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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-39306
____________________________________________________
APPLIED MOLECULAR TRANSPORT INC.
(Exact Name of Registrant as Specified in its Charter)
____________________________________________________
Delaware81-4481426
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Address Not Applicable(1)
Zip Code Not Applicable(1)
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (650) 392-0420
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per shareAMTIThe 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 x No o
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 x No o
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 fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo
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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 2, 2023, the registrant had 41,336,563 shares of common stock, $0.0001 par value per share, outstanding.
_____________________________
1 We are a fully-remote company. Accordingly, we do not maintain a headquarters. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, or the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, any stockholder communication required to be sent to our principal executive offices may be directed to the agent for service of process at the following address: Applied Molecular Transport Inc., c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, or to the email address: corporate.secretary@appliedmt.com.


Table of Contents


Special Note Regarding Forward-Looking Statements
This report contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include our expectations regarding the anticipated timing, completion, effects, and potential benefits of the Agreement and Plan of Merger with Cyclo Therapeutics, Inc., a Nevada corporation, and Cameo Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Cyclo, pursuant to which, and subject to the terms and conditions set forth therein, Merger Sub will merge with and into us (the Merger), with us surviving such Merger as a wholly-owned subsidiary of Cyclo, the outcome of any legal proceedings that may be instituted against us related to the Merger, potential de-listing from Nasdaq, our expectations on the timing of clinical study initiation and results and the timing and success of future development of our product candidates, potential regulatory approval of our product candidates, our possible or assumed future results of operations and expenses, our expectations related to our restructuring and operating as a fully-remote company, business strategies and plans, trends, market sizing, competitive position, industry environment, potential growth opportunities, reliance on third parties, financing needs, the sufficiency of the Company’s existing cash and cash equivalents, our ability to protect our intellectual property position, the impact on our business of certain geo-political events, the development of macroeconomic conditions, the impact of the COVID-19 pandemic on our business, and impact of the Affordable Care Act and other legislation and regulation, among other things. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in “Risk Factors” and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons. Actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.


PART I—FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Applied Molecular Transport Inc.
Condensed Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
September 30,
2023
December 31,
2022
Assets  
Current assets:  
Cash and cash equivalents$18,103 $61,145 
Prepaid expenses457 2,688 
Other current assets259 186 
Total current assets18,819 64,019 
Property and equipment, net31 8,183 
Operating lease right-of-use assets1,165 33,222 
Finance lease right-of-use assets 584 
Restricted cash 916 
Other assets 522 
Total assets$20,015 $107,446 
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$161 $1,583 
Accrued expenses2,261 8,660 
Lease liabilities, operating lease - current1,353 4,639 
Lease liabilities, finance lease - current 205 
Total current liabilities3,775 15,087 
Lease liabilities, operating lease 31,228 
Lease liabilities, finance lease 49 
Other liabilities 244 
Total liabilities3,775 46,608 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value: 50,000,000 shares authorized; none issued and outstanding
  
Common stock, $0.0001 par value, 450,000,000 shares authorized; 40,893,507 and 39,181,801 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
4 4 
Additional paid-in capital434,393 426,804 
Accumulated deficit(418,157)(365,970)
Total stockholders’ equity16,240 60,838 
Total liabilities and stockholders’ equity$20,015 $107,446 
The accompanying notes are an integral part of these condensed financial statements.
2

Applied Molecular Transport Inc.
Condensed Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Operating expenses:    
Research and development$250 $18,233 $15,796 $72,273 
General and administrative7,007 7,281 20,804 28,052 
Restructuring, impairment, and related charges(40)12 16,832 3,799 
Total operating expenses7,217 25,526 53,432 104,124 
Loss from operations(7,217)(25,526)(53,432)(104,124)
Interest income, net283 321 1,281 393 
Other income (expense), net(3)(1)(36)5 
Net loss$(6,937)$(25,206)$(52,187)$(103,726)
Net loss per share, basic and diluted$(0.17)$(0.65)$(1.32)$(2.68)
Weighted-average shares of common stock outstanding, basic and diluted39,751,02838,914,57039,426,21838,769,226
The accompanying notes are an integral part of these condensed financial statements.
3

Applied Molecular Transport Inc.
Condensed Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’Equity
SharesAmount
Balance at December 31, 202239,181,801$4 $426,804 $(365,970)$60,838 
Issuance of stock under employee stock plans19,151— — — — 
Stock-based compensation expense— 3,223 — 3,223 
Net loss— — (27,917)(27,917)
Balance at March 31, 202339,200,952$4 $430,027 $(393,887)$36,144 
Issuance of stock under employee stock plans228,225— 7 — 7 
Stock-based compensation expense— 1,828 — 1,828 
Net loss— — (17,333)(17,333)
Balance at June 30, 202339,429,177$4 $431,862 $(411,220)$20,646 
Issuance of stock under employee stock plans1,464,330— — — — 
Stock-based compensation expense— 2,531 — 2,531 
Net loss— — (6,937)(6,937)
Balance at September 30, 202340,893,507$4 $434,393 $(418,157)$16,240 
4

Applied Molecular Transport Inc.
Condensed Statements of Stockholders’ Equity (Continued)
(Unaudited)
(in thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’Equity
SharesAmount
Balance at December 31, 202138,619,957$4 $403,228 $(239,645)$163,587 
Issuance of stock under employee stock plans34,206— 60 — 60 
Stock-based compensation expense— 6,773 — 6,773 
Net loss— — (42,575)(42,575)
Balance at March 31, 202238,654,163$4 $410,061 $(282,220)$127,845 
Issuance of stock under employee stock plans244,532— 262 — 262 
Stock-based compensation expense— 5,590 — 5,590 
Net loss— — (35,945)(35,945)
Balance at June 30, 202238,898,695$4 $415,913 $(318,165)$97,752 
Issuance of stock under employee stock plans44,402— 7 — 7 
Stock-based compensation expense— 5,842 — 5,842 
Net loss— — (25,206)(25,206)
Balance at September 30, 202238,943,097$4 $421,762 $(343,371)$78,395 
The accompanying notes are an integral part of these condensed financial statements.
5

Applied Molecular Transport Inc.
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
20232022
Operating activities  
Net loss$(52,187)$(103,726)
Adjustments to reconcile net loss to net cash used in operating activities:  
Stock-based compensation expense7,582 18,205 
Depreciation and amortization837 2,468 
Non-cash operating lease expense3,537 6,433 
Non-cash asset impairment charges5,392 80 
Gain on partial termination of lease(702) 
Loss on disposal of property and equipment295  
Changes in operating assets and liabilities:  
Prepaid expenses2,231 3,475 
Other current assets(219)336 
Other assets163 (428)
Accounts payable(1,428)(837)
Accrued expenses(6,636)(221)
Operating lease liabilities(4,085)(4,872)
Other liabilities 3 
Net cash used in operating activities(45,220)(79,084)
Investing activities  
Purchases of property and equipment(446)(4,146)
Proceeds from disposal of property and equipment1,955  
Net cash provided by (used in) investing activities1,509 (4,146)
Financing activities  
Payments for financing and offering costs (806)
Principal payments on finance lease liabilities(254)(203)
Proceeds from issuance of stock under employee stock plans7 329 
Net cash used in financing activities(247)(680)
Net decrease in cash, cash equivalents and restricted cash(43,958)(83,910)
Cash, cash equivalents and restricted cash, beginning of period62,061 160,846 
Cash, cash equivalents and restricted cash, end of period$18,103 $76,936 
Supplemental cash flow data:  
Cash paid for interest on finance lease liabilities$8 $21 
Supplemental disclosure of non-cash investing and financing activities:  
Property and equipment included in accounts payable and accrued expenses$ $23 
Deferred financing and offering costs included in accounts payable and accrued expenses$ $15 
The accompanying notes are an integral part of these condensed financial statements.
6

Applied Molecular Transport Inc.
Notes to the Condensed Financial Statements
(Unaudited)
1. Description of Business
Applied Molecular Transport Inc. (AMT or the Company) is a clinical-stage biopharmaceutical company that has a proprietary technology platform that enables the design of novel biologic product candidates in patient-friendly oral dosage forms. The Company has decided to discontinue research activities. The Company was incorporated in the state of Delaware in November 2016 and operates under a fully-remote model. Accordingly, the Company does not have a principal executive office.
In March 2023, the Company announced that it had commenced a process to explore strategic alternatives and recently entered into the Merger Agreement (as described below). The Company is actively seeking to sell, assign, license, or otherwise dispose of, in one or more transactions, some or all of the assets that relate to its platform technology at any time prior to, or concurrently with, the closing of the Merger (as defined below).
Proposed Acquisition by Cyclo Therapeutics
On September 21, 2023, AMT entered into an Agreement and Plan of Merger (the Merger Agreement) with Cyclo Therapeutics, Inc., a Nevada corporation (Cyclo) and Cameo Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Cyclo (Merger Sub), pursuant to which, and subject to the terms and conditions set forth therein, Merger Sub will merge with and into AMT (the Merger), with AMT surviving such Merger as a wholly-owned subsidiary of Cyclo.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of AMT common stock issued and outstanding immediately prior to the effective time of the Merger will automatically be converted into the right to receive shares of Cyclo common stock. As of the date of the execution of the Merger Agreement, the Exchange Ratio was estimated to be 0.174 shares of Cyclo common stock for each share of AMT common stock, but the actual Exchange Ratio will depend on AMT’s net cash and the number of shares of AMT common stock outstanding at the closing of the Merger. Any fractional shares of Cyclo common stock will be rounded up to the nearest whole share. The former AMT stockholders immediately before the Merger are expected to own approximately 25% of the outstanding common stock of the combined company, and the stockholders of Cyclo immediately before the Merger are expected to own approximately 75% of the outstanding common stock of the combined company, subject to certain assumptions (including as to the amount of AMT’s net cash and outstanding shares of AMT common stock at closing).
The boards of directors of each of AMT and Cyclo have approved the Merger Agreement and the transactions contemplated thereby, subject to the satisfaction or waiver of customary conditions, including the requisite approval by AMT’s and Cyclo’s stockholders and the effectiveness of a registration statement to register the shares of Cyclo common stock to be issued in connection with the transaction.
The Merger Agreement also includes termination provisions for both the Company and Cyclo. In connection with a termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee ranging between $0.4 million to $0.6 million.
Although the Company has entered into the Merger Agreement and intends to consummate the proposed Merger, there is no assurance that the Company will be able to successfully consummate the proposed Merger on a timely basis, or at all.
Nasdaq Delisting Notification
On August 10, 2023, the Company received a letter from the Listing Qualifications Staff (Nasdaq Staff) of the Nasdaq Stock Market LLC (Nasdaq) indicating that, in accordance with Nasdaq Listing Rule 5100, the Nasdaq Staff believes the Company is a “public shell” and that the continued listing of the Company’s securities is no longer warranted. According to the letter, the Nasdaq Staff believes that the Company “no longer has an operating business” and consequently has decided to use its discretion “to apply more stringent criteria” to the Company’s listing. The Nasdaq Staff’s letter also indicates that the Company was not in compliance with Nasdaq Listing Rule 5450(a)(1), which requires the Company’s common stock to maintain a share price of at least $1.00 per share (the Bid Price Rule) for continued listing on the Nasdaq Global Select Market. This serves as an additional and separate basis for delisting.
The Company filed an appeal to the delisting with the Nasdaq’s Hearings Panel (Nasdaq Panel) on August 17, 2023 and subsequently presented its appeal at a hearing with the Nasdaq Panel on October 19, 2023. On October 23, 2023, the Nasdaq Panel granted the Company’s request for continued listing on Nasdaq, subject to the Company’s completion of the Merger on or before February 6, 2024. The Company’s securities may now continue to trade on Nasdaq until February 6, 2024. There can be
7

no assurance that the Company will be able to complete the Merger on or before February 6, 2024. The Company’s failure to complete the Merger on or before February 6, 2024 will result in its securities being delisted from Nasdaq after such date.
Going Concern Considerations
The Company has incurred net losses in each reporting period since inception, including net losses of $52.2 million and $103.7 million for the nine months ended September 30, 2023 and 2022, respectively, and the Company’s accumulated deficit at September 30, 2023 was $418.2 million. The Company’s current operating plan indicates it will continue to incur losses from operations and generate negative cash flows from operating activities, given the Company does not generate any revenue from product sales or otherwise.
As a result of restructuring actions in March 2023 (see Note 5), including discontinuing research activities, exiting substantially all of its operating and finance leases, and significantly reducing its workforce, management believes the Company’s existing cash and cash equivalents of $18.1 million as of September 30, 2023 are adequate to meet its cash needs for at least 12 months from the issuance date of these condensed financial statements.
There can be no assurance that sources of capital will be available to the Company in the necessary time frame, in the amounts that the Company requires, on terms that are acceptable to the Company, or at all. If the Company is unable to consummate a strategic transaction or raise the necessary funds when needed or reduce spending on currently planned activities, the Company may be required to cease operations, which could materially harm its business, financial position and results of operations.
In January 2022, the Company entered into a Sales Agreement with SVB Securities LLC and JMP Securities LLC, as the Company’s sales agents (Agents), pursuant to which the Company may offer and sell from time to time through the Agents up to $150.0 million in shares of the Company’s common stock through an “at-the-market” program (ATM Facility). The shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-263501) and the final prospectus supplement, which was filed on March 11, 2022. For so long as the Company’s non-affiliate public float does not exceed $75 million, the amount of securities that the Company may sell pursuant to registration statements on Form S-3 will be limited to the equivalent of one-third of its public float, which will limit its ability to raise capital. As of September 30, 2023, the Company has not yet sold any shares under the ATM Facility and does not currently intend to do so.
Current Economic Environment
The extent of the ongoing impact of macroeconomic events on the Company’s business and on global economic activity is uncertain and the related financial impact cannot be reasonably estimated with any certainty at this time, although the impacts are expected to continue and may significantly affect its business. The Company expects that the impacts on its business will continue through this period of economic uncertainty as inflation, instability in the banking and financial services sector, a tightening of the credit markets, and other factors continue to develop or emerge. Accordingly, management is carefully evaluating the Company’s liquidity position and continuing to review its near-term operating expenses as the uncertainty related to these factors continues to unfold.
2. Summary of Significant Accounting Policies
Financial Statement Preparation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (the SEC) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Similarly, the balance sheet as of December 31, 2022 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. The condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year.
The accompanying condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Certain reclassifications have been made to the prior period amounts to conform to the current year presentation. In particular, in the condensed statements of operations for the nine months ended September 30, 2022, the Company reclassified $3.1 million and $0.7 million from “Research and development” and “General and administrative,” respectively, to a new line item
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“Restructuring, impairment, and related charges,” primarily related to severance and contract termination costs. These reclassifications did not affect the Company’s financial position, net loss, or cash flows as of and for the periods presented.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. Assets and liabilities reported in the Company’s condensed balance sheets and expenses and income reported are affected by estimates and assumptions, which are used for, but are not limited to, recording research and development expenses and related accruals, valuation of long-lived assets, including right-of-use assets and leasehold improvements, restructuring and other charges, and determining the fair value of stock options for stock-based compensation expense. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company. Actual results could differ from such estimates or assumptions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in federally insured financial institutions and, from time to time, these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the condensed balance sheets. The Company’s cash equivalents consist of money market funds that invests all of its assets in direct obligations of the U.S. Treasury. Although the fund invests in U.S. government obligations, an investment in such funds is neither insured nor guaranteed by the U.S. government. The Company has not experienced any losses on its deposits of cash or holdings of money market funds.
Significant Accounting Policies
The significant accounting policies set forth in Note 2 to the financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 appropriately represent, in all material respects, the current status of our accounting policies, except as described below.
Restructuring Charges
Restructuring charges are recorded in accordance with Accounting Standards Codification (ASC) 712-10, “Nonretirement Postemployment Benefits,” or “ASC 712-10,” and/or ASC 420-10, “Exit or Disposal Cost Obligations,” or “ASC 420-10,” as appropriate. Certain termination costs and obligations of contracts that are not leases are accounted for in accordance with ASC 420-10.
The Company records severance costs provided under an ongoing benefit arrangement once they are both probable and estimable in accordance with the provisions of ASC 712-10.
The Company accounts for one-time termination benefits and contract terminations in accordance with ASC 420-10, which addresses financial accounting and reporting for costs associated with restructuring activities. Under ASC 420-10, the Company establishes a liability for a cost associated with an exit or disposal activity, including severance and other contract termination costs, when the liability is incurred, rather than at the date that the Company commits to an exit plan. The Company reassesses the expected cost to complete the exit or disposal activities at the end of each reporting period and adjusts its remaining estimated liabilities, if necessary.
Impairment of Long-Lived Assets
The Company assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Such events include a significant change in the Company’s strategic business objectives and utilization of the assets. As part of the March 2023 Restructuring Plan (see Note 5), the Company commenced restructuring activities that included the decision to operate as a fully-remote company and discontinue research activities while focusing on completing and closing out clinical trials. In anticipation of exiting its leased facilities, the Company committed to a plan to sell all tangible fixed assets located at its leased facilities, consisting primarily of manufacturing and laboratory equipment. In connection with the classification of such assets as held for sale, the carrying value of the tangible fixed assets to be sold was reduced to their estimated fair value, which was determined based on the estimated
9

selling price less costs to sell. In May 2023, the Company modified various operating leases to shorten the accounting lease term. Upon vacating the leased premises in the second quarter of 2023, the Company wrote-off the remaining balances related to right-of-use assets and leasehold improvements.
Refer to Notes 4, 5 and 6 for additional details regarding restructuring and impairment charges related to the March 2023 Restructuring Plan.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents are held in accounts at financial institutions. As of September 30, 2023, the Company’s cash in deposit accounts were insured by the Federal Deposit Insurance Corporation (FDIC) as the balances were within the FDIC insurance limit of up to $250,000 per depositor at each financial institution.
The Company considers all highly liquid investments purchased with original maturities of 90 days or less from the purchase date to be cash equivalents. Cash equivalents consist of amounts invested in money market funds exclusively composed of U.S. government obligations.
Restricted cash consisted of cash balances held by financial institutions as collateral for letters of credit maintained by the Company for the benefit of lessors related to its leased properties as of September 30, 2022.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed statements of cash flows (in thousands):
September 30,
2023
September 30,
2022
Cash and cash equivalents$18,103 $76,020 
Restricted cash 916 
Total cash, cash equivalents and restricted cash$18,103 $76,936 
Recently Adopted Accounting Pronouncements
Accounting pronouncements that became effective during the nine months ended September 30, 2023 did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued as of September 30, 2023 that are expected to have a material impact on the Company’s financial condition, results of operations or cash flows.
3. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1—Quoted prices in active markets for identical assets and liabilities;
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets Measured at Fair Value on a Recurring Basis
As of September 30, 2023 and December 31, 2022, money market funds were the only financial instrument measured and recorded at fair value on a recurring basis on the Company’s condensed balance sheets. Money market funds were recorded
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within cash and cash equivalents. The following tables present money market funds at their level within the fair value hierarchy for the periods indicated (in thousands):
September 30, 2023
Fair Value
Hierarchy
Level
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Cash equivalents:
Money market funds invested in U.S. government obligationsLevel 1$17,853 $ $ $17,853 
Total$17,853 $ $ $17,853 

December 31, 2022
Fair Value
Hierarchy
Level
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Cash equivalents:
Money market funds invested in U.S. government obligationsLevel 1$40,729 $ $ $40,729 
Total$40,729 $ $ $40,729 
Financial Instruments Not Carried at Fair Value
The Company’s financial instruments, including cash, restricted cash, other current assets, accounts payable and accrued expenses are carried at cost which approximates their fair value because of the short-term nature of these financial instruments.
4. Balance Sheet Components
Prepaid Expenses
Prepaid clinical expenses were nominal and $1.2 million as of September 30, 2023 and December 31, 2022, respectively. Other prepaid expenses as of September 30, 2023 and December 31, 2022 included prepaid amounts for insurance and other prepaid services.
Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
September 30,
2023
December 31,
2022
Laboratory and manufacturing equipment$ $11,421 
Leasehold improvements221 5,246 
Computer and office equipment 491 
Construction in progress 72 
Total property and equipment, gross221 17,230 
Accumulated depreciation(190)(9,047)
Total property and equipment, net$31 $8,183 
Property and equipment, net decreased significantly for the nine months ended September 30, 2023 as a result of the March 2023 Restructuring Plan (see Note 5). As part of the March 2023 Restructuring Plan, the Company decided to operate under a fully-remote model and committed to a plan to sell all tangible fixed assets located at its leased facilities, consisting primarily of manufacturing and laboratory equipment. In addition, the Company modified its operating leases to shorten their lease term. For the nine months ended September 30, 2023, the Company recognized non-cash impairment charges totaling $5.4 million as a result of classifying all tangible fixed assets as held for sale and to write-off leasehold improvements upon vacating leased premises. During the nine months ended September 30, 2023, all tangible fixed assets were either sold or disposed of.
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Depreciation expense was nominal and $0.6 million for the three months ended September 30, 2023 and 2022, respectively, and $0.8 million and $2.3 million for the nine months ended September 30, 2023 and 2022, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
September 30,
2023
December 31,
2022
Professional services$1,100 $728 
Compensation expenses872 3,985 
Research and development expenses 3,508 
Property and equipment 7 
Other289 432 
Total accrued expenses$2,261 $8,660 
5. Restructuring, Impairment, and Related Charges
A description of the Company’s restructuring initiatives and their related costs is provided below.
March 2023 Restructuring Plan
Employee Termination Benefits
In March 2023, the Company announced the commencement of a process to explore strategic alternatives and implemented reductions in workforce across all functional areas impacting 63 employees representing approximately 82% of its employee base (the March 2023 Restructuring Plan). Impacted employees were eligible to receive severance benefits and Company-funded COBRA premiums, contingent upon an impacted employee’s execution (and non-revocation) of a customary separation agreement, which includes a general release of claims against the Company. For the nine months ended September 30, 2023, the Company recognized $5.6 million of employee termination benefits provided under an ongoing benefit arrangement, which were fully paid as of September 30, 2023. As of September 30, 2023, the Company has 13 full-time employees.
Asset Impairments
As part of the March 2023 Restructuring Plan, the Company decided to operate under a fully-remote model and committed to a plan to sell all tangible fixed assets located at its leased facilities, consisting primarily of manufacturing and laboratory equipment. In addition, the Company modified its operating leases to shorten their lease term. For the nine months ended September 30, 2023, the Company recognized non-cash impairment charges totaling $5.4 million as a result of classifying all tangible fixed assets as held for sale and to write-off leasehold improvements upon vacating leased premises. As of September 30, 2023, all tangible fixed assets were either sold or disposed of.
During the nine months ended September 30, 2023, with the exception of an operating lease that is subject to a sublease in which the rental period is co-terminus with the term of the head lease and expires in August 2024, the Company exited all its operating and finance leases (see Note 6) and recorded impairment charges to write off right-of-use assets and related leasehold improvements upon vacating the leased premises.
Other Related Costs
The Company incurred other related costs of $0.6 million for the nine months ended September 30, 2023 primarily consisting of costs to terminate contracts before the end of their term, costs for professional services incurred in connection with restructuring measures of $1.0 million and a $0.3 million loss on disposal of fixed assets, partially offset by a $0.7 million gain on partial termination of lease.
May 2022 Restructuring Plan
In May 2022, the Company implemented a restructuring plan (May 2022 Restructuring Plan) to preserve capital and focus its resources on advancing its then lead product candidate through key development milestones. The May 2022 Restructuring Plan resulted in a reduction of the Company’s workforce by approximately 40%, or 52 employees. For the nine months ended September 30, 2022, the Company incurred total charges of approximately $3.8 million under the May 2022 Restructuring Plan, primarily consisting of $3.3 million related to severance payments and other employee-related separation costs, $0.8 million related to contract termination and facility exit costs and $0.1 million in write-offs of property and equipment, partially offset by
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a $0.4 million reduction in stock-based compensation expense as a result of applying modification accounting for accelerated vesting of RSUs related to impacted employees.
The following table details “Restructuring, impairment, and related charges” for each of the periods presented (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Employee termination benefits$ $ $5,585 $3,339 
Stock-based compensation   (419)
Asset impairments  10,642 80 
Other related costs(40)12 605 799 
Total restructuring, impairments, and related charges$(40)$12 $16,832 $3,799 
The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2023:
Employee Termination Benefits
Asset Impairments
Other Related Costs
Total
Liability balance at December 31, 2022$ $ $420 $420 
Expense5,585 10,642 605 16,832 
Payments(5,585)(5,250)
(1)
(1,387)(12,222)
Non-cash activity (5,392)362 (5,030)
Liability balance at September 30, 2023$ $ $ $ 
(1) Represents cash payments for early termination fees associated with exiting operating leases, which were recorded as increases to right-of-use assets. Upon vacating the leased premises, any remaining balances related to right-of-use assets were written off.
6. Leases
Operating Leases
In February 2021, the Company entered into an operating lease for its headquarters comprising 84,321 of rentable square feet of office, laboratory and manufacturing space in South San Francisco, California (HQ Lease), which was originally scheduled to expire in October 2029.
As part of the Company’s March 2023 Restructuring Plan, the Company decided to operate under a fully-remote model. In May 2023, the Company entered into a modification of the HQ Lease (Lease Modification), which shortened the accounting lease term to May 2023. In addition, the Company assigned an active sublease for the third floor of the leased building under the HQ Lease to the landlord effective as of the execution date. As the Company’s right of use for the third floor of the leased building ceased contemporaneously with the modification, the Company determined the percentage reduction in leased space and applied the resulting percentage to remeasure the remaining right-of-use asset and lease liability reducing them by $10.0 million and $10.7 million, respectively, which resulted in a gain on partial lease termination of $0.7 million. The gain on partial lease termination was included within the “Restructuring, impairment, and related charges” line in the statement of operations for the nine months ended September 30, 2023. Pursuant to the Lease Modification, the Company incurred an early termination fee of $5.3 million. The early termination fee included the forfeiture of a security deposit of $0.9 million in the form of a letter of credit. Under Accounting Standards Codification 842, Leases, when a lease is terminated early but the tenant continues to control the space under a modified lease agreement for a short period of time, early termination fees associated with exiting operating leases are recorded as prepaid rent for the remaining lease term resulting in an increase to the right-of-use asset. Upon vacating the leased premises in May 2023, the Company wrote-off the remaining balances related to right-of-use assets and leasehold improvements. Refer to Note 5 for additional details.
Also in May 2023, the Company entered into a modification of an operating lease for approximately 20,000 rentable square feet of warehouse space in South San Francisco, California, which shortened the accounting lease term to June 2023. The lease was originally scheduled to expire in July 2029. The Company incurred an early termination fee of $0.8 million. The early termination fee included the forfeiture of a security deposit of $0.3 million, which was recorded as prepaid rent for the remaining lease term resulting in an increase to the right-of-use asset. Upon vacating the leased premises in June 2023, the
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Company wrote-off the remaining balances related to right-of-use assets and leasehold improvements. Refer to Note 5 for additional details.
As of September 30, 2023, the Company has one remaining operating lease for approximately 18,748 rentable square feet of office and laboratory space in South San Francisco, California, which served as the Company’s headquarters through February 2021. The lease expires in August 2024. In November 2021, the Company subleased this facility in which the rental period was co-terminus with the term of the head lease. The subtenant was not provided any renewal or extension options.
Finance Leases
During the nine months ended September 30, 2023, the Company early terminated all its finance lease agreements, which were related to laboratory and manufacturing equipment. The terms of the Company’s finance leases generally ranged from three to five years.
The following table summarizes total lease expense for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Condensed Statements of Operations ClassificationThree Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Operating lease expenseOperating expenses$321 $1,923 $3,537 $6,432 
Finance lease expense:    
Amortization of ROU assetsOperating expenses 55 82 161 
Interest on lease liabilitiesInterest income, net 6 8 21 
Variable lease expenseOperating expenses144 657 784 1,789 
Short-term lease expenseOperating expenses 9 5 76 
Sublease incomeOperating expenses(378)(665)(1,711)(1,396)
Total lease expense$87 $1,985 $2,705 $7,083 
The following table summarizes supplemental cash flow information for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months Ended September 30,
20232022
Cash paid for amounts included in the measurement of liabilities:
Operating cash flows from operating leases$4,085 $4,872 
Operating cash flows from finance leases8 21 
Financing cash flows from finance leases254 203 
Right-of-use asset obtained in exchange for new operating lease liability 563 
Right-of-use asset obtained in exchange for new finance lease liability114 148 
The following table summarizes maturities of lease liabilities and sublease income as of September 30, 2023 (in thousands):
Operating Leases Sublease Income PaymentsNet Lease Income Payments
2023 (remaining three months)$369 $(388)$(19)
20241,000 (1,044)(44)
Total lease payments (undiscounted)1,369 $(1,432)$(63)
Less interest or imputed interest16  
Total present value of lease liabilities1,353  
Less: Lease liabilities, current(1,353) 
Lease liabilities, non-current$  
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As of September 30, 2023, the Company’s only operating lease had a remaining lease term of 0.9 years and the discount rate used to recognize the initial lease liabilities was 2.6%.
7. Commitments and Contingencies
Commitments
In February 2023, the Company entered into an agreement with MTS Health Partners, L.P. to act as the Company’s strategic financial advisor in connection with a potential strategic transaction, including, but not limited to, an acquisition, merger, business combination or other transaction. Upon the consummation of any such transaction, the Company has agreed to pay the advisor the greater of i) a success fee of 3% of the Total Consideration (as defined in the agreement) received by the Company; or ii) $1.5 million. Any success fees payable will be recognized as an expense in the period it is incurred.
Legal Proceedings
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings as of September 30, 2023 and December 31, 2022, and no material legal proceedings are currently pending or threatened.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its officers and directors. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments that the Company could be required to make under these provisions is not determinable. The Company also maintains director and officer insurance, which may cover certain liabilities arising from the Company’s obligation to indemnify directors and officers. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification provisions and is not currently aware of any indemnification claims.
8. Common Stock and Stock-Based Compensation
Common Stock
As of September 30, 2023 and December 31, 2022, the Company was authorized to issue 450,000,000 shares of $0.0001 par value common stock. Common stockholders are entitled to dividends if and when declared by the Board of Directors. The holder of each share of common stock is entitled to one vote. The Company has never declared or paid dividends on its common stock.
Common stock reserved for future issuance, on an as converted basis, consisted of the following:
September 30,
2023
December 31,
2022
Stock options outstanding3,055,2495,369,808
RSUs and PSUs outstanding2,010,450531,366
Shares available for future grants under equity incentive plans5,767,7814,654,922
Shares available for issuance under ESPP1,234,610872,792
Total12,068,09011,428,888
On January 1, 2023, the shares available for grant under the Company’s 2020 Equity Incentive Plan and the 2020 ESPP were automatically increased by 1,959,090 shares and 391,818 shares, respectively, pursuant to the annual evergreen increase provisions under each respective plan.
Stock-based Compensation
The Company has awards outstanding under various stock-based compensation plans as described in the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The Company utilizes stock options, restricted stock units (RSUs) and performance stock units (PSUs) for equity compensation.
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Stock-based compensation expense is measured at fair value on the date of grant and recognized ratably over the requisite service period.
The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed statements of operations during the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Research and development$ $2,707 $972 $9,002 
General and administrative2,531 3,135 6,610 9,622 
Restructuring, impairment, and related charges   (419)
Total stock-based compensation expense$2,531 $5,842 $7,582 $18,205 
Stock Options
The following summarizes stock option activity (in thousands, except share, per share, and year amounts):
Total
Options
Outstanding
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding as of December 31, 20225,369,808$17.28 7.6$11 
Granted768,0000.39   
Exercised    
Canceled(3,082,559)17.18   
Outstanding as of September 30, 20233,055,249$13.14 7.4$ 
Exercisable as of September 30, 20231,904,507$13.17 6.8$ 
As of September 30, 2023, the total unrecognized stock-based compensation expense related to stock options was $7.3 million, which is expected to be recognized over a weighted-average period of approximately 1.8 years.
Restricted Stock Units and Performance Stock Units
The following summarizes RSU and PSU activity:
RSUsPSUs
Number of Shares Weighted-
Average Grant Date Fair Value per Share
Number of SharesWeighted-
Average Grant Date Fair Value per Share
Outstanding as of December 31, 2022531,366$10.12 $ 
Granted 3,461,6400.30 
Vested(81,045)9.91 (1,600,661)0.30 
Canceled(300,850)11.04  
Outstanding as of September 30, 2023149,471$8.39 1,860,979$0.30 
In April 2023, the Company granted 2,575,529 PSUs, pursuant to the terms and conditions of the Company’s 2020 Equity Incentive Plan, to employees that contain performance conditions associated with a strategic transaction, if such a transaction occurs. The awards also vest in full if an employee is involuntarily terminated. Also in April 2023, the Company entered into a Consulting Agreement with Tahir Mahmood, a current director of the Company and the Company’s co-founder and former CEO. The Consulting Agreement had an initial term of six-months, but was subsequently amended to expire in December 2023. Under the terms of the Consulting Agreement, Dr. Mahmood will provide consulting services relating to potential strategic transactions. As consideration for the Consulting Agreement, Dr. Mahmood was granted 886,111 PSUs, pursuant to the terms
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and conditions of the Company’s 2020 Equity Incentive Plan, that contain performance conditions associated with a strategic transaction, if such a transaction occurs. The fair value of each PSU is determined on the date of grant based on the Company’s stock price.
Compensation expense for PSUs is recorded over the estimated service period for each tranche of an award when its performance condition is deemed probable of achievement. For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recorded. Additionally, at each reporting period, the Company evaluates the probable outcome of the performance conditions and as applicable, recognizes the cumulative effect of the change in estimate in the period of the change. The performance conditions related to the PSUs granted in April 2023 were initially assessed as not probable of achievement and no compensation expense was recorded. During the three months ended September 30, 2023, the performance conditions became probable of being achieved upon the execution of a merger agreement and consequently, the Company recognized a cumulative catch-up expense of $0.9 million for that quarter.
As of September 30, 2023, the total unrecognized stock-based compensation expense related to RSUs and PSUs was $0.1 million, which is expected to be recognized over a weighted-average period of approximately 0.1 years.
9. Net Loss Per Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potential dilutive shares of common stock, including options, RSUs and PSUs. Basic and diluted net loss per share were the same for all periods presented as the impact of all potentially dilutive securities outstanding was anti-dilutive.
The following table sets forth the computation of the basic and diluted net loss per share (in thousands except share and per share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Numerator:
Net loss$(6,937)$(25,206)$(52,187)$(103,726)
Denominator:    
Weighted-average shares of common stock outstanding used in the calculation of basic and diluted net loss per share39,751,02838,914,57039,426,21838,769,226
Net loss per share, basic and diluted$(0.17)$(0.65)$(1.32)$(2.68)
The Company’s basic net loss per share was the same as its diluted net loss per share for all the periods presented as the inclusion of all common stock equivalents outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
September 30,
20232022
Stock options outstanding3,055,2496,069,603
RSUs and PSUs outstanding2,010,450747,676
10. Subsequent Events
On October 19, 2023, the Company presented its appeal at a hearing with the Nasdaq Panel regarding a delisting notification received on August 10, 2023. On October 23, 2023, the Nasdaq Panel granted the Company’s request for continued listing on Nasdaq, subject to the Company’s completion of the Merger on or before February 6, 2024. See Note 1 for additional information.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled “Special Note Regarding Forward-Looking Statements.” Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled “Risk Factors” included elsewhere in this report.
Overview
We are a clinical-stage biopharmaceutical company that has a proprietary technology platform that enables the design of novel biologic product candidates in patient-friendly oral dosage forms.
In March 2023, we announced that we had commenced a process to explore strategic alternatives and recently entered into the Merger Agreement (as described below). We are actively seeking to sell, assign, license, or otherwise dispose of, in one or more transactions, some or all of the assets that relate to our platform technology at any time prior to, or concurrently with, the closing of the Merger (as defined below).
Proposed Acquisition by Cyclo Therapeutics
On September 21, 2023, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Cyclo Therapeutics, Inc., a Nevada corporation (Cyclo) and Cameo Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Cyclo (Merger Sub), pursuant to which, and subject to the terms and conditions set forth therein, Merger Sub will merge with and into us (the Merger), with us surviving such Merger as a wholly-owned subsidiary of Cyclo.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of our common stock issued and outstanding immediately prior to the effective time of the Merger will automatically be converted into the right to receive shares of Cyclo common stock. As of the date of the execution of the Merger Agreement, the Exchange Ratio was estimated to be 0.174 shares of Cyclo common stock for each share of our common stock, but the actual Exchange Ratio will depend on our net cash and the number of shares of our common stock outstanding at the closing of the Merger. Any fractional shares of Cyclo common stock will be rounded up to the nearest whole share. Our former stockholders immediately before the Merger are expected to own approximately 25% of the outstanding common stock of the combined company, and the stockholders of Cyclo immediately before the Merger are expected to own approximately 75% of the outstanding common stock of the combined company, subject to certain assumptions (including as to the amount of our net cash and outstanding shares of our common stock at closing).
Each of our and Cyclo’s boards of directors have approved the Merger Agreement and the transactions contemplated thereby, subject to the satisfaction or waiver of customary conditions, including the requisite approval by our and Cyclo’s stockholders and the effectiveness of a registration statement to register the shares of Cyclo common stock to be issued in connection with the transaction.
The Merger Agreement also includes termination provisions for both us and Cyclo. In connection with a termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee ranging between $0.4 million to $0.6 million.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is included as Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on September 21, 2023.
Although we have entered into the Merger Agreement and intend to consummate the proposed Merger, there is no assurance that we will be able to successfully consummate the proposed Merger on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, and we are unable to identify and complete an alternative strategic transaction like the Merger, or to continue to operate our business due to our inability to raise additional funding, we may be required to dissolve and liquidate our assets. In such case, we would be required to pay all of our contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to our stockholders after paying our debts and other obligations and setting aside funds for reserves.
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March 2023 Restructuring Plan
On March 27, 2023, we announced the commencement of a process to explore strategic alternatives and engaged MTS Health Partners, L.P. as our strategic financial advisor. We also decided to discontinue research activities and to focus on completing and closing out clinical trials. We made this decision following an extensive assessment of the current business environment.
To conserve cash resources pending the outcome of our strategic review, we restructured our business and implemented a series of cost-saving measures (the March 2023 Restructuring Plan). These measures included implementing reductions in workforce across all functional areas impacting 63 employees representing approximately 82% of our employee base. As of the date of this report, we have 13 full-time employees.
In connection with the March 2023 Restructuring Plan, we decided to operate under a fully-remote model and committed to a plan to sell all tangible fixed assets located at our leased facilities, consisting primarily of manufacturing and laboratory equipment. All tangible fixed assets were either sold or disposed of in May 2023. During the nine months ended September 30, 2023, with the exception of an operating lease that is subject to a sublease in which the rental period is co-terminus with the term of the head lease and expires in August 2024, we exited all our operating and finance leases. As of September 30, 2023, the March 2023 Restructuring Plan was complete.
These cost-saving measures significantly reduced our operations and enable us to support the process of exploring strategic alternatives. While we are exploring strategic alternatives, there can be no assurance that this process will result in us pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms, or at all. Similarly, there can be no assurance that sources of capital will be available to us in the necessary time frame, in the amounts that we require, on terms that are acceptable to us, or at all. If we are unable to consummate a strategic transaction or raise the necessary funds when needed or reduce spending on currently planned activities, we may be required to cease operations, which could materially harm our business, financial position and results of operations.
Nasdaq Delisting Notification
On August 10, 2023, we received a letter from the Listing Qualifications Staff (Nasdaq Staff) of the Nasdaq Stock Market LLC (Nasdaq) indicating that, in accordance with Nasdaq Listing Rule 5100, the Nasdaq Staff believes we are a “public shell” and that the continued listing of our securities is no longer warranted. According to the letter, the Nasdaq Staff believes that the Company “no longer has an operating business” and consequently has decided to use its discretion “to apply more stringent criteria” to our listing. The Nasdaq Staff’s letter also indicates that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), which requires our common stock to maintain a share price of at least $1.00 per share (the Bid Price Rule) for continued listing on the Nasdaq Global Select Market. This serves as an additional and separate basis for delisting.
We filed an appeal to the delisting with the Nasdaq’s Hearings Panel (Nasdaq Panel) on August 17, 2023 and subsequently presented our appeal at a hearing with the Nasdaq Panel on October 19, 2023. On October 23, 2023, the Nasdaq Panel granted our request for continued listing on Nasdaq, subject to our completion of the Merger on or before February 6, 2024. Our securities may now continue to trade on Nasdaq until February 6, 2024.
There can be no assurance that we will be able to complete the Merger on or before February 6, 2024. Our failure to complete the Merger on or before February 6, 2024 will result in our securities being delisted from Nasdaq after such date.
Current Economic Conditions
The extent of the ongoing impact of macroeconomic events on our business and on global economic activity is uncertain and the related financial impact cannot be reasonably estimated with any certainty at this time, although the impacts are expected to continue and may significantly affect our business. We expect that the impacts on our business will continue through this period of economic uncertainty as inflation, instability in the banking and financial services sector, a tightening of the credit markets, and other factors continue to develop or emerge. Accordingly, management is carefully evaluating our liquidity position and continuing to review our near-term operating expenses as the uncertainty related to these factors continues to unfold. The risks related to our business, including further discussion of the impact and possible future impacts of the current economic conditions on are, are further described in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
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Components of Results of Operations
Revenue
We have not generated any revenue from product sales or otherwise and do not expect to generate any revenue for the foreseeable future.
Operating Expenses
Research and Development Expenses
Our research and development expenses consist primarily of external and internal costs incurred in connection with our research activities and development programs. These expenses include, but are not limited to:
External expenses, consisting of:
clinical trials—expenses associated with CROs for managing and conducting clinical trials and sample analysis;
materials—expenses associated with laboratory supplies and other materials;
preclinical studies—expenses associated with preclinical studies performed by vendors;
contract manufacturing—expenses associated with manufacturing clinical trial materials including under agreements with contract development and manufacturing organizations (CDMOs) and other vendors; and
other research and development—expenses associated with consulting and other external expenses.
Internal expenses, consisting of:
personnel—personnel expenses including salaries, bonuses, benefits, and stock-based compensation expense; and
equipment, depreciation, and facility—expenses associated with service and repair of equipment, equipment depreciation, and allocated facility costs for research and development occupied space.
Research and development expenses are recognized as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid assets and recognized as expense in the period when the goods are consumed or the services are performed.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development, and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, and facility costs not otherwise included in research and development expenses, and public company expenses such as costs associated with compliance with the rules and regulations of the SEC and those of Nasdaq.
Restructuring, Impairment, and Related Charges
Restructuring and impairment charges include costs associated with employee severance benefits related to restructuring plans, write-downs of property and equipment held for sale to fair value less costs to sell, impairment of right-of-use assets and leasehold improvements upon vacating leased premises, contract termination and other related costs. Refer to Note 5 to our condensed financial statements in Item 1 of this Quarterly Report on Form 10-Q for additional details.
Interest Income, Net and Other Income (expense), Net
Interest income, net and other income (expense), net primarily consists of interest income earned on our cash, cash equivalents, investments, realized gain and loss on investments, interest expense from finance lease liabilities, and net losses on foreign currency transactions related to third-party contracts with foreign-based vendors.
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Results of Operations
Comparison of Three Months Ended September 30, 2023 and 2022
Three Months Ended September 30,
20232022Change
(in thousands)
Operating expenses:
Research and development$250 $18,233 $(17,983)
General and administrative7,007 7,281 (274)
Restructuring, impairment, and related charges(40)12 (52)
Total operating expenses7,217 25,526 (18,309)
Loss from operations(7,217)(25,526)18,309 
Interest income, net283 $321 (38)
Other income (expense), net(3)(1)(2)
Net loss$(6,937)$(25,206)$18,269 
Research and Development Expenses
Research and development expenses decreased by approximately $18.0 million from $18.2 million for the three months ended September 30, 2022 to approximately $0.3 million for the three months ended September 30, 2023. The decrease in research and development expenses was attributable to our restructuring of operations and related reductions in workforce implemented in March 2023, which impacted 56 research and development employees as we discontinued research activities following an assessment of our clinical programs and the current business environment while focusing our operations on completing and closing out clinical trials, exploring strategic alternatives, maintaining and prosecuting our extensive intellectual property portfolio, and continuing business development activities.
Three Months Ended September 30,
20232022Change
External expenses:
Clinical trials$85 $3,799 $(3,714)
Materials15 1,294 (1,279)
Preclinical studies(1)609 (610)
Contract manufacturing40 451 (411)
Other research and development77 2,927 (2,850)
Internal expenses: 
Personnel— 6,545 (6,545)
Equipment, depreciation, and facilities34 2,608 (2,574)
Total research and development expenses$250 $18,233 $(17,983)
General and Administrative Expenses
General and administrative expenses decreased by approximately $0.3 million from $7.3 million for the three months ended September 30, 2022 to $7.0 million for the three months ended September 30, 2023. The decrease in general and administrative expenses was attributable to our March 2023 Restructuring Plan, which reduced general and administrative headcount by seven employees and the initiative to conserve cash resources, partially offset by an increase in stock-based compensation expense related to PSUs granted in April 2023 that contained performance conditions associated with a strategic transaction. The performance conditions were initially assessed as not probable of achievement upon grant and no compensation expense was recorded. During the three months ended September 30, 2023, the performance conditions became probable of being achieved upon the execution of a merger agreement and consequently, we recognized a cumulative catch-up expense of $0.9 million for the quarter.
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Comparison of Nine Months Ended September 30, 2023 and 2022
Nine Months Ended September 30,
20232022Change
(in thousands)
Operating expenses:
Research and development$15,796 $72,273 $(56,477)
General and administrative20,804 28,052 (7,248)
Restructuring, impairment, and related charges16,832 3,799 13,033 
Total operating expenses53,432 104,124 (50,692)
Loss from operations(53,432)(104,124)50,692 
Interest income, net1,281 $393 888 
Other income (expense), net(36)(41)
Net loss$(52,187)$(103,726)$51,539 
Research and Development Expenses
Research and development expenses decreased by approximately $56.5 million from $72.3 million for the nine months ended September 30, 2022 to $15.8 million for the nine months ended September 30, 2023. The decrease in research and development expenses was attributable to our restructuring of operations and related reductions in workforce implemented in March 2023, which impacted 56 research and development employees as we discontinued research activities following an assessment of our clinical programs and the current business environment while focusing our operations on completing and closing out clinical trials, exploring strategic alternatives, maintaining and prosecuting our extensive intellectual property portfolio, and continuing business development activities.
Nine Months Ended September 30,
20232022Change
External expenses:
Clinical trials$6,792 $16,484 $(9,692)
Materials449 7,344 (6,895)
Preclinical studies203 3,551 (3,348)
Contract manufacturing231 1,128 (897)
Other research and development969 7,122 (6,153)
Internal expenses: 
Personnel4,590 25,087 (20,497)
Equipment, depreciation, and facilities2,562 11,557 (8,995)
Total research and development expenses$15,796 $72,273 $(56,477)
General and Administrative Expenses
General and administrative expenses decreased by approximately $7.2 million from $28.1 million for the nine months ended September 30, 2022 to $20.8 million for the nine months ended September 30, 2023. The decrease in general and administrative expenses was attributable to our March 2023 Restructuring Plan, which reduced general and administrative headcount by seven employees and the initiative to conserve cash resources.
Restructuring, Impairment, and Related Charges
For the nine months ended September 30, 2023, we recorded $16.8 million of restructuring, impairment, and related charges. We discontinued research activities while focusing on completing and closing out clinical trials and reduced our workforce by approximately 82%. As part of the March 2023 Restructuring Plan, we decided to operate under a fully-remote model and committed to a plan to sell all tangible fixed assets located at our leased facilities, consisting primarily of manufacturing and laboratory equipment. In addition, we modified our operating leases to shorten their lease term. For the nine months ended September 30, 2023, we recognized non-cash impairment charges totaling $5.4 million as a result of classifying all tangible
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fixed assets as held for sale and to write-off leasehold improvements upon vacating leased premises. During the nine months ended September 30, 2023, all tangible fixed assets were either sold or disposed of.
During the nine months ended September 30, 2023, with the exception of an operating lease that is subject to a sublease in which the rental period is co-terminus with the term of the head lease and expires in August 2024, we exited all our operating and finance leases and recorded impairment charges to write off right-of-use assets and related leasehold improvements upon vacating the leased premises. Refer to Note 5 in the Notes of this Quarterly Report on Form 10-Q for additional details.
Interest Income, Net
Interest income, net was $1.3 million for the nine months ended September 30, 2023 compared to $0.4 million for the nine months ended September 30, 2022. The increase was attributable to higher interest income earned on our cash and cash equivalents balances driven by an increase in interest rates.
Liquidity and Capital Resources
We have incurred net losses in each reporting period since inception, including net losses of $52.2 million and $103.7 million for the nine months ended September 30, 2023 and 2022, respectively, and our accumulated deficit at September 30, 2023 was $418.2 million. Our current operating plan indicates we will continue to incur losses from operations and generate negative cash flows from operating activities, given we do not generate any revenue from product sales or otherwise.
As a result of the restructuring actions described above, including discontinuing research activities, exiting our operating and finance leases, and significantly reducing our workforce, management believes our existing cash and cash equivalents of $18.1 million as of September 30, 2023 are adequate to meet our cash needs for at least 12 months from the issuance date of this Quarterly Report on Form 10-Q.
While we are exploring strategic alternatives, including pursuing the Merger, all related transactions contemplated thereby and the possible sale, assignment, license, or other disposal of, in one or more transactions, some or all of the assets that relate to our platform technology at any time prior to, or concurrently with, the closing of the Merger, there can be no assurance that this process will result in us completing the Merger or any other transaction if the Merger is not completed, or that any transaction, if pursued, will be completed on attractive terms, or at all. If we are unable to complete the Merger or any other strategic transaction, then our financial position, access to capital and results of operations may be harmed. Similarly, there can be no assurance that sources of capital will be available to us in the necessary time frame, in the amounts that we require, on terms that are acceptable to us, or at all. If we are unable to consummate a strategic transaction or raise the necessary funds when needed or reduce spending on currently planned activities, we may be required to cease operations, which could materially harm our business, financial position and results of operations.
In January 2022, we entered into a Sales Agreement with SVB Securities LLC and JMP Securities LLC, as our sales agents (Agents), pursuant to which we may offer and sell from time to time through the Agents up to $150.0 million in shares of our common stock through an “at-the-market” program (ATM Facility). The shares will be offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-263501) and the final prospectus supplement, which was filed on March 11, 2022. For so long as our non-affiliate public float does not exceed $75 million, the amount of securities that we may sell pursuant to registration statements on Form S-3 will be limited to the equivalent of one-third of our public float, which will limit our ability to raise capital. As of September 30, 2023, we have not yet sold any shares under the ATM Facility and do not currently intend to do so.
In May 2023, we entered into a modification of the lease (Lease Modification) for our headquarters in South San Francisco, California (HQ Lease), which shortened the accounting lease term to May 2023. In addition, we assigned an active sublease for the third floor of the leased building under the HQ Lease to the landlord effective as of the execution date. Pursuant to the Lease Modification, we incurred an early termination fee of $5.3 million. The early termination fee included forfeiture of a security deposit securing the lease of $0.9 million in the form of a letter of credit. Upon vacating the leased premises in May 2023, we wrote-off the remaining balances related to right-of-use assets and leasehold improvements.
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Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for the periods presented below (in thousands):
Nine Months Ended September 30,
20232022
Net cash used in operating activities$(45,220)$(79,084)
Net cash provided by (used in) investing activities1,509 (4,146)
Net cash used in financing activities(247)(680)
Net decrease in cash, cash equivalents, and restricted cash$(43,958)$(83,910)
Cash Used in Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2023 was $45.2 million, which consisted of a net loss of $52.2 million, a net change of $10.0 million in our net operating assets and liabilities, partially offset by $16.9 million in non-cash charges. The net change in our operating assets and liabilities used $10.0 million in cash and was primarily driven by a $8.1 million decrease in accounts payable and accrued expenses as we closed out existing preclinical and clinical programs and a $4.1 million decrease in operating lease liabilities due to payments related to our operating lease obligations, partially offset by a $2.2 million decrease in prepaid expenses as we discontinued research activities. The non-cash charges primarily consisted of $7.6 million in stock-based compensation expense, $5.4 million in asset impairment charges for fixed assets as a result of our transition to a fully-remote company and $3.5 million in non-cash operating lease expense.
Net cash used in operating activities during the nine months ended September 30, 2022 was $79.1 million, which consisted of a net loss of $103.7 million, a net decrease of $2.6 million in our net operating assets and liabilities and $27.2 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to decreases of $4.9 million in operating lease liabilities, $1.1 million in accounts payable and accrued expenses, and $0.4 million in other assets. These decreases were partially offset by increases of $3.5 million in other prepaid expenses and $0.3 million in other current assets. The non-cash charges primarily consisted of stock-based compensation expense of $18.2 million, non-cash operating lease expense of $6.4 million, depreciation and amortization expenses of $2.5 million and impairment charges of $0.1 million in connection with the May 2022 Restructuring Plan.
Cash Provided by (Used in) Investing Activities
Cash provided by investing activities during the nine months ended September 30, 2023 was $1.5 million and was related to proceeds from disposal of long-lived assets, partially offset by purchases of property and equipment.
Cash used in investing activities during the nine months ended September 30, 2022 was $4.1 million, consisting of purchases of property and equipment.
Cash Used in Financing Activities
Cash used in financing activities during the nine months ended September 30, 2023 was related to principal payments for finance lease liabilities.
Cash used in financing activities during the nine months ended September 30, 2022 was $0.7 million, consisting primarily of payments of issuance costs related to our ATM Facility of $0.8 million and principal payments for finance lease liabilities of $0.2 million, partially offset by proceeds received from shares issued under our employee stock purchase plan of $0.2 million and stock option exercises of $0.1 million.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these 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 as of the date of the 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. The economic
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uncertainty in the current environment could limit our ability to accurately make and evaluate our estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions.
We described our significant accounting policies in Note 2, Summary of Significant Accounting Policies in the Notes included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. These accounting policies were consistently applied in the preparation of the unaudited interim condensed financial statements contained in this Quarterly Report on Form 10-Q.

We disclosed our critical accounting estimates in Part II, Item 7 Critical Accounting Estimates in the Management’s Discussion and Analysis of our Annual Report on Form 10-K for the year ended December 31, 2022. There were no significant changes in our critical accounting estimates during the nine months ended September 30, 2023.
New Accounting Pronouncements
See Note 2 in the Notes of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include herein by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, growth prospects or stock price. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risk Factors Summary
Investing in shares of our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as fully described below. The principal factors and uncertainties that make investing in shares of our common stock risky include, among others:
The failure to complete the Merger in a timely manner, or at all, may adversely affect the business and financial results of Cyclo and us and each of our respective stock prices;
The Exchange Ratio will be determined in accordance with a formula and is not yet knowable. The actual Exchange Ratio could be materially different than currently anticipated;
Uncertainty about the Merger may adversely affect the respective business and stock price of Cyclo and us, whether or not the Merger is completed;
Our ability to consummate a strategic transaction of any kind depends on our ability to retain our employees required to explore and consummate a strategic transaction as previously announced;
If we are unable to successfully complete a strategic transaction, we may be forced to curtail or cease operations altogether;
Our preclinical studies and clinical trials have failed to demonstrate evidence of the safety and efficacy of our product candidates, which could prevent, delay, or limit the scope of regulatory approval and commercialization;
There has been substantial doubt as to our ability to continue as a going concern. If we do not maintain sufficient funding, we may have to curtail or cease operations;
We will need to obtain substantial additional capital to finance our operations;
Unless we complete the Merger on or before February 6, 2024, we could be delisted from Nasdaq;
We were early in our development efforts, have a limited operating history, and no products approved for commercial sale;
We have incurred significant net losses in each period since inception, and we expect to continue to incur net losses for the foreseeable future;
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates;
We may not be successful in our efforts to use and expand our technology platform to build a pipeline of oral biologic product candidates;
COVID-19 or other future public health crises could adversely impact our business, including any future clinical trials and preclinical studies;
Research and development related to novel biological therapeutics is inherently risky and our business is heavily dependent on the successful development of our product candidates;
We may encounter delays in our preclinical studies or clinical trials, or may not be able to conduct or complete our preclinical studies or clinical trials on the timelines we expect;
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We have conducted clinical trials for AMT-101 and AMT-126 outside of the United States, and geopolitical events such as the conflict between Russia and Ukraine has delayed the completion of certain of our clinical trials and increased costs associated with such clinical trials;
We may be unable to obtain U.S. or foreign regulatory approval for our product candidates and, as a result, may be unable to commercialize our product candidates;
Preliminary data from our clinical trials that we announce or publish from time to time may change as additional patient data become available and are subject to verification procedures that could result in material changes in the final data or clinical conclusions;
Our success depends on our ability to protect our intellectual property as well as operate without infringing on the rights of third parties;
We are highly dependent on our key personnel and if we are not successful in attracting, motivating, and retaining highly qualified personnel, we may not be able to successfully implement our business strategy or execute a strategic transaction;
We may in the future engage in strategic transactions, acquisitions, collaborations, or partnerships, which may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, and subject us to other risks;
The manufacturing of our product candidates is complex. We and our third-party manufacturers may encounter difficulties in production. If we encounter any such difficulties, our ability to supply our product candidates for clinical trials or, if approved, for commercial sale, could be delayed or halted entirely; and
The market price of our common stock may be volatile, which could result in substantial losses for investors.
On March 27, 2023, we announced the commencement of a process to explore strategic alternatives and engaged MTS Health Partners, L.P. as our strategic financial advisor. We also decided to discontinue research activities and focus on completing and closing out clinical trials. On September 21, 2023, we entered into the Merger Agreement with Cyclo. Our current operations include ongoing business development activities. As such, certain of the risks listed below may not currently apply to us while our operations are focused on exploring strategic alternatives, maintaining and prosecuting our extensive intellectual property portfolio, and continuing business development activities. However, if we advance development of our programs or assume responsibility for a third party’s preclinical or clinical programs, research and development activities, manufacturing and other operations following a strategic transaction or otherwise, or if we pursue some combination of the foregoing activities, many, if not all, of these risk factors will apply to us.
Risk Factors Related to the Merger
The failure to complete the Merger in a timely manner, or at all, may adversely affect the business and financial results of Cyclo and us and each of our respective stock prices.
Each of Cyclo’s and our obligations to consummate the Merger are subject to the satisfaction or waiver of certain conditions, including, among other things, (1) the adoption of the Merger Agreement by our stockholders, (2) the approval of the share issuance by the Cyclo stockholders, (3) approval for listing on the Nasdaq Capital Market of the shares of Cyclo common stock to be issued in connection with the Merger, (4) the effectiveness of the registration statement with respect to such Cyclo common stock, and (5) the absence of an order or other legal restraint preventing the Merger. Each party’s obligation to consummate the Merger is also subject to other specified customary conditions, including certain representations and warranties of the other party being true and correct as of the closing date of the Merger, generally subject to an overall material adverse effect qualification, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the closing date of the Merger.
The tax treatment of the Merger is complex.
The Merger is intended to be a taxable transaction for federal income tax purposes, in which case U.S. holders of our common stock will generally recognize taxable gain or loss equal to the difference between (i) the fair market value of the shares of Cyclo common stock received by such holder in the Merger and (ii) such holder’s adjusted tax basis in such shares of our common stock, even though only Cyclo common stock is being received pursuant to the Merger. The fair market value of Cyclo common stock may fluctuate through the closing date of the Merger, which may increase the amount of tax a holder may owe or result in a taxable gain. It is also possible that the Internal Revenue Service may assert that the Merger is treated as a tax-free reorganization under Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the Code), which could result in a different tax treatment, including that holders would not be eligible to recognize loss on the exchange of our common stock.

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The Exchange Ratio will be determined in accordance with a formula and is not yet knowable. The actual Exchange Ratio could be materially different than currently anticipated.
At the effective time of the Merger, outstanding shares of our common stock will be converted into shares of Cyclo’s common stock at the Exchange Ratio (as defined in the Merger Agreement). As of the date of the execution of the Merger Agreement, the Exchange Ratio was estimated to be 0.174 shares of Cyclo common stock for each share of our common stock, but the actual Exchange Ratio will depend on our net cash and the number of shares of our common stock outstanding at the closing of the Merger. Accordingly, the Exchange Ratio could be significantly higher or lower than the initial estimated Exchange Ratio. This will impact the value of the deal to the Cyclo stockholders and the number of shares issued to the Cyclo and our stockholders. Based upon the initially estimated Exchange Ratio, following the Merger, (i) Cyclo stockholders immediately before the Merger are expected to own approximately 75% of the aggregate number of outstanding shares of Cyclo common stock following the Merger and (ii) our stockholders immediately before the Merger are expected to own approximately 25% of the aggregate number of outstanding shares of Cyclo common stock following the Merger, subject to certain assumptions (including as to the amount of our net cash at closing and outstanding shares of our common stock at closing, which could be materially different). Assuming the exercise of all Cyclo outstanding warrants, without giving effect to any beneficial ownership limitations applicable thereto, then (i) Cyclo stockholders immediately before the Merger would own approximately 75% of the aggregate number of outstanding shares of Cyclo common stock following the Merger and (ii) our stockholders immediately before the Merger would own approximately 25% of the aggregate number of outstanding shares of Cyclo common stock following the Merger, subject to certain assumptions (including as to the amount of our net cash and outstanding shares at closing, which could be materially different). The foregoing percentages do not give effect to the exercise or conversion of outstanding stock options other than as set forth above.
Uncertainty about the Merger may adversely affect the respective business and stock price of Cyclo and us, whether or not the Merger is completed.
Each of Cyclo and we are subject to risks in connection with the announcement and pendency of the Merger, including the pendency and outcome of any legal proceedings against Cyclo and us, each of our respective directors and others relating to the Merger and the risks from possibly foregoing opportunities Cyclo and we might otherwise pursue absent the proposed Merger. Furthermore, uncertainties about the Merger may cause current and prospective employees of Cyclo and us to experience uncertainty about their future with their respective companies. These uncertainties may impair Cyclo’s and our ability to retain, recruit or motivate key management and other personnel.
In addition, in response to the announcement of the proposed Merger, Cyclo’s and our existing or prospective suppliers or collaboration partners may:
delay, defer or cease providing goods or services to Cyclo and us;
delay or defer other decisions concerning Cyclo and us, or refuse to extend credit terms to Cyclo and us;
cease further joint development activities; or
otherwise seek to change the terms on which they do business with Cyclo and us.
While Cyclo and we are attempting to address these risks, their respective existing and prospective customers, suppliers or collaboration partners may be reluctant to purchase Cyclo’s and our products, supply Cyclo and us with goods and services or continue collaborations due to the potential uncertainty about the direction of Cyclo and our product offerings and the support and service of Cyclo’s and our products after the completion of the Merger.
While the Merger is pending, we and Cyclo are subject to contractual restrictions that could harm each of our respective businesses, operating results and stock price.
The Merger Agreement includes restrictions on the conduct of us and Cyclo prior to the completion of the Merger, generally requiring us and Cyclo to conduct each of our respective businesses in the ordinary course, consistent with past practice, and restricting each from taking certain specified actions absent prior written consent from the other party. We and Cyclo may each find that these and other obligations in the Merger Agreement may delay or prevent each of us from or limit either of our ability to respond effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if the management of us or Cyclo or the Boards of us or Cyclo think they may be advisable. The Merger Agreement also contains restrictions on the conduct of Cyclo’s business prior to the completion of the Merger, prohibiting the ability of Cyclo to acquire another business or restructure, reorganize or completely or partially liquidate absent our prior written consent. These restrictions could adversely impact the business, operating results and stock price and the perceived acquisition value of us and Cyclo, regardless of whether the Merger is completed.
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The Merger Agreement limits our ability to pursue alternative transactions which could deter a third party from proposing an alternative transaction.
The Merger Agreement contains provisions that, subject to certain exceptions, limit, among other things, our ability to solicit, initiate or facilitate or knowingly encourage any inquiries or the making of any proposal, indication of interest or offer that would reasonably be expected to lead to any takeover proposal. It is possible that these or other provisions in the Merger Agreement might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the outstanding shares of our common stock from considering or proposing an acquisition or might result in a potential competing acquirer proposing to pay a lower per share price to acquire our common stock than it might otherwise have proposed to pay.
The Merger will involve substantial costs.
Cyclo and we have incurred and expect to continue to incur substantial costs and expenses relating to the Merger and the issuance of Cyclo common stock in connection with the Merger, including, as applicable, fees and expenses payable to financial advisors, other professional fees and expenses, insurance premium costs, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. Cyclo may also incur significant costs relating to the acquisition of us with any ongoing liabilities of ours that remain in the business after the Merger is completed. Cyclo continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Merger. In addition, if the Merger is not completed, Cyclo and we will have incurred substantial expenses for which no ultimate benefit will have been received by either company.
The fairness opinion obtained by our board of directors from our financial advisor will not be updated to reflect changes in circumstances between signing the Merger Agreement and the completion of the Merger.
Our board of directors has not obtained an updated fairness opinion as of the date of this Quarterly Report on Form 10-Q from MTS Securities, LLC, a wholly owned subsidiary of our financial advisor. Changes in the operations and prospects of Cyclo or us, general market and economic conditions, and other factors that may be beyond the control of Cyclo and us and on which the fairness opinion was based, may alter the value of Cyclo or us or the price of Cyclo common stock or our common stock by the time the Merger is completed.
The fairness opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. We do not anticipate asking MTS Securities, LLC to update its fairness opinion.
Certain of our directors and executive officers may have interests in the Merger that are or were different from, or in conflict with or in addition to, those of our stockholders generally.
In considering whether to approve the proposals at our special meeting, our stockholders should recognize that our directors and officers have interests in the Merger that may differ from, or that are in addition to, their interests as stockholders of us. For example, in connection with the closing of the Merger, Cyclo has agreed to expand the Cyclo board of directors from eight to nine directors and to appoint Shawn Cross to the Cyclo board of directors. Our board of directors and the Cyclo board of directors were each aware of these interests at the time they approved the Merger Agreement. These interests may cause our directors and officers to view the Merger differently from how you may view it as a stockholder.
Holders of our common stock will not be entitled to appraisal rights in the Merger.
Appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Under Section 262(b) of the General Corporation Law of the State of Delaware (DGCL), stockholders do not have appraisal rights if the shares of stock they hold, as of the record date for determination of stockholders entitled to vote at the meeting of stockholders to act upon a merger, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders, unless the stockholders are required by the terms of the merger agreement to receive in exchange for their shares in the merger anything other than shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is publicly listed or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts described above or any combination of the foregoing. Because our stockholders will receive only shares of Cyclo common stock, which will be listed on the Nasdaq, our stockholders will not have any appraisal rights.
Cyclo or we may waive one or more of the closing conditions to the Merger without re-soliciting approval from our stockholders.
To the extent permitted by law, Cyclo or us may determine to waive, in whole or part, one or more of the conditions to each of our respective obligations to consummate the Merger. We and Cyclo expect to evaluate the materiality of any waiver and its
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effect on our or Cyclo stockholders in light of the facts and circumstances at the time to determine whether any amendment of the joint proxy statement/prospectus that we expect to file or any re-solicitation of proxies is required in light of such waiver. Any determination as to whether to waive any condition to the consummation of the Merger, and as to whether to re-solicit approval from our stockholders as a result of such waiver, will be made by Cyclo and us at the time of such waiver based on the facts and circumstances as they exist at that time.
After the Merger, our stockholders will have a significantly lower ownership and voting interest in Cyclo than they currently have in us and will exercise less influence over management and policies of the combined company.
Upon completion of the Merger and based on the shares of Cyclo common stock and shares of our common stock outstanding as of September 30, 2023, and assuming net cash at closing of approximately $12.4 million, after giving effect to the exchange ratio, it is expected that Cyclo stockholders will own approximately 75% of the outstanding common stock of the combined company and our stockholders will own approximately 25% of the outstanding common stock of the combined company. Consequently, our former stockholders will have less influence over the management and policies of the combined company than they currently have over the management and policies of us.
We and Cyclo may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims could result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Cyclo’s and our respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may adversely affect Cyclo’s and our respective business, financial position and results of operations.
The following risk factors do not take the Merger into account and assume that we remain a stand-alone company except as otherwise noted.
Risks Related to Strategic Process and Potential Strategic Transaction
We are reviewing strategic alternatives and there can be no assurance that we will be successful in identifying or completing any strategic transactions, that any such strategic transaction will result in additional value for our stockholders or that the process will not have an adverse impact on our business.
We have discontinued research activities and are focused on completing and closing out clinical trials. We have determined that it is in the best interest of stockholders to focus on exploring strategic alternatives. We have engaged an investment bank to conduct a review of strategic alternatives in an effort to maximize stockholder value. We have not set a timetable for completion of this exploratory process and cannot provide any assurances that the process will result in the consummation of a strategic transaction of any kind, including the Merger, or that we will not abandon the process. We do not intend to discuss or disclose further developments during this process unless and until our board of directors has approved a specific action or we otherwise determine that further disclosure is appropriate. The process of reviewing strategic alternatives may be time-consuming and disruptive to our business operations and, if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We could incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives. There can be no assurance that any potential transaction, including the Merger, or other strategic alternative, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. Until the review process or Merger is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock and may make it more difficult for us to attract and retain qualified personnel and business partners.
In addition, potential counterparties in a strategic transaction involving our Company may place minimal or no value on our assets. Further, the development and any potential commercialization of our product candidates would require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving our Company may choose not to spend the additional resources necessary to continue developing our product candidates and may attribute little or no value, in such a transaction, to those product candidates.
Our decision to discontinue our research and development efforts may not result in the anticipated savings and could disrupt our business.
In connection with our decision to pursue strategic alternatives, we decided to discontinue research activities and to focus on completing and closing out clinical trials. We may not realize, in full or in part, the anticipated benefits and savings in operating
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expenses from these decisions due to unforeseen difficulties, delays or unexpected costs. This may include higher than expected costs associated with winding down our clinical trials. If we are unable to realize the expected cost savings, our financial condition would be adversely affected and it may be more difficult to complete a potential strategic transaction. Furthermore, the reductions in our workforce may result in weaknesses in our infrastructure and operations and may increase the risk that we become unable to comply with legal and regulatory requirements.
Our ability to consummate a strategic transaction of any kind depends on our ability to retain our employees required to explore and consummate a strategic transaction as previously announced.
Our ability to consummate a strategic transaction, including the Merger, depends upon our ability to retain our employees required to explore and consummate a strategic transaction, the loss of whose services may adversely impact the exploratory process and the ability to consummate a strategic transaction. In March 2023, we implemented reductions in workforce impacting 63 employees representing approximately 82% of our employee base, and we announced various changes in our leadership.
We have implemented a retention plan for the remaining executive officers and implemented retention plans for the other remaining employees that are designed to retain the employees required to explore and consummate a strategic transaction. All employees, however, may terminate their employment with us at any time. With any change in leadership, there is a risk to retention of employees, as well as the potential for disruption to our exploration and consummation of a strategic alternative as well as business operations, initiatives, plans and strategies.
Risks Related to Our Business, Financial Condition, and Capital Requirements
Our preclinical studies and clinical trials have failed to demonstrate evidence of the safety and efficacy of our product candidates, which could prevent, delay, or limit the scope of regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate thorough, lengthy, complex, and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
Preclinical studies and clinical testing are expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the preclinical studies or clinical trial process. The results of preclinical studies of our product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of patients or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including variability in the purity or potency of different batches of the same product candidate, changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen, and other aspects of the clinical trial protocols and the rate of dropout among clinical trial participants. Open-label extension studies may also extend the timing and cost of a clinical development program substantially. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. For example, our lead product candidate, AMT-101, failed to meet its primary efficacy endpoints in our Phase 2 LOMBARD clinical trial and our Phase 2 MARKET clinical trial. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier clinical trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
We have limited experience in designing and executing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition, and results of operations.
In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more clinical trials could be required before we submit our product candidates for approval. To the extent that the results of the clinical trials are not satisfactory to the FDA or foreign regulatory authorities to advance a product candidate to the next phase of clinical development or for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional clinical trials in support of potential approval of our product candidates. Even if regulatory approval is secured for any of our product candidates, the terms of such approval may limit the scope and use of our product candidates, which may also limit its commercial potential.
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There has been substantial doubt as to our ability to continue as a going concern. If we do not maintain sufficient funding or do not successfully consummate the Merger or any other strategic transaction, we may have to curtail or cease operations.
In our Annual Report on Form 10-K filed on March 9, 2023, we indicated that there was substantial doubt as to our ability to continue as a going concern. Following our recent reductions in workforce and discontinuing of product development activities, and terminating substantially all of our operating leases, we have subsequently determined we will have sufficient cash and cash equivalents to meet our obligations for a period of at least 12 months from the date of filing this Quarterly Report on Form 10-Q, and therefore, we have concluded there is no longer substantial doubt about our ability to continue as a going concern. However, our financial condition could be materially adversely impacted if we are unable to successfully execute a strategic transaction. Depending on the results of our future operations, we may again have substantial doubt as to our ability to continue as a going concern. If we are unable to continue as a going concern, we may have to cease operations and liquidate our assets. We may receive less than the value at which those assets are carried on our condensed financial statements, and it is likely that investors will lose all or a part of their investment.
We will need to obtain substantial additional capital to finance our operations. A failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our research and drug development programs, future commercialization efforts, product development, or other operations.
Developing biologic therapeutics, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive, and uncertain process that takes years to complete. Our operations have required substantial amounts of cash since inception, and we expect to continue to incur expenses in connection with our ongoing activities and operating losses for the foreseeable future. To date, we have financed our operations primarily through the sale of equity securities. Developing our product candidates and conducting clinical trials for the treatment of autoimmune, inflammatory, metabolic, and other diseases will require substantial amounts of capital. We will also require a significant amount of capital to commercialize any approved products. Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with sales, marketing, manufacturing and distribution activities. Furthermore, other unanticipated costs may also arise.
On March 11, 2022, we filed a final shelf registration statement on Form S-3 which allows us to undertake various offerings. In addition, on January 27, 2022, we entered into a Sales Agreement with SVB Securities LLC and JMP Securities LLC, as our sales agents (Agents), pursuant to which we may offer and sell from time to time through the Agents up to $150.0 million in shares of our common stock through an “at-the-market” program (ATM Facility). For so long as our non-affiliate public float does not exceed $75 million, the amount of securities that we may sell pursuant to registration statements on Form S-3 will be limited to the equivalent of one-third of our public float, which will limit our ability to raise capital. As of September 30, 2023, we had not yet sold any shares of common stock under the ATM Facility and do not currently intend to do so. We will require additional capital for the further development and, if approved, commercialization of our product candidates. Our future funding requirements will depend on many factors, including but not limited to:
the initiation, scope, rate of progress, results and cost of our preclinical studies, clinical trials, and other related activities for our product candidates;
the costs associated with manufacturing our products, including re-establishing our own manufacturing facilities and establishing commercial supplies and sales, marketing, and distribution capabilities which could be impacted by increasing inflation;
the timing and cost of capital expenditures to support our research, development, and manufacturing efforts;
the number and characteristics of other product candidates that we pursue;
the costs, timing, and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;
our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense, and enforcement of any patents or other intellectual property rights;
the timing, receipt, and amount of sales from our potential products;
our need and ability to hire additional management, scientific, technical, business, and medical personnel;
the effect of competing products that may limit market penetration of our products;
the economic and other terms, timing, and success of any collaboration, licensing, or other arrangements into which we may enter in the future, including any product development or other operation obligations we may have under these agreements and the timing of receipt of any milestone or royalty payments under these agreements;
the compliance and administrative costs associated with being a public company; and
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the extent to which we divest, acquire or invest in businesses, products, or technologies, although we currently have no commitments or agreements establishing any of these types of transactions.
To the extent that we raise additional capital through the sale of equity or convertible debt securities or to the extent that we may issue equity securities in connection with a strategic transaction, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include the issuance of warrants or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, strategic alliances, licensing arrangements with strategic partners, or asset sales, we may have to relinquish valuable rights to our technologies, intellectual property, future revenue streams, research programs, product candidates, and infrastructure, or grant licenses on terms that may not be favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Additional capital may not be available when we need it, on terms acceptable to us or at all and will be dependent on, among other factors, the successful execution of a strategic transaction. We have no committed source of additional capital and recently, capital markets have been particularly volatile and our stock price has declined. If adequate capital is not available to us on a timely basis or on acceptable terms, we may be required to significantly delay, scale back, or discontinue our research and development programs or the commercialization of any product candidates, if approved, or be unable to continue or expand our operations, or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition, results of operations, and prospects, and cause the price of our common stock to decline.
Unless we complete the Merger on or before February 6, 2024, we will be delisted from Nasdaq, which would seriously harm the liquidity of our stock and our ability to raise capital.
Our common stock is listed on Nasdaq. In order to maintain our listing, we must meet minimum financial and other requirements, including a requirement for continued business operations so that we are not characterized as a “public shell company.”
On August 10, 2023, we received a letter from the Nasdaq Staff indicating that, in accordance with Nasdaq Listing Rule 5100, the Nasdaq Staff believes we are a “public shell” and that the continued listing of our securities is no longer warranted. We appealed the Nasdaq Staff’s determination and, on October 23, 2023, we received written notice from the Nasdaq Panel that it had granted our request for continued listing on Nasdaq, subject to the completion of the Merger on or before February 6, 2024. If we do not complete the Merger on or before February 6, 2024, our securities will be delisted from Nasdaq, which could harm the liquidity of our stock and our ability to raise capital. There can be no assurance that we will complete the Merger on or before February 6, 2024. Our failure to complete the Merger on or before February 6, 2024 will result in our securities being delisted from Nasdaq after such date.
We were early in our development efforts, have a limited operating history and have no products approved for commercial sale, which makes it difficult to evaluate our current business and predict our future success and viability.
We are an early clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects.
We have no products approved for commercial sale and have not generated any revenue from product sales. We were developing a novel technology platform which is an unproven and highly uncertain undertaking and involves a substantial degree of risk. While we have conducted a number of Phase 2 clinical trials for AMT-101 and have conducted a Phase 1a clinical trial of AMT-126, we have not initiated clinical trials for any of our other product candidates. To date, we have not obtained marketing approval for any product candidates, manufactured a commercial scale product or arranged for a third-party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Our limited operating history as a company makes any assessment of our future success and viability subject to significant uncertainty.
We will incur expenses and encounter difficulties, complications, delays, and other known and unknown factors and risks frequently experienced by clinical-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully overcome such risks and difficulties. We also may need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We have not yet demonstrated an ability to successfully overcome such risks and difficulties, or to make such a transition. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer.
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We have incurred significant net losses in each period since inception, and we expect to continue to incur net losses for the foreseeable future.
We have incurred net losses in each reporting period since our inception, including net losses of $126.3 million and $100.3 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $366.0 million.
We have invested significant financial resources in research and development activities, including for our preclinical and clinical product candidates. We have not generated any revenue from product sales to date and we do not expect to generate revenue from product sales for several years, if at all. The amount of our future net losses will depend, in part, on the level of our future expenditures and revenue. Moreover, our net losses may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.
We expect to continue to incur expenses and operating losses for the foreseeable future. We anticipate that we will continue to incur expenses if and as we:
resume our research and discovery activities;
resume the development of our proprietary technology platform;
progress our current and any future product candidates through preclinical and clinical development;
initiate and conduct additional preclinical studies, clinical trials, or other studies for our product candidates;
work with our CDMOs to manufacture our product candidates for our clinical trials;
change or add additional contract manufacturers or suppliers;
seek regulatory approvals and marketing authorizations for our product candidates;
establish sales, marketing, and distribution infrastructure to commercialize any products for which we obtain approval;
take steps to seek protection of our intellectual property and defend our intellectual property against challenges from third parties;
obtain, expand, maintain, protect, and enforce our intellectual property portfolio;
pursue any licensing or collaboration opportunities;
attract, hire, and retain qualified personnel including clinical, scientific, management, and administrative personnel;
provide additional internal infrastructure to support research and development operations and any planned commercialization efforts in the future;
experience increased expenses as a result of increasing inflation;
experience any delays or encounter other issues related to our operations including as a result of the conflicts between Russia and Ukraine or Israel and Hamas;
implement operations, financial, and management information systems;
meet the requirements and demands of being a public company, including incurring expenses associated with efforts to raise money in the public financial markets; and
defend against any product liability claims or other lawsuits related to our products or operations.
Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity, working capital, and our ability to fund our development efforts and achieve and maintain profitability. In any particular period, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
Prior to the transactions contemplated under the Merger Agreement, we have historically financed our operations primarily through private placements of our convertible preferred stock and the sale of common stock in public equity issuances, such as our initial public offering (IPO) in June 2020 and our follow-on equity offering in April 2021. In addition, on January 27, 2022, we entered into a Sales Agreement with the Agents, pursuant to which we may offer and sell from time to time through the Agents up to $150.0 million in shares of our common stock through the ATM Facility. For so long as our non-affiliate public float does not exceed $75 million, the amount of securities that we may sell pursuant to registration statements on Form S-3 will
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be limited to the equivalent of one-third of our public float, which will limit our ability to raise capital. As of September 30, 2023, we have not yet sold any shares of common stock under the ATM Facility and do not currently intend to do so. We may seek to raise capital through debt financings, private or public convertible debt financings, private or public equity financings, license agreements, collaborative agreements or other arrangements with other companies, asset sales, or other sources of financing. There can be no assurance that such financing will be available or will be at terms acceptable to us. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our development efforts, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations.
Developing biologic therapeutics is a highly uncertain undertaking and involves a substantial degree of risk.
We have no products approved for commercial sale. To obtain revenue from the sales of our products that are significant or large enough to achieve profitability, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing, and marketing approved products with significant commercial success. Our ability to generate revenue and achieve profitability depends on many factors, including:
initiating, enrolling patients in and completing clinical trials of product candidates on a timely basis;
completing research and preclinical and clinical development of our product candidates;
obtaining specialty raw materials for use in production of our product candidates;
obtaining regulatory approvals and marketing authorizations for product candidates for which we successfully complete clinical development and clinical trials;
satisfying any post-marketing approval commitments required by applicable regulatory authorities;
developing sustainable, consistent, time-sensitive, and scalable manufacturing processes for our product candidates, either by ourselves or with third-party manufacturers, and obtaining regulatory approvals for such processes, as well as establishing and maintaining commercially viable supply relationships with third parties that can provide adequate products and services to support clinical activities and commercial demand of our products;
identifying, assessing, acquiring, and/or developing new product candidates or technologies;
launching and successfully commercializing products for which we have obtained regulatory and marketing approval by establishing a sales, marketing, and distribution infrastructure;
obtaining and maintaining an adequate price for our products, both in the United States and in foreign countries where our products are commercialized;
obtaining coverage and adequate reimbursement for our products from payors and patients’ willingness to pay in the absence of such coverage and adequate reimbursement;
obtaining market, patient, and medical community acceptance of our products as viable treatment options;
addressing any competing technological and market developments;
obtaining additional funding to develop, and potentially manufacture and commercialize our product candidates;
maintaining, protecting, expanding, and enforcing our portfolio of intellectual property rights, including patents, trade secrets, and know-how;
attracting, hiring, and retaining qualified personnel; and
negotiating favorable terms in any collaboration, licensing, or other arrangements which we may pursue.
Because of the numerous risks and uncertainties associated with developing biologic therapeutics, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the FDA or foreign regulatory authorities, to perform studies, or if there are any delays in any of our clinical trials or the development of any of our product candidates. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with launching and commercializing any approved product candidate and ongoing compliance efforts.
We may not be successful in our efforts to use and expand our proprietary technology platform to build a pipeline of biologic product candidates.
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A key element of our strategy is to leverage our technology platform to expand our pipeline of biologic product candidates and in order to do so, we must continue to invest in our platform and development capabilities. Although our research and development efforts to date have resulted in a pipeline of oral product candidates, these product candidates may not be safe or effective in the indications that we pursue. For example, we previously announced that certain trials investigating the use of AMT-101 to treat ulcerative colitis failed to achieve their primary endpoint. In addition, although we expect that our platform will allow us to develop a diverse pipeline of product candidates across multiple therapeutic areas and modalities, we may not prove to be successful at doing so. Furthermore, we may also find that the uses of our platform are limited because alternative uses of our biologic therapeutics prove not to be safe or effective. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance. Even after approval, if we cannot successfully develop or commercialize our products, or if serious adverse events are discovered after commercialization, we will not be able to generate any product revenue, which would adversely affect business.
We have limited resources. As a result, we may fail to capitalize on other indications or product candidates that may ultimately have proven to be more profitable.
We have limited resources and may not be able to simultaneously develop multiple product candidates in multiple therapeutic areas. Due to the significant resources required for the development of our product candidates, we must focus on specific product candidates and decide which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management, and financial resources toward particular product candidates or indications may not lead to the development of any viable commercial product and may divert resources away from better opportunities. If we make incorrect determinations regarding the viability or market potential of any of our product candidates or misread trends in immunology and inflammation, gastroenterology, and metabolic diseases, or the biopharmaceutical industry as a whole, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to maximize profitability on our product candidates, capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing, or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization rights.
We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such clinical trials, research, or testing.
We have relied on third parties, such as contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), medical institutions, academic institutions, and clinical investigators to conduct some aspects of our research and preclinical studies and our clinical trials.
Our reliance on third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the clinical trial. Moreover, the FDA requires us to comply with current good clinical practices (cGCP) for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible, reproducible, and accurate and that the rights, integrity, and confidentiality of clinical trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions.
If third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may be unable to complete, or may be delayed in completing, our preclinical studies or our clinical trials, and we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any product candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines. For example, completion of our Phase 2 MARKET combination clinical trial of oral AMT-101 with anti-TNFα in moderate-to-severe ulcerative colitis patients was delayed because we increased total enrollment from 30 patients to 51 patients due to an imbalance in the clinical trial’s planned 1:1 randomization. In addition, the ongoing conflict between Russia and Ukraine impacted our CROs, CDMOs and clinical investigators’ ability to conduct our LOMBARD clinical trial in Ukraine, Russia and other Eastern European countries, and the continued conflict may also impact future clinical trials. This could negatively impact the completion of our clinical trials and/or analyses of clinical results, which could materially harm our business.
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We also expect to rely on other third parties to store and distribute supplies for our clinical trials. Any performance failure on the part of our distributors, including with the shipment of any supplies for our clinical trials, could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our medicines, producing additional losses and depriving us of potential product revenue.
The manufacturing of our product candidates is complex. We and our third-party manufacturers may encounter difficulties in production. If we encounter any such difficulties, our ability to supply our product candidates for clinical trials or, if approved, for commercial sale, could be delayed or halted entirely.
Manufacturing of biologic therapeutics is a complex process and represents a critical path to creating biologic product candidates and a key component of our long-term success. We have spent significant resources to develop our current manufacturing capabilities, processes and know-how to produce sufficient supply of our product candidates. Although we have successfully manufactured certain preclinical and clinical supply at our previously qualified manufacturing facility, we have now discontinued those operations and may encounter difficulties should we seek to re-establish internal manufacturing capabilities.
We may continue to rely on third-party manufacturers to execute certain steps in the manufacturing of our product candidates. The facilities used by our contract manufactures to manufacture our product candidates are subject to various regulatory requirements and may be subject to the inspection of FDA or other regulatory authorities. We do not control the manufacturing process of, and are dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or comparable regulatory authorities in foreign jurisdictions, we may not be able to rely on their manufacturing facilities for the manufacture of our product candidates. In addition, we have limited control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance, and qualified personnel. If the FDA or a comparable foreign regulatory authority finds these facilities inadequate for the manufacture of our product candidates or if such facilities are subject to enforcement action in the future or are otherwise inadequate, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates.
The process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling the production process. We have experienced in the past situations in which a contract manufacturer has failed to successfully complete a scheduled manufacturing run as a result of their manufacturing process errors or deviations from the product specifications. We also have experienced in the past situations in which we failed to successfully complete a schedule manufacturing run at our primary manufacturing site. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral, or other contaminants are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, we may have to quarantine impacted manufacturing lots pending an impact assessment, or such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Furthermore, it is too early to estimate our cost of goods sold. The actual cost to manufacture our product candidates could be greater than we expect because we were early in our development efforts and our platform is based on a novel therapeutic approach. Failure to develop our own manufacturing capacity may hamper our ability to further process improvement, maintain quality control, limit our reliance on contract manufacturers, and protect our trade secrets and other intellectual property.
We have relied on third-party manufacturers to produce our product candidates. Any failure by a third-party manufacturer to produce acceptable product candidates for us pursuant to our specifications and regulatory standards may delay or impair our ability to initiate or complete our clinical trials, obtain and maintain regulatory approvals or commercialize approved products.
We currently have limited internal manufacturing experience and personnel. We do not currently have the infrastructure or internal capability to manufacture our product candidates for commercialization purposes. We expect to continue to rely on third parties for certain manufacturing operations of our product candidates for preclinical studies and clinical trials, in compliance with applicable regulatory and quality standards, including cGMP, and may do so for the commercial manufacture of some or all of our product candidates, if approved. If we are unable to arrange for and maintain third-party manufacturing sources that are capable of meeting regulatory standards, or fail to do so on commercially reasonable terms, we may not be able
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to successfully produce sufficient supply of product candidate or we may be delayed in doing so. If we were to experience an unexpected loss of supply of our product candidates, for any reason, whether as a result of manufacturing, supply, logistics, or storage issues, the COVID-19 pandemic, or otherwise, we could experience delays, disruptions, suspensions, or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials. Such failure or substantial delay or loss of supply could materially harm our business.
Reliance on third-party manufacturers entails risks including:
the possible failure of the third-party to manufacture our product candidates according to our schedule, or at all, including if our third-party contractors give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them;
reliance on the third-party for regulatory compliance and quality control and assurance and failure of the third-party to comply with regulatory requirements;
the possibility of breach of the manufacturing agreement by the third-party because of factors beyond our control (including a failure to manufacture our product candidates in accordance with our product specifications);
the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;
the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of product candidate supplies not being distributed to commercial vendors in a timely manner;
the possible misappropriation of our proprietary information, including our trade secrets and know-how; and
the possibility of termination or nonrenewal of the agreement by the third-party at a time that is costly or damaging to us.
In addition, the FDA, European Medicines Agency (EMA), and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state, and other foreign authorities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our strategic partners, may result in sanctions being imposed on us, including fines, injunctions, civil penalties, restrictions on the product or on the manufacturing or laboratory facility, including license revocation, marketed product recall, suspension of manufacturing, product seizure, voluntary withdrawal of the product from the market, operating restrictions, or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and harm our business and results of operations.
We may have little to no control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, would lead to a delay in, or failure to seek or obtain, regulatory approval of any of our product candidates. Furthermore, any change in manufacturer of our product candidates or approved products, if any, would require new regulatory approvals, which could delay completion of clinical trials or disrupt commercial supply of approved products.
Our dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.
In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer, we may have difficulty transferring such skills or technology to another third-party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third-party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.
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We depend on third-party suppliers for key raw materials used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.
We rely on third-party suppliers for the raw materials required for the production of our product candidates. Our dependence on these third-party suppliers and the challenges we may face in obtaining adequate supplies of raw materials involve several risks, including delays as a result of widespread public health concerns, recent global supply chain disruptions, limited control over pricing, availability, quality and delivery schedules. For example, as a result of Brexit, the movement of goods between the UK and the remaining member states of the EU are subject to additional inspections and documentation checks. As a result, we have experienced delays in our supply chain.
As a small company, our negotiating leverage is limited, and we are likely to get lower priority than our competitors who are larger than we are. We do not have long-term supply agreements, and we purchase our required supplies on a development manufacturing services agreement or purchase order basis. We cannot be certain that our suppliers will continue to provide us with the quantities of these raw materials that we require or satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm our ability to manufacture our product candidates until a new source of supply, if any, could be identified and qualified. We may be unable to find a sufficient alternative supply in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the development and potential commercialization of our product candidates, including limiting supplies necessary for clinical trials and regulatory approvals, which would have a material adverse effect on our business.
The COVID-19 pandemic, and actions taken to mitigate the spread of the virus, has impacted and could continue to adversely impact our business.
While significant progress has been made to address the COVID-19 pandemic, with multiple vaccines and treatment options now available, the World Health Organization continues to classify COVID-19 as a pandemic and a public health emergency of international concern. The emergence of new variants has resulted in periodic surges in infection rates around the world and a cycle of fluctuating public health restrictions designed to mitigate the spread of the virus. The extent to which the COVID-19 pandemic, or any other widespread public health crisis, impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the spread or emergence of new variants, the duration and severity of surges in outbreaks, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise. As a result of the COVID-19 pandemic, we have experienced and could experience future disruptions that could severely impact our business and any planned clinical trials and preclinical studies, including:
delays or difficulties in enrolling and retaining participants, particularly subjects who are at a higher risk of severe illness or death from COVID-19, and in recruiting clinical site investigators and clinical site staff;
challenges related to increased operational expenses related to the COVID-19 pandemic. For example, we have incurred additional expenses by increasing the number of clinical trial sites for certain clinical trials to mitigate the impact of COVID-19 on patient enrollment rates;
difficulties interpreting data from our clinical trials due to the possible effects of COVID-19 on patients;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and clinical trial procedures, which may impact the integrity of subject data and clinical trial endpoints;
limitations in resources, including our employees and consultants;
interruptions, difficulties or delays arising in our existing operations and company culture as a result of some of our employees working remotely, including those hired during the COVID-19 pandemic;
increased cybersecurity risks resulting from all of our employees working remotely;
delays in receiving approval from regulatory authorities to initiate our clinical trials;
interruptions in preclinical studies due to restricted or limited operations at CROs conducting such preclinical studies;
interruptions or delays in the operations of the FDA or other regulatory authorities, or the prioritization by such regulatory authorities of COVID-19 treatments, which may impact our review and approval timelines;
refusal of the FDA to accept data from clinical trials in affected geographies outside the United States;
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delays in receiving the supplies, materials and services needed to conduct clinical trials and preclinical studies;
changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs or require us to discontinue clinical trials altogether;
interruptions or delays to our pipeline and research programs, and incurrence of additional costs as a result of any delays or adjustments; and
delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or furlough of government or contractor personnel.
Further, as a result of the COVID-19 pandemic, the extent and length of which is uncertain, we have and may continue to develop and implement additional clinical trial policies and procedures designed to help protect trial participants from the COVID-19 virus, which may include using telemedicine visits, remote monitoring of patients and clinical sites, and measures to ensure that data from clinical trials that may be disrupted as a result of the pandemic are collected pursuant to the trial protocol and consistent with cGCP, with any material protocol deviation reviewed and approved by the site Institutional Review Board (IRB). Patients who may miss scheduled appointments, any interruption in trial drug supply, or other consequence that may result in incomplete data being generated during a trial as a result of the pandemic must be adequately documented and justified. Since March 2020, the FDA has issued various COVID-19 related guidance documents for sponsors and manufacturers, including guidance regarding conducting clinical trials during the pandemic, good manufacturing practice considerations, manufacturing, supply chain, and inspections, among others.
While the extent of the impact of the COVID-19 pandemic and current and future regulatory policies and requirements on our business and financial results are uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition, and operating results. The administration ended the COVID-19 national and public health emergencies on May 11, 2023. The full impact of the termination of the public health emergencies on FDA and other regulatory policies and operations are unclear.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2022, we had federal net operating loss carryforwards of $278.8 million. Of this amount, $13.3 million was generated before January 1, 2018 and will begin to expire in 2036. Federal net operating losses of $265.5 million generated after December 31, 2017 will carryforward indefinitely. As of December 31, 2022, we had state net operating loss carryforwards of $69.5 million, which will begin to expire in 2036. Realization of these NOLs depends on future income, and there is a risk that our existing NOLs could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our operating results.
Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. We completed an analysis under Section 382 through December 31, 2020 and concluded we had experienced an ownership change in the past. However, the ownership change did not result in a limitation that would materially reduce the total amount of net operating loss carryforwards and credits that can be utilized. Net operating loss and tax credit carryforwards generated during the years ended December 31, 2021 and 2022 may be subject to an annual limitation under Section 382. In addition, we expect to experience an “ownership change” in connection with the Merger that would significantly limit the combined company’s ability to use our NOL carryforwards and other tax attributes to offset future taxable income or taxes.
Changes in our effective tax rate or tax liability may have an adverse effect on our operating results.
Our effective tax rate and the amount of our taxable income could be adversely affected by several factors, many of which are outside of our control, including:
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
changes in tax laws, rates, tax treaties, and regulations or the interpretation of them;
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changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
changes to the financial accounting rules for income tax;
the tax effects of acquisitions;
the outcome of current and future tax audits, examinations, or administrative appeals; and
limitations or adverse findings regarding our ability to do business in some jurisdictions.
For example, the United States has recently enacted the Inflation Reduction Act, which, among other changes, imposes a 1% excise tax on certain stock buybacks and a 15% alternative minimum tax on adjusted financial statement income. Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results.
We are a fully-remote company, meaning that our team members work remotely which poses a number of risks and challenges that can affect our business, operating results, and financial condition. We are increasingly dependent on technology in our operations and if our technology fails, our business could be adversely affected.
As a fully-remote company, we face a number of unique operational risks. For example, technologies in our team members’ homes may not be robust enough and could cause the networks, information systems, applications, and other tools available to team members and service providers to be limited, unreliable, or unsecure. Additionally, we are increasingly dependent on technology as a fully-remote company and if we experience problems with the operation of our current IT systems or the technology systems of third parties on which we rely, that could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved. In addition, in a fully-remote company, it may be difficult for us to develop and preserve our corporate culture and our team members may have decreased opportunities to collaborate in meaningful ways. Any impediments to preserving our corporate culture and fostering collaboration could harm our future success, including our ability to retain and recruit personnel, innovate and operate effectively, and execute on our business strategy.
Risks Related to the Discovery, Development, and Commercialization of Our Product Candidates
Research and development related to novel biologic therapeutics is inherently risky. Our business is heavily dependent on the successful development of our product candidates, which is currently discontinued. We cannot give any assurance that any of our product candidates will receive regulatory or marketing approval, which is necessary before they can be commercialized.
Our oral biologic product candidates’ use of active transport to translocate through the intestinal epithelium (IE) and respiratory epithelium (RE) barriers is a novel therapeutic approach. Our active transport approach differs from current biologics and peptides and is unproven. We are at the early stages of development of our product candidates. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates, and we may fail to do so for many reasons, including the following:
our product candidates may not successfully complete preclinical studies or clinical trials;
a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
we may not have sufficient resources to complete development of a product candidate;
our competitors may develop therapeutics that render our product candidates obsolete or less attractive;
the product candidates that we develop may not be sufficiently covered by intellectual property for which we hold exclusive rights;
the product candidates that we develop may be covered by third parties’ patents or other intellectual property or exclusive rights;
the market for a product candidate may change so that the continued development of that product candidate is no longer reasonable or commercially attractive;
a product candidate may not be capable of being produced in development and commercial quantities at an acceptable cost, or at all;
the product candidates that we develop may be novel and therefore, not accepted by the medical community;
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if a product candidate obtains regulatory approval, we may be unable to establish sales and marketing capabilities, or successfully market such approved product candidate, to gain market acceptance; and
a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors, if applicable.
If any of these events occur, we may be forced to abandon our development efforts for one or more product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
We may not be successful in our efforts to further develop our current product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. Each of our product candidates are in the early stages of development and will require significant additional clinical development, management of preclinical, clinical, and manufacturing activities, regulatory approval, adequate manufacturing supply, a commercial organization, and significant marketing efforts before we generate any revenue from product sales, if at all.
We have never completed a clinical development program. In 2022, we released top-line results from the Phase 2 LOMBARD clinical trial and Phase 2 MARKET clinical trial for AMT-101, which failed to meet its primary efficacy endpoints. None of our product candidates have advanced into late-stage development and it may be years before any such clinical trial is initiated, if at all. Further, we cannot be certain that any of our product candidates will be successful in clinical trials. We may in the future advance product candidates into clinical trials and terminate such clinical trials prior to their completion.
If any of our product candidates successfully complete clinical trials, we generally plan to seek regulatory approval to market our product candidates in the United States, the European Union, and in additional foreign countries where we believe there is a viable commercial opportunity. We have never commenced, compiled or applied for regulatory approval to market any product candidate. We may never receive regulatory approval to market any product candidates even if such product candidates successfully complete clinical trials, which would adversely affect our viability. To obtain regulatory approval in countries outside of the United States, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, manufacturing and controls, clinical trials, commercial sales, pricing, and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. If we are unable to obtain approval for our product candidates in multiple jurisdictions, our business, financial condition, results of operations, and our prospects could be negatively affected.
Even if we receive regulatory approval to market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives.
Investment in biopharmaceutical product development involves significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide any assurance that we will be able to successfully advance any of our product candidates through the development process or, if approved, successfully commercialize any of our product candidates.
We may encounter delays in our preclinical studies or clinical trials, or may not be able to conduct or complete our preclinical studies or clinical trials on the timelines we expect, if at all.
Preclinical studies and clinical testing are expensive, time consuming, and subject to uncertainty. We cannot guarantee that any preclinical studies and clinical trials will be conducted as planned or completed on schedule, if at all. We cannot be sure that submission of an Investigational New Drug (IND) application or a Clinical Trial Application (CTA) will result in the FDA, EMA, or other regulatory authority, as applicable, allowing clinical trials to begin in a timely manner, if at all. Moreover, even if these preclinical studies or clinical trials begin, issues may arise that could suspend or terminate such preclinical studies or clinical trials. A failure of one or more preclinical studies or clinical trials can occur at any stage of testing, and our future preclinical studies or clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of preclinical studies or clinical trials include:
inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials;
delays in confirming target engagement, biomarkers, patient selection, or other relevant criteria to be utilized in preclinical and clinical product candidate development;
delays in reaching a consensus with regulatory authorities on clinical trial design;
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delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
delays in identifying, recruiting, and training suitable clinical investigators;
delays in obtaining required IRB approval at each clinical trial site;
imposition of a temporary or permanent clinical hold by regulatory authorities for a number of reasons, including:
after review of an IND or amendment, CTA or amendment, or equivalent application or amendment;
as a result of a new safety finding that presents unreasonable risk to clinical trial participants;
a negative finding from an inspection of our clinical trial operations or trial sites; or
the finding that the investigational protocol or plan is clearly deficient to meet its stated objectives;
delays in identifying, recruiting, and enrolling suitable patients to participate in our clinical trials, and delays caused by patients withdrawing from clinical trials, or failing to return for post-treatment follow-up;
difficulty collaborating with patient groups and investigators;
failure by our CROs, other third parties, or us to adhere to clinical trial requirements;
failure to perform in accordance with the FDA’s or any other regulatory authority’s cGCP requirements, or applicable EMA or other regulatory guidelines in other countries;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
changes in the standard of care on which a clinical development plan was based, which may require new or additional clinical trials;
the cost of clinical trials of our product candidates being greater than we anticipate;
health epidemics such as the COVID-19 pandemic;
geopolitical events such as the conflicts between Russia and Ukraine or Israel and Hamas;
preclinical studies or clinical trials of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon product development programs; and
delays in manufacturing, testing, releasing, validating, transporting, or importing/exporting sufficient stable quantities of our product candidates for use in preclinical studies or clinical trials or the inability to do any of the foregoing.
Any inability to successfully initiate or complete preclinical studies or clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required, or we may elect, to conduct additional preclinical studies to bridge our modified product candidates to earlier versions. Preclinical studies or clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We have experienced in the past situations in which a contract manufacturer has failed to successfully complete a scheduled manufacturing run as a result of their manufacturing process errors or deviations from the product specifications. We also have experienced in the past situations in which we failed to successfully complete a schedule manufacturing run at our primary manufacturing site. These situations have the potential to cause delays in timelines and increases in development costs.
We could also encounter delays if a preclinical study or clinical trial is suspended or terminated by us, by the data safety monitoring board for such clinical trial or by the FDA, EMA, or any other regulatory authority, or if the IRBs of the institutions in which such clinical trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial.
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We may in the future terminate our clinical trials prior to their completion, which could adversely affect our business.
Delays in the completion of any preclinical study or clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process, and delay, or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
If we do not achieve our projected development goals in the timeframes we announce and expect, our stock price may decline.
From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials, the public release of clinical data, and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. For example, we have previously updated our anticipated timelines for milestones for our clinical trials that were publicly announced. If we do not meet milestones as publicly announced, our stock price may decline.
We may encounter difficulties enrolling patients or healthy volunteers in our clinical trials, and our clinical development activities could thereby be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the clinical trial until its conclusion. We have experienced and may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:
the patient eligibility criteria defined in the protocol;
the size of the clinical trial population required for analysis of the clinical trial’s primary endpoints;
the proximity of patients to a clinical trial site;
the design of the clinical trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
competing clinical trials, including our own clinical trials, for similar therapies or targeting patient populations meeting our patient eligibility criteria;
clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies and product candidates;
our ability to obtain and maintain patient consents;
health epidemics such as the COVID-19 pandemic. For example, there has been an increase in infections from COVID-19 variants which has impacted patient recruitment at certain of our clinical trial sites and could result in increased costs and delays;
the risk that patients enrolled in clinical trials will not complete such clinical trials, for any reason; and
geopolitical events such as the conflicts between Russia and Ukraine or Israel and Hamas.
We face significant competition and if our competitors develop and market technologies or products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.
The development and commercialization of biologic therapeutics is highly competitive and subject to rapid and significant technological change. The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property. Any product candidates that we successfully develop and commercialize will compete with current therapies and new therapies that may become available in the future.
We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for the research, development, manufacturing, and commercialization of therapies aimed at treating autoimmune, inflammatory, metabolic, and other diseases. Many of our competitors have significantly greater financial, manufacturing, marketing, technical and human resources and commercial expertise than we do. Large pharmaceutical
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companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing biologic therapeutics. These companies also have significantly greater research and marketing capabilities than we do. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection or FDA or other regulatory approval or discovering, developing and commercializing products in our field before we do.
In particular, with respect to our most advanced product candidates, AMT-101 and AMT-126, we compete against companies that produce injectable biologic therapeutics such as AbbVie Inc., Amgen Inc., Bristol-Myers Squibb Co., Eli Lilly and Co., Janssen Pharmaceuticals, Inc., Merck Sharp & Dohme Corp., Roche Holding Ltd., Prometheus Biosciences, Inc., Takeda Pharmaceutical Company Ltd., as well as companies that produce oral products such as Abivax SA, Amgen Inc., Bristol-Myers Squibb Co., Dice Therapeutics Inc., Galapagos NV, Gilead Sciences, Inc., Landos Biopharma, Inc., Morphic Holding, Inc., Pfizer Inc., Protagonist Therapeutics, Inc., and Ventyx Biosciences, Inc.
We are not aware of any other company or organization that has developed an FDA-approved oral biologic, other than peptides. However, we are aware of other companies developing oral biologic product candidates using their own technology platform.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than the products that we may develop. Our competitors also may obtain FDA or foreign regulatory approval for their products more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, and retaining third-party manufacturing resources, as well as in acquiring technologies complementary to, or necessary for, our product candidates. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA, or other regulatory approval for their products more rapidly than we may obtain approval for ours and may obtain orphan drug exclusivity from the FDA for indications our product candidates are targeting, which could result in our competitors establishing a strong market position before we are able to enter the market. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
In addition, we could face litigation or other proceedings with respect to the scope, ownership, validity, and/or enforceability of our patents relating to our competitors’ products and our competitors may allege that our products infringe, misappropriate, or otherwise violate their intellectual property. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.
Our product candidates may face competition sooner than anticipated.
Even if we are successful in achieving regulatory approval to commercialize a product candidate ahead of our competitors, our product candidates may face competition from biosimilar products or alternative therapies. In the United States, our product candidates are regulated by the FDA as biologic products and we intend to seek approval for these product candidates pursuant to the Biologics License Application (BLA) pathway. The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.
We believe that any of our product candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise,
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or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. In addition, a competitor could decide to forego the biosimilar approval path and submit a full BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.
In Europe, the European Commission has granted marketing authorizations for several biosimilar products pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In Europe, a competitor may reference data supporting approval of an innovative biological product but will not be able to get it on the market until 10 years after the time of approval of the innovative product. This 10-year marketing exclusivity period will be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilar products in other countries that could compete with our products, if approved.
If competitors are able to obtain marketing approval for biosimilars referencing our product candidates, if approved, such products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences. Such competitive products may be able to immediately compete with us in each indication for which our product candidates may have received approval.
Even if any product candidates we develop receive marketing approval, our product candidates may not achieve adequate market acceptance by physicians, patients, healthcare payors, and others in the medical community necessary for commercial success.
The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Even if any product candidates we may develop receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors, and others in the medical community. The degree of market acceptance of any product candidates we may develop, if approved for commercial sale, will depend on a number of factors, including:
the efficacy and safety of such product candidates as demonstrated in clinical trials and published in peer-review journals or presented at medical conferences;
the potential and perceived advantages compared to alternative treatments;
the ability to offer our products for sale at competitive prices;
sufficient third-party coverage or adequate reimbursement and patients’ willingness to pay in the absence of such coverage and adequate reimbursement;
the ability to offer appropriate patient access programs, such as co-pay assistance;
the extent to which physicians recommend our products to their patients;
convenience and ease of dosing and administration compared to alternative treatments;
the clinical indications for which the product candidate is approved by FDA, EMA, or other regulatory authorities;
product labeling or product insert requirements of the FDA, EMA, or other comparable foreign regulatory authorities, including any limitations, contraindications, or warnings contained in a product’s approved labeling;
restrictions on how the product is distributed;
the timing of market introduction of competitive products;
publicity concerning our products or competing products and treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength and effectiveness of sales and marketing and distribution efforts; and
the prevalence and severity of any side effects.
If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate or derive sufficient revenue from that product candidate and our financial results could be negatively impacted.
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If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing, or distribution of biologic therapeutics. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to sell, or participate in sales activities for some of our product candidates if and when they are approved.
There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time consuming and could delay any product launch. If the commercial launch of a product for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.
Factors that may inhibit our efforts to commercialize any approved product on our own include:
our inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel;
the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing any future approved products;
our inability to obtain coverage and adequate reimbursement for our products from payors;
the inability to price our products at a sufficient price point to ensure an adequate and attractive level of profitability;
restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population; and
unforeseen costs and expenses associated with creating an independent commercialization organization.
If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates, if approved.
If the market opportunities for any product that we develop are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.
Our projections of both the number of people who have the diseases we may be targeting, as well as the subset of people with these health issues who have the potential to benefit from treatment with our technology platform and investigational medicines, and any product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases and health issues. The potentially addressable patient population for our investigational medicines may be limited or may not be amenable to treatment with our technology platform or investigational medicines. Even if we obtain significant market share for our products, if approved, if the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications.
Risks Related to Regulatory Approval and Other Legal Compliance Matters
We may be unable to obtain U.S. or foreign regulatory approval for our product candidates and, as a result, may be unable to commercialize our product candidates.
The time required to obtain approval by the FDA, EMA, and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials, and depends upon numerous factors, including the type, complexity, and novelty of the product candidates involved. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development
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and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical studies, clinical trials, or other studies. We have not submitted for, or obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Applications for our product candidates could fail to receive regulatory approval in an initial or subsequent indication for many reasons, including but not limited to the following: