SNA technology.

We view our operations and manage our business as one segment, which for the periods presented was the discovery, research and development of treatments based on our SNA technology.

Critical Accounting Policies and Estimates

4 unchanged sentences

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

While our significant accounting policies are described in the notes to our financial statements appearing in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Our significant judgments and estimates are detailed below, and our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial statements.

Revenue recognition

Effective January 1, 2018, we adopted the provisions of Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date of adoption.

Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps:

Identify the contract with the customer.

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.

Identify the performance obligations in the contract.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract.

To the extent a contract includes multiple promised goods and services, we must apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract.

If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

Determine the transaction price.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer.

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration.

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.

Determining the transaction price requires significant judgment.

Allocate the transaction price to performance obligations in the contract.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, we must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation.

The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices.

Recognize revenue when or as the Company satisfies a performance obligation.

We satisfy performance obligations either over time or at a point in time.

Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

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.

4 unchanged sentences

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 :

If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses.

For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments:

At the inception of each arrangement that includes development milestone payments, we evaluate the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method.

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

Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible.

The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.

To date, we have not recognized any milestone payment revenue from any of its collaboration agreements.

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

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

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).

Recent accounting pronouncements not yet adopted

1 unchanged sentence

Components of Statements of Operations

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.

We do not intend for government grants to be a principal commercial or strategic focus, but will evaluate opportunities when consistent with our strategic priorities.

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 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.

If we, or any potential development partner fails to develop therapeutic candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially and adversely affected.

For the year ended December 31, 2022, the Company’s revenue was generated from its collaborations with Ipsen and AbbVie, which were terminated in the fourth quarter.

Following the termination of the AbbVie and Ipsen agreements in the fourth quarter of 2022, as discussed above, we have no current source of revenue.

We have never generated any commercial product revenue and do not expect to generate any product revenue.

Research and development expense

Research and development expense consists of costs associated with our research activities, including basic research on our SNA platform, discovery and development of novel SNAs as prospective therapeutic candidates, preclinical and clinical development activities for SNAs we have nominated for clinical development as well as maintaining and protecting our intellectual property.

Our research and development expenses include:

Our research and development expenses in the periods presented include:

• employee-related expenses, including salaries, bonuses, benefits and equity-based compensation expense;

5 unchanged sentences

We expense research and development costs as they are incurred.

A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology.

We expect our research and development expenses to increase for the foreseeable future as we advance our therapeutic candidates through preclinical studies and clinical trials.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming.

We or future development partners may never succeed in obtaining marketing approval for any of our therapeutic candidates.

The probability of success for each therapeutic candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

All of our research and development programs are at an early stage and successful development of future therapeutic candidates from these programs is highly uncertain and may not result in approved products.

Completion dates and completion costs can vary significantly for each future therapeutic candidate and are difficult to predict.

We anticipate we will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic candidate on an ongoing basis in response to the early scientific, preclinical and clinical success of each therapeutic candidate, our ability to maintain or enter into development partnerships with respect to a given therapeutic candidate, as well as ongoing assessments of the commercial potential of therapeutic candidates.

We will need to raise additional capital to fund our research and development activities.

We have entered into, and may in the future seek, collaborations, licensing or other commercial relationships with other companies in order to advance our various therapeutic candidates.

Such collaborations may provide near-term cash payments from the collaborators to us in exchange for license rights or for expense reimbursement, but may also materially reduce the long-term economic benefits that could otherwise be realized from a therapeutic candidate subject to a collaboration in the event that such therapeutic candidate becomes commercially viable.

Additional private or public financings may not be available to us on acceptable terms, or at all.

Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

A significant portion of our research and development costs were not tracked by project as they benefit multiple projects or our technology.

As previously announced, we halted all research and development activities in 2022.

General and administrative expense

1 unchanged sentence

Other general and administrative expenses include travel expenses, professional fees for auditing, tax and legal services and allocated facility-related costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates.

We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Dividend income

3 unchanged sentences

Interest expense

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

Other income (loss), net consists of fair value adjustments of our common stock warrant liabilities and gains and losses on foreign currency transactions.

Interest expense includes amounts pursuant to the MidCap Credit Agreement (as defined below).

All outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) was repaid in full on March 15, 2022.

Other expense, net

Other expense, net mostly consists of gains and losses on foreign currency transactions and gains and losses on the sale of capital assets.

Results of Operations

9 unchanged sentences

Operating loss (1,831) (62,549) 60,718 (97) %

Other income, net:

Other (expense) income, net:

Dividend income 78 8 70 875 %

1 unchanged sentence

Interest expense (595) (1,691) 1,096 (65) %

Other income, net (11) 322 (333) (103) %

Total other income, net (1,553) 768 (2,321) (302) %

Other expense, net (40) (11) (29) 264 %

Total other expense, net (542) (1,553) 1,011 (65) %

Net loss before provision for income taxes (2,373) (64,102) 61,729 (96) %

Provision for income taxes — — — — %

Provision for income taxes 209 — 209 n/m

Net loss $ (2,582) $ (64,102) $ 61,520 (96) %

4 unchanged sentences

Ipsen Collaboration Agreement

2,309 — 2,309 n/m

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

17,691 2,309 15,382 666 %

Total collaboration revenue $ 28,826 $ (483) $ 29,309 6,068 %

Total revenue $ 28,826 $ (483) $ 29,309 6,068 %

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.

Collaboration revenue was $28.8 million during the year ended December 31, 2022, reflecting an increase of $29.3 million, or 6,068%, from collaboration revenue of $(0.5) million for the year ended December 31, 2021.

The increase in collaboration revenue of $29.3 million is due to the recognition of the remaining deferred revenue related to the AbbVie Collaboration Agreement of $13.9 million and the Ipsen Collaboration Agreement of $15.4 million in connection with the terminations of those collaboration agreements in December 2022.

This revenue resulted from an accounting adjustment, did not reflect any new cash proceeds to the Company and will not recur.

Following these terminations, we currently have no source of revenues.

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, the Ipsen Collaboration Agreement, the Dermelix Collaboration Agreement or any future collaboration and licenses.

Our ability to generate revenues in the future is dependent on our ability to successfully explore and execute strategic alternatives.

Therefore, there is substantial uncertainty as to how, when or if we might be able to generate revenues in the future.

Research and development expense

1 unchanged sentence

(dollars in thousands) 2022 2021 Change

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 $ 6,661 $ 12,362 $ (5,701) (46) %

Platform and discovery-related expense 6,177 13,650 (7,473) (55) %

Facilities, depreciation, and other expenses 4,119 4,068 51 1 %

Clinical development programs expense 2,810 18,899 (16,089) (85) %

Total research and development expense $ 19,767 $ 48,979 $ (29,212) (60) %

Full time employees 5 37 (32)

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.

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.

Research and development expense was $19.8 million for the year ended December 31, 2022, reflecting a decrease of $29.2 million, or 60%, from research and development expense of $49.0 million for the year ended December 31, 2021.

The decrease in research and development expense for the year ended December 31, 2022 of $29.2 million reflects fewer clinical, preclinical, and discovery program activities and a reduction in headcount resulting from the restructuring activities that were announced in December 2021 and September 2022.

More specifically, the decrease in research and development expense for the year ended December 31, 2022 of $29.2 million was due to a decrease in costs related to our clinical development programs of $16.1 million, lower platform and discovery-related expense of $7.5 million, and lower employee-related expenses of $5.7 million.

The decrease in clinical development programs expense for the year ended December 31, 2022 of $16.1 million was primarily due to lower manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for the XCUR-FXN program, which we indefinitely suspended in December 2021.

In addition, lower clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), which we began to wind down in December 2021, contributed to the decrease in clinical development program expense as compared to the prior-year period.

The decrease in platform and discovery-related expense for the year ended December 31, 2022 of $7.5 million was mostly due to lower costs for materials, reagents, and supplies in connection with a reduction in headcount and fewer discovery and preclinical program activities, the absence of the license fee paid to Northwestern University of $3.0 million in the prior year period in connection with the receipt of the upfront payment of $20.0 million from Ipsen, and lower intellectual property costs, as compared to the prior-year period.

The decrease in employee-related expense for the year ended December 31, 2022 of $5.7 million was due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021 and September 2022, partially offset by retention award expense.

General and administrative expense

2 unchanged sentences

Full time employees 8 9 (1)

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, 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 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.

General and administrative expense was $10.9 million for the year ended December 31, 2022, representing a decrease of $2.2 million, or 17%, from $13.1 million for the year ended December 31, 2021.

The decrease for the year ended December 31, 2022 is mostly due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021, as well as lower costs for accounting, director fees, and investor relations.

These lower costs in the current year period were partially offset by higher retention award expense, as well as higher consultant and advisory costs.

Interest expense

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.

The decrease in interest expense of $1.1 million for the year ended December 31, 2022 is in connection with the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) on March 15, 2022.

Provision for income taxes

The effective tax rate for the year ended December 31, 2022 of (8.8)% is attributable to the fact that the Company is subject to the IRC Section 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Section 382 loss limitation rules on our ability to utilize net operating losses to offset the capitalization requirement.

The effective income tax rate for the year ended December 31, 2021 was 0% because the Company generated tax losses and provided a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

We completed a review of our changes in ownership through December 31, 2022 and determined that we experienced an "ownership change" within the meaning of Section 382(g) during the fourth quarter of 2022.

This ownership change has and will continue to subject our net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset our taxable income in periods following the ownership change.

In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

Liquidity and Capital Resources

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 of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million.

We have no current source of revenues or committed financing.

Subsequent to December 31, 2022, we received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Our current liquidity is not 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.

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.

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 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 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.

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.

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

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.

We believe that our existing cash and cash equivalents (including the proceeds received in February 2023 in connection with the closing of the Private Placement) could enable us to fund our operating expenses into the beginning of the fourth quarter of 2023.

However, this estimate is based on assumptions about how we can limit spending that may prove to be wrong and it is very difficult to project our current cash burn rate given the transitional status of the Company as we explore strategic alternatives and this estimate may prove inaccurate and we may expend our limited resources sooner.

Depending on the direction of our review of strategic alternatives, we

may use our available resources sooner than we currently expect.

The Company has already engaged in significant cost reductions, so our ability to further cut costs and extend our operating runway is limited.

As a result, substantial additional financing will be needed by us within the next few months to pay our expenses, fund our ongoing exploration of strategic alternatives and pursue any alternatives that we identify.

If we are unable to raise sufficient capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.

We expect to seek financing through a combination of equity offerings and debt financings.

However, it may be difficult to obtain financing given the Company’s current financial condition and lack of sources of revenues and uncertainty over its future direction.

Traditional capital markets sources of funding may not be available to us in these circumstances.

Therefore, we may be unable to raise capital at all, when needed or on favorable terms.

To the extent that we do raise additional capital, 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 that otherwise might be in our best interests.

Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, worsening global macroeconomic conditions, including actions taken by central banks to counter inflation, volatility in the capital markets, instability in the banking industry and related market uncertainty, may impact our ability to obtain additional financing when needed on favorable terms or at all.

Private Placements

In May 2022, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we issued and sold 867,369 shares of common stock, par value $0.0001 per share, at a purchase price of $5.81 per share for net proceeds of approximately $4.9 million.

In September 2022, we entered into a securities purchase agreement with CBI USA with respect to the Private Placement, which subsequently closed in February 2023.

MidCap Facility

On March 15, 2022, we repaid in full all outstanding indebtedness and other obligations under our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021, September 30, 2021, and December 10, 2021, with MidCap Financial Trust, as agent, and the lenders party thereto from time to time, or 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 (other than with respect to any obligations that are expressly specified to survive the termination).

The following table shows a summary of our cash flows for the years ended December 31, 2022 and 2021:

2 unchanged sentences

Net cash provided by investing activities 4,696 43,085

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

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

Net cash (used in) provided by financing activities (3,105) 1,116

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (34,067) $ 9,382

Operating activities

Net cash used in operating activities was $35.7 million and $34.8 million for the years ended December 31, 2022 and 2021, 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.

The slight increase in cash used in operating activities for the year ended December 31, 2022 of $0.8 million was primarily due to the absence of the prior-year period receipt of the upfront payment of $20.0 million from Ipsen in connection with the Ipsen Collaboration Agreement (net of $3.0 million license fee paid to Northwestern as a result) and the prepayment of the premium for directors and officers run-off insurance policy coverage in the fourth quarter of 2022 in anticipation of the Private Placement closing, mostly offset by lower cash used for working capital.

Investing activities

Net cash provided by investing activities was $4.7 million and $43.1 million for the years ended December 31, 2022 and 2021, 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.

The decrease in cash provided by investing activities of $38.4 million was primarily due to a decrease in proceeds from the maturity, net of purchases, of available-for-sale securities.

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.

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.

Funding 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:

• the terms and timing of any other collaboration, licensing and other arrangements that we may establish;

• 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 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;

• 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 growth;

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

• the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

• the costs of filing and prosecuting intellectual property rights and enforcing and defending any intellectual property-related claims;

• the costs and timing of procuring clinical and commercial supplies of our therapeutic candidates;

• the extent to which we acquire or in-license other therapeutic candidates and technologies;

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

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.

Net cash used in financing activities of $3.1 million for year ended December 31, 2022 is primarily due to the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement, partially offset by net proceeds of approximately $4.9 million received in connection with the May 2022 private placement transaction.

Net cash provided by financing activities of $1.1 million for the year ended December 31, 2021 is primarily due to the net proceeds we received of $10.4 million in connection with the sale of common stock and warrants in a 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 in December 2021.

Going Concern

1 unchanged sentence

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.

As discussed above, there are substantial uncertainties about our ability to raise such financing.

Contractual Obligations and Commitments

7 unchanged sentences

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, 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 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 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.

December 31, 2022.

Following the closing of the Private Placement, a holder of warrants to purchase 526,151 shares of common stock at a price of $8.1031 per share that were acquired in the December 2021 registered-direct offering transaction exercised their put option within 30 days of the closing of the Private Placement (February 24, 2023), to receive a cash payout for the outstanding warrants in the amount of the Black-Scholes value of each warrant as prescribed in the warrant agreement (or $0.8 million in the aggregate).

This obligation remains outstanding as of the date of the filing of this Annual Report of Form 10-K.

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.

Based on the terminations of our collaborations with Ipsen and AbbVie, we currently do not anticipate any such milestone payments becoming due.

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

4 unchanged sentences

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