10-Q 1 atxs-20230930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-37467

Astria Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

    

26-3687168

(State or Other Jurisdiction of
Incorporation or Organization)

(IRS Employer
Identification No.)

75 State Street
Suite 1400

    

Boston, Massachusetts

02109

(Address of Principal Executive Offices)

(Zip Code)

(617) 349-1971

(Registrant’s Telephone Number, Including Area Code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ATXS

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of October 31, 2023, there were 36,296,191 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

 

 

    

Page

PART I. FINANCIAL INFORMATION

5

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

5

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

6

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022

7

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 2023 and 2022, June 30, 2023 and 2022, and September 30, 2023 and 2022

8

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

10

 

Notes to Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 4.

Controls and Procedures

29

PART II. OTHER INFORMATION

30

Item 1A.

Risk Factors

30

Item 6.

Exhibits

84

SIGNATURES

85

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance, strategy, future financial condition and clinical and preclinical development programs. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, clinical and preclinical development programs, regulatory filings and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

our expectations regarding the timing of availability of final results from our Phase 1a clinical trial of STAR-0215;
our expectations regarding the potential significance of the preliminary results from the Phase 1a STAR-0215 clinical trial and the anticipated nature and timing of receipt of additional data from such trial;
our expectations regarding the timing, nature, goals and results of our Phase 1b/2 clinical trial of STAR-0215 and that favorable results from such trial could allow us to move directly into a Phase 3 pivotal trial of STAR-0215 as a potential treatment for hereditary angioedema, or HAE;
our expectations about the design and anticipated timing of a Phase 3 pivotal clinical trial for STAR-0215 as a potential treatment for HAE, assuming positive data from the Phase 1b/2 trial;
our expectations about the unmet medical need for HAE, the potential differentiating attributes of STAR-0215 as a potential treatment for HAE, along with the potential market impact of such differentiation, the potential of STAR-0215 to be a best-in-class monoclonal antibody inhibitor of plasma kallikrein able to provide long-acting, effective attack prevention for HAE, and our vision for STAR-0215 to become the first-choice preventative treatment for HAE with administration every three or six months with the goal of normalizing the lives of people living with HAE;
the nature and anticipated growth of the global HAE market and HAE therapies;
our plans to optimize the formulation of STAR-0215 and corresponding work to develop a drug-device combination for STAR-0215 for potential use in late-stage clinical trials and commercially, if approved;
our expectations that we have scaled the manufacturing process for STAR-0215 in a manner to generate sufficient material for our planned STAR-0215 nonclinical and clinical studies;
the potential therapeutic benefits and potential attributes of STAR-0310, a preclinical stage product candidate which we recently in-licensed, and our plans to develop STAR-0310 as a treatment for atopic dermatitis, or AD;
our expectations regarding the timing of regulatory submissions for STAR-0310;
our expectations about the design and anticipated timing of planned clinical trials of STAR-0310;
our expectations regarding the timing and nature of anticipated data for planned clinical trials of STAR-0310;
the potential commercial opportunity for STAR-0310 in AD and the likelihood that it can effectively compete in AD, assuming it is approved;
the estimated size and anticipated growth of the AD market and the need for treatments for AD;

1

the potential to pursue the development of STAR-0310 in additional indications;
our goals and visions for the STAR-0310 program;
our expectations regarding our ability to expand our pipeline;
the potential benefits of any future acquisition, in-license, collaboration or preclinical development activities;
our manufacturing plans, capabilities and strategy;
our intellectual property position and strategy;
our estimates regarding our cash runway, expenses, future revenue, capital requirements and needs for additional financing, including additional financing to fund our long-term operations;
developments relating to our competitors and our industry; and
the impact of government laws and regulations.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the sections entitled “Summary of the Material Risks Associated with Our Business” and “Risk Factors”, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

2

Summary of the Material Risks Associated with Our Business

Investing in our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties. The principal factors and uncertainties that make investing in our common stock risky include, among others:

We are entirely dependent on the success of our product candidates, STAR-0215 for the treatment of hereditary angioedema, or HAE, and STAR-0310 for the treatment of atopic dermatitis, or AD. We cannot give any assurance that we will generate preclinical, clinical or other data for STAR-0215 or STAR-0310 sufficiently supportive to receive regulatory approval, which will be required before either can be commercialized.
Interim topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
We will need substantial additional funding. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We have never generated any revenue from product sales and may never be profitable.
We have never obtained marketing approval for a product candidate, and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any future product candidate we may seek to develop.
Clinical trials are costly, time consuming, difficult to enroll and inherently risky, and we may fail to demonstrate safety and efficacy on the timelines that we expect or to the satisfaction of applicable regulatory authorities. We also expect that any later stage clinical trials we conduct for STAR-0310 will be larger and more expensive when compared to those we are conducting for STAR-0215 because AD, the indication for which we are developing STAR-0310, is not a rare disease.
STAR-0215, STAR-0310 or any future product candidates may cause adverse events or undesirable side effects or have other unexpected properties that could delay or halt clinical trials, delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.
We face substantial competition from other pharmaceutical and biotechnology companies, and our operating results may suffer if we fail to compete effectively.
Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.
We rely on in-licensed patent and other intellectual property rights for our STAR-0310 program and we may need to obtain licenses from third parties to other intellectual property rights for the development and commercialization of our STAR-0310 and STAR-0215 programs; if we fail to comply with our existing or future obligations under these licenses, or if these licenses are terminated, we could lose license rights that are important to our business.
We rely on third parties to conduct our preclinical studies and clinical trials. If they do not perform satisfactorily, our business could be significantly harmed.
We will need to maintain a cell line for STAR-0215, a master cell bank for STAR-0310 and cell lines or banks for any other future biologic candidate that generates sufficient material for preclinical, nonclinical and clinical studies, and also build and maintain sufficient preclinical, clinical and commercial manufacturing drug substance and drug product capacity, in each case, through third party manufacturers, for STAR-0215, STAR-0310 and any other future product candidate that advances into such stages, on the timetables and in a manner that, in each case, are consistent with our expected

3

development timetables and financial projections, the failure of which could materially harm our business and operating results and require us to raise capital sooner than we expect.
Our forecasts of cash usage and how long we expect our existing cash, cash equivalents and short-term investments to fund operating expenses and capital expenditure requirements may not be accurate and we may therefore use our cash and cash equivalents more rapidly than we expect, which could force us to delay, reduce or eliminate our product development programs or commercialization efforts, if any, and therefore materially harm our operating results, and we could be required to raise capital sooner than we expect.
We have incurred significant losses since inception, have a limited operating history on which to assess our business, and anticipate that we will continue to incur significant losses for the foreseeable future.
If we are unable to obtain and maintain sufficient patent and/or regulatory protection for product candidates, or if the scope of the patent and/or regulatory protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize such product candidates successfully may be adversely affected.
The price of our common stock has been and is likely to continue to be highly volatile, which could result in substantial losses for our stockholders.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and the other information set forth in this Quarterly Report on Form 10-Q, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and the related notes and other financial information, as well as in other documents that we file with the Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

4

PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

Astria Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

September 30, 

December 31, 

    

2023

    

2022

Assets

Current assets:

Cash and cash equivalents

$

119,806

$

20,525

Short-term investments

69,000

205,912

Prepaid expenses and other current assets

 

2,660

 

1,253

Total current assets

 

191,466

 

227,690

Right-of-use asset

514

948

Other assets

1,881

1,995

Total assets

$

193,861

$

230,633

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

1,138

$

788

Accrued expenses

 

7,756

 

7,690

Current portion of operating lease liabilities

488

582

Total current liabilities

 

9,382

 

9,060

Long term portion of operating lease liabilities

357

Total liabilities

9,382

9,417

Commitments (Note 6)

Stockholders’ equity:

Preferred stock, $0.001 par value per share, 4,908,620 shares authorized and no shares issued and outstanding

Series X redeemable convertible preferred stock, $0.001 par value per share, 91,380 shares authorized; 31,107 and 31,455 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

95,324

96,398

Common stock, $0.001 par value per share, 150,000,000 shares authorized; 28,042,296 and 27,501,340 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

28

 

28

Additional paid-in capital

 

638,251

 

632,512

Accumulated other comprehensive loss

(79)

Accumulated deficit

(549,124)

(507,643)

Total stockholders’ equity

 

184,479

 

221,216

Total liabilities and stockholders’ equity

$

193,861

$

230,633

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Astria Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

Operating expenses:

Research and development

$

13,338

$

7,698

$

30,460

$

24,673

General and administrative

 

6,898

 

4,688

 

18,371

 

14,540

Total operating expenses

 

20,236

 

12,386

 

48,831

 

39,213

Loss from operations

 

(20,236)

 

(12,386)

 

(48,831)

 

(39,213)

Other income (expense):

Interest and investment income

2,527

437

7,404

706

Other expense, net

(18)

(48)

(54)

(64)

Total other income, net

 

2,509

 

389

 

7,350

 

642

Net loss

(17,727)

(11,997)

(41,481)

(38,571)

Net loss per share attributable to common shareholders - basic and diluted

$

(0.63)

$

(0.87)

$

(1.48)

$

(2.91)

Weighted-average common shares outstanding used in net loss per share - basic and diluted

 

28,040,173

 

13,742,385

 

28,002,663

 

13,261,422

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Astria Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

Net loss

$

(17,727)

$

(11,997)

$

(41,481)

$

(38,571)

Other comprehensive gain (loss):

Unrealized gain (loss) on short-term investments, net of tax of $0

 

 

(29)

 

79

 

(215)

Total other comprehensive gain (loss):

 

 

(29)

 

79

 

(215)

Comprehensive loss

$

(17,727)

$

(12,026)

$

(41,402)

$

(38,786)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Astria Therapeutics, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In thousands, except shares)

(Unaudited)

Series X

Series X

redeemable

redeemable

Accumulated

convertible

convertible

Additional

other

Total

preferred stock,

preferred stock,

Common stock,

Common stock,

paid-in

Accumulated

comprehensive

stockholders’

    

shares

    

value

    

shares

    

par value

    

capital

    

deficit

    

loss

    

equity

Balance at December 31, 2022

31,455

$

96,398

27,501,340

$

28

$

632,512

$

(507,643)

$

(79)

$

221,216

Issuance of common stock upon the conversion of preferred stock

(348)

(1,074)

57,910

1,074

Issuance of common stock upon exercise of options and warrants

427,468

37

37

Stock-based compensation expense

1,220

1,220

Unrealized gain on short-term investments

75

75

Net loss

(11,188)

(11,188)

Balance at March 31, 2023

31,107

95,324

27,986,718

28

634,843

(518,831)

(4)

211,360

Issuance of common stock upon exercise of options

39,126

273

273

Stock-based compensation expense

1,331

1,331

Unrealized gain on short-term investments

4

4

Net loss

(12,566)

(12,566)

Balance at June 30, 2023

31,107

95,324

28,025,844

28

636,447

(531,397)

200,402

Issuance of common stock upon exericse of options

16,452

110

110

Stock-based compensation expense

1,694

1,694

Unealized gain on short-term investments

Net loss

(17,727)

(17,727)

Balance September 30, 2023

31,107

95,324

28,042,296

28

638,251

(549,124)

184,479

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Astria Therapeutics, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In thousands, except shares)

(Unaudited)

Series X

Series X

redeemable

redeemable

Accumulated

convertible

convertible

Additional

other

Total

preferred stock,

preferred stock,

Common stock,

Common stock,

paid-in

Accumulated

comprehensive

stockholders’

    

shares

    

value

    

shares

    

par value

    

capital

    

deficit

    

loss

    

equity

Balance at December 31, 2021

31,455

$

96,398

13,016,955

$

13

$

481,709

$

(455,809)

$

$

122,311

Expense related to warrants inherited in acquisition of Quellis

1,542

1,542

Stock-based compensation expense

1,209

1,209

Unrealized loss on short-term investments

(53)

(53)

Net loss

(15,324)

(15,324)

Balance at March 31, 2022

31,455

96,398

13,016,955

13

484,460

(471,133)

(53)

109,685

Stock-based compensation expense

1,117

1,117

Unrealized loss on short-term investments

(133)

(133)

Net loss

(11,250)

(11,250)

Balance at June 30, 2022

31,455

96,398

13,016,955

13

485,577

(482,383)

(186)

99,419

Issuance of common stock for at-the-market offerings, net of issuance costs

2,715,166

3

24,287

24,290

Issuance of common stock upon exericse of options

16,202

34

34

Stock-based compensation expense

1,155

1,155

Unealized gain on short-term investments

(29)

(29)

Net loss

(11,997)

(11,997)

Balance September 30, 2022

31,455

96,398

15,748,323

16

511,053

(494,380)

(215)

112,872

The accompanying notes are an integral part of these condensed consolidated financial statements.

9

Astria Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended September 30, 

    

2023

    

2022

Operating activities

Net loss

$

(41,481)

$

(38,571)

Reconciliation of net loss to net cash used in operating activities:

Stock-based compensation expense

4,245

3,481

Net gain on warrants inherited in acquisition of Quellis

1,542

Right-of-use asset - operating lease

434

Other non-cash items

(52)

127

Changes in assets and liabilities:

Prepaid expenses and other assets

 

(1,318)

 

(468)

Lease liability - operating lease

(451)

24

Accounts payable

 

350

 

(766)

Accrued expenses

 

66

 

1,762

Net cash used in operating activities

 

(38,207)

 

(32,869)

Investing activities

Purchases of short-term investments

(1,216,423)

(217,564)

Sales and maturities of short-term investments

1,353,500

185,675

Purchases of property and equipment

(9)

(60)

Net cash provided by (used in) investing activities

 

137,068

 

(31,949)

Financing activities

Proceeds from at-the-market offering, net of issuance costs

24,290

Proceeds from exercise of stock options

420

34

Net cash provided by financing activities

420

24,324

Net increase (decrease) in cash, cash equivalents and restricted cash

99,281

(40,494)

Cash, cash equivalents and restricted cash, beginning of period

 

20,688

 

86,629

Cash, cash equivalents and restricted cash, end of period

$

119,969

$

46,135

Supplemental disclosure of non-cash transactions:

Conversion of Series X Preferred Stock into common stock

$

1,074

$

Purchases of property and equipment in accounts payable and accrued liabilities

$

$

31

The accompanying notes are an integral part of these condensed consolidated financial statements.

10

Astria Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Organization and Operations

The Company

Astria Therapeutics, Inc. (the “Company”), is a biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics for allergic and immunological diseases. The Company’s lead product candidate is STAR-0215, a potential best-in-class monoclonal antibody inhibitor of plasma kallikrein in clinical development for the treatment of hereditary angioedema (“HAE”), a rare, debilitating and potentially life-threatening disease. The Company’s second product candidate is STAR-0310, a monoclonal antibody OX40 antagonist that is in preclinical development for the treatment of atopic dermatitis (“AD”), an immune disorder associated with loss of skin barrier function and itching. The Company was incorporated in the State of Delaware on June 26, 2008.

Liquidity

On June 30, 2021, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (“Jefferies”), pursuant to which the Company can issue and sell shares of common stock of up to $25.0 million under an at-the-market offering program (the “Jefferies ATM Program”). The Company pays Jefferies sales agent commissions of 3% of the gross proceeds from any common stock sold through the Jefferies ATM Program. In September 2022, the Jefferies ATM Program was modified to increase the amount of the Company’s common stock that may be offered thereunder to an aggregate offering price of up to $50.0 million, with $30.5 million of such amount then being available for future issuance. In November 2022, the Jefferies ATM Program was once again modified to increase the amount of the Company’s common stock that may be offered thereunder to an aggregate offering price of up to $88.1 million, with $50.0 million of such amount then being available for future issuance. As of September 30, 2023, $50.0 million of common stock remains available for sale under the Jefferies ATM Program. There was no activity from the Jefferies ATM Program during the three and nine months ended September 30, 2023. In the three and nine months ended September 30, 2022, the Company sold an aggregate of 2,715,166 shares of common stock under the Jefferies ATM Program for gross proceeds of $25.0 million and net proceeds of $24.3 million.

As of September 30, 2023, the Company had an accumulated deficit of $549.1 million and had available cash, cash equivalents and short-term investments of $188.8 million which the Company estimates are sufficient to sustain operations for at least twelve months from the issuance of these unaudited condensed consolidated financial statements. Subsequent to September 30, 2023,  the Company closed an underwritten public offering of (i) 8,253,895 shares of the Company’s common stock and accompanying common stock warrants to purchase an aggregate of 6,190,418 shares of common stock and (ii), in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 1,571,093 shares of common stock and accompanying common stock warrants to purchase up to an aggregate of 1,178,320 shares of common stock for aggregate gross proceeds of approximately $64.0 million, before deducting underwriting discounts and commissions and other offering expenses (the “October 2023 Financing”). Each pre-funded warrant has an exercise price of $0.001 per share. Each common stock warrant has an exercise price of $8.025 per share. The Company has been primarily involved with research and development activities and has incurred operating losses and negative cash flows from operations since its inception. The Company has not generated any product revenues and has financed its operations primarily through public offerings and private placements of its equity securities. There can be no assurance that the Company will be able to obtain additional debt, equity or other financing or generate product revenues or revenues from collaborative partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s products. The Company anticipates that it will continue to incur significant operating losses for the next several years as it continues to develop its product candidates.

11

2.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying financial statements and the related disclosures are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted from this report. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2022 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”).

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including those adjustments that are of a normal and recurring nature, which are necessary to fairly present the Company’s results for the interim periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or for any future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Astria Securities Corporation and Quellis Biosciences, LLC, successor in interest to Quellis. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

The Company utilizes certain estimates to record expenses relating to research and development contracts. These contract estimates, which are primarily related to the length of service of each contract and the amount of service provided as of each measurement date, are determined by the Company based on input from internal project management, as well as from the Company’s service providers.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the Company’s dilutive net loss per share calculation, preferred stock, stock options and warrants to purchase common stock were considered to be common stock equivalents but were excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive; therefore, basic and diluted net loss per share were the same for all periods presented.

The following common stock equivalents, including Series X Preferred Stock shown as common stock equivalents, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

Three and Nine Months Ended September 30,

    

2023

    

2022

Series X Preferred Stock

5,184,591

5,242,501

Stock options

 

3,321,448

 

2,237,948

Common stock warrants

 

331,858

 

1,530,176

8,837,897

9,010,625

12

Cash, Cash Equivalents and Restricted Cash

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with original maturities of three months or less and reverse repurchase agreements with a maturity period of one business day at the time of purchase. Cash equivalents are mainly comprised of money market accounts invested in U.S. Treasury securities, corporate debt securities, commercial paper and reverse repurchase agreements with a maturity period of one business day at the time of purchase.

Restricted cash is comprised of deposits with a financial institution used to collateralize letters of credit related to the Company’s lease arrangements. Restricted cash is presented as a component of prepaid expenses and other current assets at September 30, 2023 and other long-term assets at September 30, 2022.

The reconciliation of cash, cash equivalents and restricted cash reported within the applicable condensed consolidated balance sheet that sum to the total of the same such amount shown in the condensed consolidated statement of cash flows is as follows (in thousands):

September 30, 

    

2023

    

2022

Cash and cash equivalents

$

119,806

$

45,972

Restricted cash

163

163

Total

$

119,969

$

46,135

Preferred Stock Discount

In February 2021, the Company issued Series X Preferred Stock in a private placement transaction. It was determined that this transaction resulted in recognition of a beneficial conversion feature, which was valued based on the difference between the price of the shares of common stock on the date of commitment and the conversion price on the closing date, resulting in a total value of $19.6 million. Additionally, the Company incurred total issuance costs of $5.7 million related to the private placement. Both of these features were recorded as a discount on Series X Preferred Stock recognized at the close of the transaction. These features are analogous to preferred dividends and are recorded as a non-cash return to holders of Series X Preferred Stock through additional paid in capital. The discount related to the beneficial conversion feature was recognized through the earliest possible date of conversion, which occurred in June 2021. The issuance costs are recognized as a dividend at the time of conversion to shares of common stock. As of September 30, 2023, $24.4 million of the above amounts were accounted for as a non-cash dividend related to shares of Series X Preferred Stock, and $0.9 million remained to be recognized upon future conversion.

Recent Accounting Pronouncements - Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326). This standard requires a financial asset to be presented at amortized cost basis at the net amount expected to be collected. It also requires that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. In November 2019, the FASB issued an amendment making this standard effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies. Early adoption was permitted. The Company adopted this standard on January 1, 2023 with no material impact on the condensed consolidated financial statements.

Recent Accounting Pronouncements – Not Yet Adopted

In August 2020, the FASB issued Accounting Standards Update 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which reduces the number of accounting models for convertible debt instruments and convertible preferred stock as well as amends the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for the Company on January 1, 2024, with early adoption permitted. The Company believes that ASU 2020-06 will not have a material impact on the Company's financial position or results of operations upon adoption.

13

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” in the 2022 Annual Report on Form 10-K, and there were no significant changes to such policies in the three and nine months ended September 30, 2023 that had a material impact on the Company’s results of operations or financial position.

3.Financial Instruments

The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability. There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2023 and 2022.

The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. The Company validates the prices provided by its third party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company also invests in certain reverse repurchase agreements which are collateralized by deposits in the form of U.S. Government Securities and Obligations for an amount no less than 102% of their value. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilized a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

The Company accounted for warrants to purchase its stock pursuant to Accounting Standards Codification (“ASC”) Topic 470, Debt, and ASC Topic 480, Distinguishing Liabilities from Equity, and classifies warrants for common stock and preferred stock as liabilities or equity. The warrants classified as liabilities are reported at their estimated fair value and any changes in fair value are reflected in research and development expense. The warrants classified as equity are reported at their estimated fair value with no subsequent remeasurement.

Below is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):

As of September 30, 2023

Quoted

Prices

Significant

Significant

in Active

Observable

Unobservable

Markets

Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Cash and cash equivalents:

Money market funds

$

3,876

$

$

$

3,876

Short-term investments:

Reverse repurchase agreements

69,000

69,000

Total

$

3,876

$

69,000

$

$

72,876

14

As of December 31, 2022

Quoted

Prices

Significant

Significant

in Active

Observable

Unobservable

Markets

Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Cash and cash equivalents:

Money market funds

$

1,944

$

$

$

1,944

Short-term investments:

Corporate debt securities

16,445

16,445

Yankee securities

1,999

1,999

Bonds

2,988

2,988

Treasury bills

5,980

5,980

Reverse repurchase agreements

178,500

178,500

Total

$

7,924

$

199,932

$

$

207,856

The carrying amounts reflected in the unaudited condensed consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. Items measured at fair value on a recurring basis include cash equivalents and short-term investments as of September 30, 2023 and December 31, 2022.

4.Short-Term Investments

The following table summarizes the short-term investments held at September 30, 2023 and December 31, 2022 (in thousands):

    

    

Gross Unrealized

    

Gross Unrealized

    

Amortized Cost

Gains

Losses

Fair Value

September 30, 2023

Reverse repurchase agreements

$

69,000

$

$

$

69,000

Total

$

69,000

$

$

$

69,000

Gross Unrealized

Gross Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

December 31, 2022

Corporate debt securities

$

16,508

$

$

(63)

$

16,445

Treasury bills

5,983

(3)

5,980

Yankee securities

2,000

(1)

1,999

U.S. agency bonds

3,000

(12)

2,988

Reverse repurchase agreements

178,500

178,500

Total

$

205,991

$

$

(79)

$