Zura Bio Ltd 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements of Zura Bio Limited (referred to as “Legacy Zura” herein) as of December 31, 2022, included in the Current Report on Form 8-K filed with the SEC on April 6, 2023 and in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those discussed in the section titled “Risk Factors” in our Registration Statement on Form S-4/A filed with the SEC on February 23, 2023, that could cause actual results to differ materially from historical results or anticipated results. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “Zura,” “we,” “us,” and “our” refer to Zura Bio Limited, a Cayman Islands exempted company formerly known as JATT Acquisition Corp., and its consolidated subsidiaries. References to JATT Acquisition Corp. or “JATT” refer to the Company prior to the consummation of the Business Combination. Overview Zura Bio Limited, formerly known as JATT Acquisition Corp., is a is a multi-asset clinical-stage biotechnology company focused on developing novel medicines for immune and inflammatory disorders. The experienced leadership team will build the company rapidly from a small to a medium size pharmaceutical company enabling Zura to become a leader in the autoimmunology field. We were incorporated as a Cayman Islands exempted company on March 10, 2021. Our wholly owned subsidiary, Zura Bio Limited (“Zura Bio UK”) was formed in the United Kingdom, or UK, on January 18, 2022. Prior to March 20, 2023, our operations were conducted through Zura Bio UK. We have a limited operating history. Since our inception, our operations have focused on organizing and staffing our company, business planning, raising capital and entering into collaboration agreements for conducting manufacturing, research and development activities for our product. Our lead product candidates are in the clinical testing stage, however, we have not conducted any clinical tests ourselves, nor have any been conducted during the period since our inception. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations through (i) the sale of equity, raising an aggregate of $10.0 million of gross proceeds from the sale of shares of convertible preferred stock of Zura Bio UK through March 31, 2023; (ii) the issuance of a promissory note, receiving net proceeds of $7.6 million in December 2022; and (iii) proceeds from the Business Combination of $56.7 million in March 2023. Since our inception, we have incurred significant operating losses. Our net loss for the three months ended March 31, 2023 was $9.6 million. As of March 31, 2023, we had an accumulated deficit of $41.9 million. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: ● continue to advance the preclinical and clinical development of our product candidates and preclinical programs; ● conduct our planned clinical and preclinical trials of ZB-168 and torudokimab, as well as initiate and complete additional trials of future potential product candidates; ● seek regulatory approval for any product candidates that successfully complete clinical trials; ● scale up our clinical and regulatory capabilities; ● manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales; ● establish and validate a commercial-scale cGMP manufacturing facility, or use a contract manufacturing organization; ● establish a commercialization infrastructure and scale up manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval; 23 Table of Contents ● adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ● maintain, expand and protect our intellectual property portfolio; ● hire additional clinical, manufacturing quality control, regulatory, manufacturing and scientific and administrative personnel; ● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and ● incur additional legal, accounting and other expenses in operating as a public company. Business Combination On March 20, 2023 (the “Closing Date”), we consummated the previously-announced transactions contemplated by the Business Combination Agreement, dated June 16, 2022, as amended on September 20, 2022, November 14, 2022, and January 13, 2023 by and among Zura Bio Limited, a limited company incorporated under the laws of England and Wales (“Zura Bio UK”), JATT Acquisition Corp, a Cayman Islands exempted company (“JATT”), JATT Merger Sub, a Cayman Islands exempted company and wholly owned subsidiary of JATT (“Merger Sub”), JATT Merger Sub 2, a Cayman Islands exempted company and wholly owned subsidiary of JATT (“Merger Sub 2”) and Zura Bio Holdings Ltd, a Cayman Islands exempted company (“Holdco”), following the approval at an extraordinary general meeting of JATT’s shareholders held on March 16, 2023. Pursuant to the Business Combination Agreement, (a) before the closing of the Business Combination, Holdco was established as our new holding company and became a party to the Business Combination Agreement; and (b) on the closing date, in sequential order: (i) Merger Sub merged with and into Holdco, with Holdco continuing as the surviving company and a wholly owned subsidiary of JATT (the “Merger”); (ii) immediately following the Merger, Holdco merged with and into Merger Sub 2, with Merger Sub 2 continuing as the surviving company and a wholly owned subsidiary of JATT (the “Subsequent Merger”); and (iii) JATT changed its name to “Zura Bio Limited” (“Zura Bio”). Subject to, and in accordance with, the terms and conditions of the Business Combination Agreement, at the Closing, (i) each JATT unit was (to the extent not already separated) automatically separated and the holder thereof was deemed to hold one JATT Class A Ordinary Share and one-half of a JATT warrant; (ii) in consideration for the Merger, JATT issued to holders of Holdco’s issued and outstanding shares immediately prior to the Effective Time (as defined in the Business Combination Agreement) an aggregate of 14,558,067 JATT Class A Ordinary Shares (including 499,993 JATT Class A Ordinary Shares underlying restricted share units granted to Amit Munshi, the Company’s Non-Executive Chairman) plus 1,941,933 options to acquire JATT Class A Ordinary Shares for which outstanding options to acquire Holdco Class A Ordinary Shares were exchanged on Closing; and (iii) pursuant to the terms and conditions of JATT’s existing amended and restated memorandum and articles of association, all then-outstanding Class B Class A Ordinary Shares, par value $0.0001 per share, were automatically converted into JATT Class A Ordinary Shares on a one-for-one basis. On the Closing Date, Ewon Comfortech Co., Ltd. (“Ewon”), an institutional accredited investor which is an indirect investor in Zura through its equity interest in Hana Immunotherapeutics LLC (“Hana”), purchased from JATT 2,000,000 JATT Class A Ordinary Shares and Eugene Investment & Securities Co., Ltd (“Eugene”), an unaffiliated institutional credited investor, purchased from JATT 9,950 JATT Class A Ordinary Shares (Ewon, together with Eugene, the “PIPE Investors”), for an aggregate of 2,009,950 JATT Class A Ordinary Shares (the “PIPE Shares”) at a price of $10.00 per share, for an aggregate purchase price of $20,099,500 (the “PIPE Financing”), pursuant to the subscription agreement entered into by JATT and the Ewon as of June 16, 2022, as amended on November 25, 2022 (the “Ewon PIPE Subscription Agreement”) and the subscription agreement entered into by JATT and Eugene as of March 13, 2023 (the “Eugene PIPE Subscription Agreement” and, together with the Ewon PIPE Subscription Agreement, the “PIPE Subscription Agreements”). 24 Table of Contents At the Closing of the Business Combination, Athanor Master Fund, LP and Athanor International Master Fund, LP (collectively, the “FPA Investors”), each of which is an unaffiliated institutional investor, purchased (i) an aggregate of 3,000,000 JATT Class A Ordinary Shares at $10 per share for $30,000,000; (ii) an aggregate of 1,301,633 JATT Class A Ordinary Shares at $10 per share for $13,016,330 (the “Redemption Backstop”) as public share redemptions were greater than 90% at the time of the Business Combination (the “Excess Redemptions”); and (iii) an additional 2,500,000 JATT Class A Ordinary Shares in consideration for the FPA Investors entering into the latest amendment, but for no additional monetary consideration, to the forward purchase agreements JATT and the FPA Investors entered into on August 5, 2021, as amended and restated on January 27, 2022 and as amended on March 8, 2023 (the “Forward Purchase Agreement”). The Business Combination, together with the PIPE financing, the Forward Purchase Agreement, and the Redemption Backstop, generated approximately $56.7 million in proceeds. On March 21, 2023, the Company’s Class A Ordinary Shares and public warrants began trading on the Nasdaq under the symbols “ZURA” and “ZURAW,” respectively. Components of Operating Results Operating Expenses General and Administrative Expenses General and administrative expenses primarily consist of professional fees for legal, accounting, and consulting costs relating to corporate matters, as well as salaries and related costs for personnel in executive and administrative functions, including share-based compensation. We anticipate that our general and administrative expenses will increase in the future as we continue to support research and development activities and incur increased costs of operating as a public company. These costs include increased headcount to support expanded operations and infrastructure. Additionally, we anticipate increased costs associated with maintaining compliance with Nasdaq rules and SEC requirements such as accounting, audit, legal and consulting services, as well as director and officer liability insurance, investor and public relations activities. Research and Development Expenses Research and development (“R&D”) expenses consist primarily of consulting fees for medical and manufacturing advisory services and costs related to manufacturing material for preclinical studies. Expenses are recognized as an expense as the related goods are delivered or the services are performed. R&D expenses include the cost of in-process research and development (“IPR&D”) assets purchased in an asset acquisition transaction. IPR&D assets are expensed unless the assets acquired are deemed to have an alternative future use, provided that the acquired asset did not also include processes or activities that would constitute a “business” as defined under U.S. GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Acquired IPR&D payments are immediately expensed in the period in which they are incurred and include upfront payments, as well as transaction fees and subsequent pre-commercial milestone payments. Research and development costs incurred after the acquisition are expensed as incurred. R&D expenses also include the remeasurement of the research and development license consideration liability. Research and development expenses could include: ● employee-related expenses, including salaries, bonuses, benefits, share-based compensation and other related costs for those employees involved in research and development efforts; ● external research and development expenses incurred under agreements with clinical research organizations, investigative sites and consultants to conduct our preclinical studies; ● costs related to manufacturing material for preclinical studies and clinical trials, including fees paid to contract manufacturing organizations; 25 Table of Contents ● laboratory supplies and research materials; ● costs related to compliance with regulatory requirements; and ● facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance and equipment. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We plan to substantially increase our research and development expenses for the foreseeable future as we develop our product candidates and manufacturing processes and conduct discovery and research activities for our preclinical and clinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to how we pursue our product candidates and how much funding to direct to each program on an ongoing basis in response to the results of future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase as we commence, continue and expand our clinical trials. Our future expenses may vary significantly each period based on factors such as: ● expenses incurred to conduct preclinical studies required to advance our product candidates into clinical trials; ● per patient clinical trial costs, including based on the number of doses that patients receive; ● the number of patients who enroll in each clinical trial; ● the number of clinical trials required for approval; ● the number of sites included in the clinical trials; ● the countries in which the clinical trials are conducted; ● the length of time required to enroll eligible patients; ● the drop-out or discontinuation rates of patients; ● potential additional safety monitoring requested by regulatory agencies; ● the duration of patient participation in clinical trials and follow-up; ● the phase of development of the product candidate; ● third party contractors failing to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all; ● the cost of insurance, including product liability insurance, in connection with clinical trials; ● regulators or institutional review boards requiring that we or our investigators suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; and ● the efficacy and safety profile of our product candidates 26 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2023 and the Period from January 18, 2022 (date of inception) to March 31, 2022 The following table summarize our results of operations for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period from ​ ​ ​ ​ ​ ​ ​ ​ For the ​ January 18, ​ ​ ​ ​ ​ ​ ​ ​ Three Months ​ 2022 (date of ​ ​ ​ ​ ​ ​ ​ ​ Ended ​ inception) to ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ March 31, $ % ​ ​ 2023 2022 Change Change Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 4,884 ​ $ 7,500 ​ $ (2,616) ​ (35) % General and administrative ​ ​ 2,835 ​ ​ 319 ​ ​ 2,516 ​ 789 % Total operating expenses ​ ​ 7,719 ​ ​ 7,819 ​ ​ (100) ​ (1) % Loss from operations ​ ​ (7,719) ​ ​ (7,819) ​ ​ 100 ​ (1) % Other expense/(income), net: ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ 9 ​ — ​ 9 * ​ Change in fair value of private placement warrants ​ (177) ​ — ​ (177) * ​ Change in fair value of note payable ​ 2,244 ​ — ​ 2,244 * ​ Total other expense/(income), net ​ 2,076 ​ — ​ 2,076 * ​ Loss before income taxes ​ (9,795) ​ (7,819) ​ (1,976) 25 % Income tax benefit ​ — ​ — ​ — * ​ Net loss before redeemable noncontrolling interest ​ (9,795) ​ (7,819) ​ (1,976) 25 % Net loss attributable to redeemable noncontrolling interest ​ 203 ​ — ​ 203 * ​ Net loss ​ (9,592) ​ (7,819) ​ (1,773) 23 % Accretion of redeemable noncontrolling interest to redemption value ​ (203) ​ — ​ (203) * ​ Net loss attributable to Ordinary Shareholders of Zura ​ $ (9,795) ​ $ (7,819) ​ $ (1,976) 25 % *Percentage change not meaningful Operating Expenses Research and Development Expenses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ ​ ​ Period from ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 18, 2022 ​ ​ ​ ​ ​ ​ For the ​ (date of ​ ​ ​ ​ ​ ​ ​ Three Months ​ inception) to ​ ​ ​ ​ ​ ​ ​ Ended March 31, ​ March 31, $ % ​ ​ 2023 ​ 2022 ​ Change ​ Change Research and development ​ $ 4,884 ​ $ 7,500 ​ $ (2,616) ​ (35) % ​ Research and development expenses decreased by $2.6 million for the three months ended March 31, 2023 compared to the period ended March 31, 2022. This was primarily due to a decrease of $5.3 million of costs incurred to acquire licenses, as we recognized $7.5 million of expense related to the acquisition of an in-process research and development (“IPR&D”) license from Pfizer during the period ended March 31, 2022 and $2.2 million related to the issuance of additional shares to Pfizer under an anti-dilution provision during the three months ended March 31, 2023. The decrease was partially offset by an increase of $1.9 million related to the change in fair value of our research and development license consideration liability, and an increase of $0.8 million of costs incurred for consulting and advisory services for clinical development strategy and manufacturing of our product candidates. 27 Table of Contents General and Administrative Expenses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ ​ ​ ​ ​ Period from ​ ​ ​ ​ ​ ​ For the ​ January 18, 2022 ​ ​ ​ ​ ​ ​ ​ Three Months ​ (date of ​ ​ ​ ​ ​ ​ ​ Ended ​ inception) to ​ ​ ​ ​ ​ ​ ​ March 31, ​ March 31, $ % ​ ​ 2023 ​ 2022 ​ Change ​ Change General and administrative ​ $ 2,835 ​ $ 319 ​ $ 2,516 ​ 789 % ​ General and administrative expenses increased by $2.5 million for the three months ended March 31, 2023 compared to the period ended March 31, 2022. The increase was primarily due to increases of $1.7 million in expenses related compensation for personnel in executive and administrative functions including share-based compensation, as well as an increase of $0.7 million in professional fees for legal and accounting costs incurred related to our ongoing operations as a public company, and an increase of $0.1 million of travel and office expenses. Other Expense (Income) Other Expense, net Other expense increased by a nominal amount for the three months ended March 31, 2023 compared to the period ended March 31, 2022. Change in fair value of private placement warrants Revaluation gain on the liability-classified private placement warrants assumed in the Business Combination was $0.2 million for the three months ended March 31, 2023. No warrants were outstanding during the period ended March 31, 2022. Change in fair value of note payable Revaluation loss on the note payable was $2.2 million for the three months ended March 31, 2023 as the note was remeasured to its settlement value. The note payable was not outstanding during the period ended March 31, 2022. Net loss attributable to redeemable noncontrolling interest Net loss attributable to redeemable noncontrolling interest was $0.1 million for the three months ended March 31, 2023, representing the noncontrolling shareholder’s interest in the net loss of our consolidated subsidiary. The redeemable noncontrolling interest was not outstanding during the period ended March 31, 2022. Accretion of redeemable noncontrolling interest to redemption value Accretion of redeemable noncontrolling interest to redemption value was $(0.2) million for the three months ended March 31, 2023. The redeemable noncontrolling interest was not outstanding during the period ended March 31, 2022. Liquidity and Capital Resources Overview Since our inception, we have not generated any revenue and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of March 31, 2023, we had cash of $44.0 million. As of March 31, 2023, we have funded our operations through (i) the sale of equity, raising an aggregate of $10.0 million of gross proceeds from the sale of our convertible preferred shares; (ii) the issuance of a promissory note, receiving net proceeds of $7.6 million; and (iii) proceeds from the Business Combination of $56.7 million in March 2023. 28 Table of Contents In April 2023, we entered into subscription agreements (the “Subscription Agreements”) with certain individual and institutional accredited investors (the “Subscribers”) to sell (the “Private Placement”) Class A Ordinary Shares (the “Shares”) and pre-funded warrants (the “Pre-Funded Warrants”). The Private Placement is expected to result in gross proceeds to the Company of approximately $80.0 million, before deducting placement agent fees and other offering expenses payable by the Company. The consummation of the Private Placement will occur in two closings, the initial closing of which occurred on May 1, 2023. At the initial closing, Subscribers purchased an aggregate of 3,750,000 Shares for gross proceeds of approximately $15.9 million. The second closing will occur on the second business day following the date shareholder approval is obtained. At the second closing, Subscribers have committed to purchase an aggregate of 15,073,530 Shares (including 3,782,000 Shares issuable upon exercise of Pre-Funded Warrants) for additional gross proceeds of approximately $64.1 million. We have experienced operating losses and cash outflows from operations since inception and will require ongoing financing in order to continue our research and development activities. We have not earned any revenue or reached successful commercialization of our products. Our future operations are dependent upon our ability to finance our cash requirements which will allow us to continue our research and development activities and the commercialization of our products. There can be no assurance that we will be successful in continuing to finance our operations. Capital Requirements To date, we have not generated revenue from any source, including the commercial sale of approved drug products, and we do not expect to generate revenue for at least the next few years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be adversely affected. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase significantly in connection with our ongoing activities, particularly as we continue the research and development, and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Furthermore, following the completion of the Business Combination, we expect to incur additional costs associated with operating as a public company. We will also be responsible to Pfizer and Lilly for significant future contingent payments under the Pfizer Agreement and Lilly Agreements, respectively, upon the achievement of certain development, regulatory, and sales milestones, as well as ongoing royalties on net commercial sales. The size and timing of these milestone payments will vary greatly depending upon a number of factors, and it is therefore difficult to estimate the total payments that could become payable to Pfizer and Lilly and when those payments would be due. If we achieve all of the milestones, we would be obligated to pay multimillion dollar development and regulatory milestone payments and sales milestone payments. We will be required to pay certain of these milestone payments prior to the time at which we are able to generate sufficient revenue, if any, from commercial sales of any of our product candidates. We intend to fund these milestone payments using a portion of the proceeds from the Business Combination. In addition to milestone payments, we are also required to pay Pfizer and Lilly under the Pfizer Agreement and Lilly Agreements, respectively, ongoing royalties in the mid-single digits to low double-digits (less than 20%) percentage range based upon thresholds of net sales of products. We anticipate that we will need substantial additional funding in connection with our continuing operations. After the completion of the Business Combination, we intend to devote most of the net proceeds to the preclinical and clinical development of our product candidates, our public company compliance costs and certain milestone payments under the Pfizer Agreement and Lilly Agreements. Based on our current business plans, we believe that the net proceeds from the Business Combination and the Private Placement (as defined below) will enable us to fund our operating expenses and capital requirements through at least the next twelve months. Our estimate as to how long we expect the net proceeds from the Business Combination and the Private Placement to be able to fund our operating expenses and capital requirements is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could result in less cash available to us or cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. 29 Table of Contents Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical drug products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: ● the extent to which we develop, in-license or acquire other product candidates and technologies in our product candidates pipeline; ● the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs as we advance them through preclinical and clinical development; ● the number and development requirements of product candidates that we may pursue; ● the costs, timing and outcome of regulatory review of our product candidates; ● the timing and amount of our milestone payments to Pfizer under the Pfizer Agreement and to Lilly under the Lilly Agreements; ● our headcount growth and associated costs as we expand our research and development capabilities and establish and expand our commercial infrastructure and operations; ● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distributions, for any of our product candidates for which we receive marketing approval; ● royalty payments to Pfizer under the Pfizer Agreement and Lilly under the Lilly Agreements; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; ● the revenue, if any, received from sales of our product candidates for which we receive marketing approval; and ● the costs of operating as a public company Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of our product candidate that we do not expect to be commercially available in the near term, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict our ability to operate. Any future debt financing and equity financing, if available, may involve covenants limiting and restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. 30 Table of Contents Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ ​ ​ ​ ​ Period from ​ For the ​ January 18, ​ ​ Three Months ​ 2022 (date of ​ ​ Ended ​ inception) to ​ ​ March 31, ​ March 31, ​ ​ 2023 ​ 2022 Net cash used in operating activities ​ $ (3,257) ​ $ (280) Net cash used in investing activities ​ — ​ (5,000) Net cash provided by financing activities ​ 45,653 ​ 10,000 Net increase in cash ​ $ 42,396 ​ $ 4,720 ​ Cash flows from operating activities Cash used in operating activities for the three months ended March 31, 2023 was $3.3 million, which consisted of a net loss before redeemable noncontrolling interest of $9.8 million, partially offset by $6.3 million in non-cash charges and a net change of $0.2 million in our net operating assets and liabilities. The non-cash charges consisted of expense from the issuance of convertible preferred shares to Pfizer under the anti-dilution provision of the Pfizer Agreement of $2.2 million, a change in fair value of our promissory note of $2.2 million, a change in fair value of our research and development license consideration liability of $1.9 million, additional share-based payments of $0.2 million and a nominal amount of foreign exchange transaction losses partially offset by a change in fair value on the private placement warrants of $0.2 million. Cash used in operating activities for the period ended March 31, 2022 was $0.3 million, which consisted of a net loss of $7.8 million adjusted for the $7.5 million cost of the acquisition of the license under the Pfizer Agreement, which was expensed to research and development, leaving only $0.3 million of cash used in operations for legal expenses related to the formation of the Company and other corporate matters. Cash flows from investing activities We did not have any net cash used in or provided by investing activities for the three months ended March 31, 2023. Cash used in investing activities for the period ended March 31, 2022 was $5.0 million, which was entirely related to the cash consideration paid to acquire the license from Pfizer under the Pfizer Agreement. Cash flows from financing activities Cash provided by financing activities for the three months ended March 31, 2023 was $45.7 million, which consisted of $56.7 million of proceeds from the issuance of shares upon the closing of the Business Combination, partially offset by a $10.0 million repayment of our promissory note and $1.0 million of payments of deferred transaction costs. Cash provided by financing activities for the period ended March 31, 2022 was $10.0 million, and was due to the issuance of Series A-1 convertible preferred shares of Legacy Zura in March 2022. Contractual Obligations and Other Commitments As of March 31, 2023, we did not have any commitments or contractual obligations. We have or will enter into agreements in the normal course of business with contract research organizations, contract manufacturing organizations and other vendors for research and development services for operating purposes, which are generally cancelable upon written notice. In addition, some third party CMOs have intellectual property, such as patents and/or know-how with an annual fee and royalty bearing license to its customers that forms part of the manufacturing agreement; we do not yet have any such licenses but may enter to them in the future. These payments are therefore not included in our contractual obligations herein. We have not included milestone or royalty payments or other contractual payment obligations as the timing and amount of such obligations are unknown or uncertain and are contingent upon the initiation and successful completion of future activities. 31 Table of Contents Critical Accounting Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. Recent Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements. Emerging Growth Company and Smaller Reporting Company Status In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Upon closing of the Business Combination, remained an emerging growth company and may elect to extend the transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies. In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: ● being permitted to present only two years of audited financial statements in addition to any required unaudited interim financial statements, with correspondingly reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; ● an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; ● reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registrations statements; ● exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements. We would cease to qualify as an emerging growth company on the date that is the earliest of: (i) December 31, 2026, (ii) the last day of the fiscal year in which we have more than $1.07 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our Class A Ordinary Shares that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of non-convertible debt over the prior three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting requirements in this Quarterly report on Form 10-Q. Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests. 32 Table of Contents We are also a “smaller reporting company” as defined under the Securities Act and Exchange Act. We may continue to be a smaller reporting company so long as either (i) the market value of Class A Ordinary Shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of Class A Ordinary Shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company under the requirements of (ii) above, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are permitted to omit information required by this item.