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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

OR

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

For the transition period from ______________ to ______________

Commission File Number: 001-38898

Applied Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

81-3405262

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

545 Fifth Avenue, Suite 1400

New York, New York 10017

(212) 220-9226

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.0001

APLT

The Nasdaq Global Market

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

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

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

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

  

  

Smaller reporting company

 

Emerging growth company

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

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

As of May 10, 2023, the registrant had 57,849,292 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Table of Contents

Page

Special Note Regarding Forward-Looking Statements

2

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

4

Condensed Balance Sheets

4

Condensed Statements of Operations

5

Condensed Statements of Comprehensive Loss

6

Condensed Statements of Stockholders’ Equity

7

Condensed Statements of Cash Flows

9

Notes to Condensed Financial Statements (Unaudited)

10

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

43

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84

Item 3.

Defaults Upon Senior Securities

84

Item 4.

Mine Safety Disclosures

84

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

86

1

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “opportunity,” “plan,” “predict,” “project”, “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q:

our plans to develop, market and commercialize our product candidates;
the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
our ability to take advantage of expedited regulatory pathways for any of our product candidates;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to successfully acquire or license additional product candidates on reasonable terms and advance product candidates into, and successfully complete, clinical studies;
our ability to maintain and establish collaborations or obtain additional funding;
our ability to obtain and timing of regulatory approval of our current and future product candidates;
the anticipated indications for our product candidates, if approved;
our expectations regarding the potential market size and the rate and degree of market acceptance of such product candidates;
our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;
the implementation of our business model and strategic plans for our business and product candidates;
our intellectual property position and the duration of our patent rights;
developments or disputes concerning our intellectual property or other proprietary rights;
the potential impact of the Covid-19 pandemic on the timing and progress of our ongoing clinical trials, our business, results of operations, liquidity, and operations and our ability to mitigate those potential impacts;
our expectations regarding government and third-party payor coverage and reimbursement;
our ability to compete in the markets we serve;
the impact of government laws and regulations and liabilities thereunder;

2

Table of Contents

developments relating to our competitors and our industry; and
other factors that may impact our financial results.

The foregoing list of risks is not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Unless the context otherwise requires, the terms “Applied,” “Applied Therapeutics,” “the Company,” “we,” “us,” “our”, “the registrant” and similar references in this Quarterly Report on Form 10-Q refer to Applied Therapeutics, Inc.

3

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Applied Therapeutics, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

As of

As of

March 31, 

December 31,

2023

2022

ASSETS

 

 

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

22,917

$

16,657

Investments

13,923

Prepaid expenses and other current assets

 

6,146

 

6,728

Total current assets

 

29,063

 

37,308

Operating lease right-of-use asset

743

857

Security deposits and leasehold improvements

198

198

TOTAL ASSETS

$

30,004

$

38,363

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

CURRENT LIABILITIES:

 

 

  

Current portion of operating lease liabilities

$

483

$

477

Accounts payable

5,555

4,534

Accrued expenses and other current liabilities

 

14,025

 

14,756

Warrant liability

13,188

13,657

Total current liabilities

 

33,251

 

33,424

NONCURRENT LIABILITIES:

Noncurrent portion of operating lease liabilities

291

414

Clinical holdback - long-term portion

534

464

Total noncurrent liabilities

825

878

Total liabilities

 

34,076

 

34,302

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock, $0.0001 par value; 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 48,113,561 shares issued and outstanding as of March 31, 2023 and 48,063,358 shares issued and outstanding as of December 31, 2022

5

5

Preferred stock, par value $0.0001; 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022

-

-

Additional paid-in capital

 

354,883

 

352,828

Accumulated other comprehensive gain/(loss)

51

Accumulated deficit

 

(358,960)

 

(348,823)

Total stockholders' equity

 

(4,072)

 

4,061

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

30,004

$

38,363

The Notes to Condensed Financial Statements are an integral part of these statements.

4

Table of Contents

Applied Therapeutics, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended

 

March 31, 

    

    

2023

    

2022

REVENUE:

License Revenue

$

10,660

$

Total Revenue

 

10,660

 

OPERATING EXPENSES:

Research and development

$

15,935

$

15,030

General and administrative

5,583

8,071

Total operating expenses

 

21,518

23,101

LOSS FROM OPERATIONS

 

(10,858)

(23,101)

OTHER INCOME (EXPENSE), NET:

 

 

Interest income

 

221

76

Change in fair value of warrant liabilities

 

469

Other expense

 

31

(96)

Total other income, net

 

721

(20)

Net loss

$

(10,137)

$

(23,121)

Net loss attributable to common stockholders—basic and diluted

$

(10,137)

$

(23,121)

Net loss per share attributable to common stockholders—basic and diluted

$

(0.18)

$

(0.88)

Weighted-average common stock outstanding—basic and diluted

 

56,357,983

 

26,215,514

The Notes to Condensed Financial Statements are an integral part of these statements.

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Applied Therapeutics Inc.

Condensed Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

Net Loss

$

(10,137)

$

(23,121)

Other comprehensive income (loss)

 

 

Unrealized gain (loss) on marketable securities

 

(51)

 

27

Other comprehensive gain (loss), net of tax

 

(51)

 

27

Comprehensive income (loss), net of tax

$

(10,188)

$

(23,094)

The Notes to Condensed Financial Statements are an integral part of these statements.

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Applied Therapeutics Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share and per share data)

(Unaudited)

 

Common Stock

 

 

 

 

$0.0001

 

Additional

 

Accumulated Other

Total

 

Par Value

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

Equity

BALANCE, January 1, 2022

26,215,514

$

3

$

328,958

$

(266,315)

$

(107)

$

62,539

Restricted Stock Units released for common stock issued under Equity Incentive Plan

21,417

Restricted Stock Units released for common stock not yet issued

(21,417)

Stock-based compensation expense

2,077

2,077

Issuance of options in-lieu of bonus

441

441

Net loss

(23,121)

(23,121)

Other comprehensive income (loss)

27

27

BALANCE, March 31, 2022

26,215,514

3

331,476

(289,436)

(80)

41,963

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Common Stock

 

 

 

 

$0.0001

 

Additional

Accumulated Other

 

Total

 

Par Value

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

BALANCE, January 1, 2023

48,063,358

$

5

$

352,828

$

(348,823)

$

51

$

4,061

Restricted Stock Units released for common issued under Equity Incentive Plan

50,203

Stock-based compensation expense

2,055

2,055

Net loss

(10,137)

(10,137)

Other comprehensive income (loss)

(51)

(51)

BALANCE, March 31, 2023

48,113,561

$

5

$

354,883

$

(358,960)

$

$

(4,072)

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Applied Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

OPERATING ACTIVITIES:

  

  

Net loss

$

(10,137)

$

(23,121)

Adjustments to reconcile net loss to net cash used in operating activities:

 

Stock-based compensation expense

 

2,055

2,077

Issuance of options in-lieu of bonus

441

Amortization of insurance premium

766

1,093

Amortization of operating lease right-of-use assets

114

108

Change in operating lease liability

(117)

(106)

Change in fair value of warrant liability

(469)

Changes in operating assets and liabilities:

 

Prepaid expenses

 

(184)

(1,435)

Accounts payable

 

1,021

(3,539)

Accrued expenses and other current liabilities

 

(109)

72

Other liabilities

70

Net cash used in operating activities

 

(6,990)

 

(24,410)

INVESTING ACTIVITIES:

Purchase of available-for-sale securities

(5,994)

Proceeds from sale of available-for-sale securities

4,944

Proceeds from maturities of available-for-sale securities

8,928

15,519

Net cash provided by investing activities

13,872

9,525

FINANCING ACTIVITIES:

 

  

 

  

Repayments of short-term borrowings

(622)

(789)

Net cash provided by financing activities

 

(622)

 

(789)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

6,260

(15,674)

Cash and cash equivalents at beginning of period

 

16,657

53,888

Cash and cash equivalents at end of period

$

22,917

$

38,214

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Unrealized gain (loss) on marketable securities

$

(51)

$

27

The Notes to Condensed Financial Statements are an integral part of these statements.

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Applied Therapeutics, Inc.

Notes to Condensed Financial Statements (Unaudited)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Business

Applied Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company developing a pipeline of novel product candidates against validated molecular targets in indications of high unmet medical need. In particular, the Company is currently targeting treatments for rare metabolic diseases such as Galactosemia, Sorbitol Dehydrogenase (“SORD”) deficiency, and diabetic complications including diabetic cardiomyopathy. The Company was incorporated in Delaware on January 20, 2016 and is headquartered in New York, New York.

On January 26, 2022, the Company entered into an equity distribution agreement (the “Cowen Equity Distribution Agreement) with Cowen and Company, LLC (“Cowen”), as a sales agent, to sell shares of the Company’s common stock, from time to time, having an aggregate offering price of up to $100.0 million. Pursuant to the Cowen Equity Distribution Agreement shares of our common stock may be offered and sold through the sales agent in sales deemed “at-the-market” offerings under the Securities Act of 1933, as amended, or the Securities Act. Under the Cowen Equity Distribution Agreement, the sales agent will be entitled to compensation of up to 3% of the gross offering proceeds of all shares of our common stock sold through it pursuant to the Cowen Equity Distribution Agreement. In connection with the sale of shares of our common stock on our behalf, the sales agent may be deemed to be “underwriters” within the meaning of the Securities Act, and the compensation paid to the sales agent may be deemed to be underwriting commissions or discounts. As of March 31, 2023, the Company has not sold any shares of common stock pursuant to the Cowen Equity Distribution Agreement.

On June 27, 2022, the Company completed an underwritten public offering (the “June Offering”) of 20,000,000 shares of common stock, par value $0.0001 per share, 10,000,000 pre-funded warrants to purchase shares of common stock (the “Pre-Funded Warrants”), and accompanying warrants to purchase up to 30,000,000 shares of common stock (the “Common Warrants”). The shares and accompanying Common Warrants were offered at a price to the public of $1.00 per share and warrant, and the Pre-Funded Warrants and accompanying Common Warrants were offered at a price to the public of $0.9999, resulting in aggregate net proceeds of approximately $27.8 million, after deducting underwriting discounts and commissions and offering expenses. The Pre-Funded Warrants and the Common Warrants are immediately exercisable and will expire five years from the date of issuance. Holders may not exercise any Pre-Funded Warrants or Common Warrants that would cause the aggregate number of shares of common stock beneficially owned by the holder to exceed 9.99% of the Company’s outstanding common stock immediately after exercise. Holders of the Pre-Funded Warrants and/or Common Warrants (together with affiliates) who immediately prior to June 27, 2022 beneficially owned more than 9.99% of the Company’s outstanding common stock may not exercise any portion of their Pre-Funded Warrants or Common Warrants if the holder (together with affiliates) would beneficially own more than 19.99% of the Company’s outstanding common stock after exercise. The Pre-Funded Warrants and Common Warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions for no consideration of assets to the Company’s stockholders. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants and/or Common Warrants will be entitled to receive, upon exercise, the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants and/or Common Warrants immediately prior to such transaction. The Pre-Funded Warrants and Common Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which the Company’s stockholders are entitled. The Company intends to use the net proceeds from the June Offering for general corporate purposes, which may include research and development costs, including the conduct of clinical trials and process development and manufacturing of the Company’s product candidates, expansion of the Company’s research and development capabilities, working capital and capital expenditures.

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The accompanying unaudited condensed financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2022 included in the Annual Report, filed with the SEC on March 23, 2023 (the “Annual Report”).

The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments which are necessary for a fair presentation of the Company’s financial position as of March 31, 2023, results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

Liquidity and Going Concern

The Company has incurred, and expects to continue to incur, significant operating losses for the foreseeable future as it continues to develop its drug candidates. To date, the Company has not generated any product revenue, and it does not expect to generate product revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates.

Under ASC Topic 205-40, Presentation of Financial Statements - Going Concern, management is required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued. As discussed below, we recently completed a $30 million private placement, before deducting placement agent commissions and other offering expenses (see Note 16). We continue to actively pursue several potential long-term financing options, including equity capital, debt, convertible debt, and synthetic royalty financing. Additionally, we are in active dialogue with several potential partners regarding business development opportunities related to one or more of our programs. There can be no assurances that our discussions with any of the current counterparties will be successful, and the Company expects to continue to pursue additional opportunities.

As reflected in the accompanying financial statements, the Company incurred a net loss of $10.1 million for the three months ended March 31, 2023 and has an accumulated deficit of $359.0 million as of March 31, 2023. The exclusive licensing agreement with Advanz Pharma for commercialization rights to AT-007 in Europe provides a source of capital to the Company based on clinical and regulatory milestones. We received a $10.7 million upfront payment from Advanz Pharma in January 2023 in conjunction with signing the agreement. If actualization of these milestones aligns with the projected timelines, and product approvals are received in the timeframes expected, this source of capital may be sufficient to cover operating expenses through expected product approvals and potential revenues. However, there are no guarantees that this will materialize timely or at all, and delays or unexpected data could disrupt this potential liquidity. Broadly, the Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to fund its operations. As of March 31, 2023, our cash, cash equivalents and marketable securities totaled $22.9 million. Additionally, on April 26, 2023, the Company completed a private placement that resulted in gross proceeds of $30 million, before deducting placement agent commissions and other offering expenses (see Note 16). Given our planned expenditures for the next twelve months, we have concluded there is substantial doubt regarding our ability to continue as a going concern for a year beyond the date of this Quarterly Report on Form 10-Q is issued. The accompanying financial statements have been prepared assuming the continuation of the Company as a going concern.

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any product

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candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and reliance on third-party manufacturers.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the Company's ability to continue as a going concern as of the date of the financial statements and the reported amounts of expenses during the reporting period. In preparing the financial statements, management used estimates in the following areas, among others: prepaid and accrued expenses; warrant liability valuation; stock-based compensation expense; and the evaluation of the existence of conditions and events that raise substantial doubt regarding the Company’s ability to continue as a going concern. Actual results could differ from those estimates.

Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.

Clinical hold-back, long-term

As part of the regulatory approval process for taking its products to market, the Company enters into certain Clinical Trial Agreements (CTAs) which include, among other things, the compensation and payment schedule the participating medical institutions and physicians will receive for all costs in connection with the clinical trial (or study) under the terms of the CTA. As individual patients are enrolled in the study by the participating medical institution or physician, the Company pays certain per study fees according to the CTA for the duration of the trial. As invoices are received by the Company from the medical institution or physician, the Company retains an agreed upon percentage of total invoiced costs, generally ranging between 5% - 10%, that is withheld from payment until the end of the study.

These retained amounts are recorded as clinical holdback, a liability, on the accompanying balance sheets, and all expenses incurred in connection with these CTA activities are expensed as services are provided, which are included as research and development expenses on the accompanying statements of operations.

The following table shows the activity within the clinical holdback liability accounts for the three months ended March 31, 2023:

    

(in thousands)

Balance as of December 31,2022

$

464

Clinical holdback retained

70

Clinical holdback paid

 

Balance as of March 31,2023

$

534

Less: clinical holdback current portion

Clinical holdback - long-term portion

$

534

There was no clinical holdback during the three months ended March 31, 2022.

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Recent Accounting Pronouncements

Any recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.

2. LICENSE AGREEMENT

Columbia University

In October 2016, the Company entered into a license agreement (the “2016 Columbia Agreement”) with the Trustees of Columbia University (“Columbia University”) to obtain an exclusive royalty-bearing sublicensable license in respect to certain patents. As part of the consideration for entering into the 2016 Columbia Agreement, the Company issued to Columbia University shares equal to 5% of its outstanding common stock on a fully diluted basis at the time of issue. The common stock had a fair value of $0.5 million at the time of issuance. The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3 million for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the achievement of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2016 Columbia Agreement. The Company will also be required to pay tiered royalties to Columbia University in the low- to mid-single digit percentages on the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified offsets and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University, which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the 10th anniversary of the effective date of the 2016 Columbia Agreement. When we grant sublicenses under the 2016 Columbia Agreement we are required to pay Columbia University a portion of the net sublicensing revenue received from such third parties, at percentages between 10% and 20%, depending on the stage of development at the time such revenue is received from such third parties. The Advanz Agreement includes a sublicense under the 2016 Columbia Agreement.

The 2016 Columbia Agreement will terminate upon the expiration of all the Company’s royalty payment obligations in all countries. The Company may terminate the 2016 Columbia Agreement for convenience upon 90 days’ written notice to Columbia University. At its election, Columbia University may terminate the 2016 Columbia Agreement, or convert the licenses granted to the Company into non-exclusive, non-sublicensable licenses, in the case of (a) the Company’s uncured material breach upon 30 days’ written notice (which shall be extended to 90 days if the Company is diligently attempting to cure such material breach), (b) the Company’s failure to achieve the specified development and funding milestone events, or (c) the Company’s insolvency.

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In January 2019, the Company entered into a second license agreement with Columbia University (the “2019 Columbia Agreement”). Pursuant to the 2019 Columbia Agreement, Columbia University granted the Company a royalty-bearing, sublicensable license that is exclusive with respect to certain patents, and non-exclusive with respect to certain know-how, in each case to develop, manufacture and commercialize PI3k inhibitor products. The license grant is worldwide. Under the 2019 Columbia Agreement, the Company is obligated to use commercially reasonable efforts to research, discover, develop and market licensed products for commercial sale in the licensed territory, and to comply with certain obligations to meet specified development and funding milestones within defined time periods. Columbia University retains the right to conduct, and grant third parties the right to conduct, non-clinical academic research using the licensed technology; provided that such research is not funded by a commercial entity or for-profit entity or results in rights granted to a commercial or for-profit entity. As consideration for entering into the 2019 Columbia Agreement, the Company made a nominal upfront payment to Columbia University. The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3 million for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the achievement of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2019 Columbia Agreement. The Company will also be required to pay tiered royalties to Columbia University in the low- to mid-single digit percentages on the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified offsets and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University, which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the tenth anniversary of the effective date of the 2019 Columbia Agreement.

In July 2022, following regulatory changes impacting development of the class of PI3k inhibitors and the Company’s decision to discontinue its early stage preclinical PI3k program, the Company and Columbia entered into an agreement terminating the 2019 Columbia Agreement (the “2022 Columbia Termination Agreement”) as of July 25, 2022. Under the terms of the 2022 Columbia Termination Agreement, the Company assigned certain regulatory documents regarding the preclinical PI3k inhibitor AT-104 to Columbia and granted Columbia a non-exclusive royalty free license (with rights to sublicense any future Columbia licensee) under certain know-how, technical information and data relating to AT-104 that was developed by the Company during the term of the 2019 Columbia Agreement.

In March 2019, and in connection with the 2016 Columbia Agreement, the Company entered into a research services agreement (the “2019 Columbia Research Agreement”) with Columbia University with the purpose of analyzing structural and functional changes in brain tissue in an animal model of Galactosemia, and the effects of certain compounds whose intellectual property rights were licensed to the Company as part of the 2016 Columbia Agreement on any such structural and functional changes. The 2019 Columbia Research Agreement had a term of 12 months from its effective date and expired in accordance with its terms.

On October 3, 2019, and in connection with the 2019 Columbia Agreement, the Company entered into a research services agreement (the “PI3k Columbia Research Agreement” and collectively with the 2016 Columbia Agreement, 2019 Columbia Agreement and 2019 Columbia Research Agreement, the “Columbia Agreements”) with Columbia University with the purpose of analyzing PI3k inhibitors for the treatment of lymphoid malignancies. The PI3k Columbia Research Agreement had a term of 18 months from its effective date and expired in accordance with its terms.

During the three months ended March 31, 2023, the Company recorded $0 in research and development expense; and $0.1 million in general and administrative expense, related to the Columbia Agreements. During the three months ended March 31, 2022, the Company recorded $0 in research and development expense and $13,000 in general and administrative expense related to the Columbia Agreements. In aggregate, the Company has incurred $2.7 million in expense from the execution of the Columbia Agreements through March 31, 2023.

As of March 31, 2023, the Company had $0.1 million due to Columbia University included in accrued expenses and $0 included in accounts payable. As of December 31, 2022, the Company had $0.1 million due to Columbia University included in accrued expenses and $0 million included in accounts payable.

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University of Miami

2020 Miami License Agreement

On October 28, 2020, the Company entered into a license agreement with the University of Miami (the “2020 Miami License Agreement”) relating to certain technology that is co-owned by the University of Miami (UM), the University of Rochester (UR) and University College London (UCL). UM was granted an exclusive agency from UR and UCL to license each of their rights in the technology. Pursuant to the 2020 Miami License Agreement, UM, on behalf of itself and UR and UCL, granted the Company a royalty-bearing, sublicensable license that is exclusive with respect to certain patent applications and patents that may grant from the applications, and non-exclusive with respect to certain know-how, in each case to research, develop, make, have made, use, sell and import products for use in treating and/or detecting certain inherited neuropathies, in particular those caused by mutation in the sorbitol dehydrogenase (SORD) gene. The license grant is worldwide. Under the 2020 Miami License Agreement, the Company is obligated to use commercially reasonable efforts to develop, manufacture, market and sell licensed products in the licensed territory, and to comply with certain obligations to meet specified development milestones within defined time periods. UM retains for itself, UR, and UCL the right to use the licensed patent rights and licensed technology for their internal non-commercial educational, research and clinical patient care purposes, including in sponsored research and collaboration with commercial entities.

Under the terms of the 2020 Miami License Agreement, the Company was obligated to pay UM an up-front non-refundable license fee of $1.1 million, and a second non-refundable license fee of $0.5 million due on the first anniversary of the date of the license. The Company will be required to make further payments to UM of up to an aggregate $2.2 million for the achievement of specified patenting and development milestones, and up to an aggregate of $4.1 million for achievement of late stage regulatory milestones. The Company will also be required to pay royalties ranging from 0.88% - 5% on the Company’s, the Company’s affiliates’ and the Company’s sublicensees’ net sales of licensed products. When the Company sublicenses the rights granted under the 2020 Miami License Agreement to one or more third parties, the Company will be required to pay to UM a portion of the non-royalty sublicensing revenue received from such third parties ranging from 15% – 25%. The Advanz Agreement includes a sublicense under the 2020 Miami License Agreement.

The 2020 Miami License Agreement terminates upon the expiration of all issued patents and filed patent applications or 10 years after the first commercial sale of the last product or process for which a royalty is due, unless earlier terminated. In addition, the 2020 Miami License Agreement may be terminated by the Company at any time upon 60 days prior written notice to UM, and may be terminated by either the Company or UM upon material breach of an obligation if action to cure the breach is not initiated within 60 days of receipt of written notice.

During the three months ended March 31, 2023 the company recorded $25,000 in research and development expense related to the Miami License Agreement.  During the three months ended March 31, 2022 the Company recorded $25,000 in research and development expense related to the 2020 Miami License Agreement. There were no general and administrative expense related to 2020 Miami License Agreement recorded during the three months ended March 30, 2023, and 2022. In aggregate, the Company has incurred $2.4 million in expense from execution of the 2020 Miami License Agreement through March 31, 2023.

The Company had $0.3 million and $0.3 million due to UM included in accrued expenses as of March 31, 2023 and December 31, 2022, respectively, relating to the 2020 Miami License Agreement.

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2020 Miami Option Agreement

On October 28, 2020, the Company entered into an option agreement with the University of Miami (the “2020 Miami Option Agreement”) concerning certain research activities and technology relating to SORD neuropathy that may be pursued and developed by UM. Under the 2020 Miami Option Agreement, if UM conducts such research activities, then UM is obligated to grant us certain option rights to access and use the research results and to obtain licenses to any associated patent rights upon us making specified payments to UM within specified time limits. If the Company elects to obtain option rights the Company will be required to make payments to UM in the low-six figures to the low-seven figures, depending upon the rights the Company elects to obtain, and the Company will be obligated to make certain milestone payments in the high-six figures to mid-seven figures if UM conducts and completes certain research activities within specified time periods and the Company elects to receive rights to use the results of that research.

2020 Miami Sponsored Research Agreement

On December 14, 2020, the Company entered into a research agreement with the University of Miami (the “2020 Miami Research Agreement”), under which the University of Miami will conduct a research study relating to SORD neuropathy and deliver a final report on the study to the Company. The term of the research agreement is from December 14, 2020 through December 30, 2021, and was extended through August 31, 2022, whereby the research study was completed. The total consideration for the 2020 Miami Research Agreement was $0.3 million.

During the three months ended March 31, 2023, the Company recorded $0 in research and development expense in relation to the 2020 Miami Research Agreement. During the three months ended March 31, 2022, the Company recorded $37,000 in research and development expense in relation to the 2020 Miami Research Agreement. The Company had $0.1 million and $0.1 million as of March 31, 2023 and December 31, 2022, respectively, in accrued expense in relation to the 2020 Miami Research Agreement.

Bayh-Dole Act

Some of the intellectual property rights the Company has licensed, including certain rights licensed in the agreements described above, may have been generated through the use of U.S. government funding. As a result, the U.S. government may have certain rights to intellectual property embodied in the Company’s current or future product candidates under the Bayh-Dole Act of 1980, or Bayh-Dole Act, including the grant to the government of a non-exclusive, worldwide, freedom to operate license under any patents, and the requirement, absent a waiver, to manufacture products substantially in the United States.  To the extent any of the Company’s current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

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3. FAIR VALUE MEASUREMENTS

The following tables summarize, as of March 31, 2023, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, according to the fair value hierarchy described in the significant accounting policies in the Company’s audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Annual Report.

As of March 31, 2023

(in thousands)

Level 1

Level 2

Level 3

Total

Cash

$

21,917

$

$

$

21,917

Money market funds

1,000

1,000

Total cash and cash equivalents

$

22,917

$

$

$

22,917

U.S. government agency debt securities

Total marketable securities

$

$

$

$

Total financial assets measured at fair value on a recurring basis

$

22,917

$

$

$

22,917

Warrant liabilities - Common Warrants

13,188

13,188

Total financial liabilities measured at fair value on a recurring basis

$

$

$

13,188

$

13,188

Investments in U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted prices in less active markets or other directly or indirectly observable inputs. Fair values of U.S. government agency debt securities were derived from a consensus or weighted average price based on input of market prices from multiple sources at each reporting period. During the period ended March 31, 2023, there were no transfers of financial assets between Level 1 and Level 2.

On June 27, 2022 the Company issued Common Warrants exercisable for 30,000,000 shares of common stock and Pre-Funded Warrants exercisable for 10,000,000 shares of common stock in connection with the June Offering (see note 1 and note 8 for more information on the June Offering). The Common Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. The Pre-Funded Warrants were initially recorded at fair value as a liability as the Company could be required to settle the Pre-Funded Warrants in cash under certain circumstances. In December 2022, the Company amended the Pre-Funded Warrants to remove the potential requirement that they could be settled in cash under certain circumstances.  Upon the amendment to the Pre-Funded Warrants, the Pre-funded Warrants liability was reclassified to equity, using their fair value as of the amendment date.

These Common Warrant liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value recognized in other income (expense) within the Company’s statement of operations.

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Common and Pre-Funded Warrants, which utilizes certain unobservable inputs and is therefore considered a Level 3 fair value measurement. Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control, including a potential change in control outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed statement of operations.

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The Common and Pre-Funded Warrants were initially valued and remeasured using a Black-Scholes option pricing model with a range of assumptions as follows:

Expected term (in years)

    

3.2

 

Volatility

 

93.86

%

Risk-free interest rate

 

3.95

%

Dividend yield

0.00

%

The Company utilized a probability-weighted approach that considered the probability of a change in control at the Company in the Black-Scholes option pricing model, whereby a 10% probability of change in control was used for each of the five years in the term of the agreements.

The following table provides a roll forward of the aggregate fair values of the Company’s warrant liability, for which fair value is determined using Level 3 inputs (in thousands):

    

Warrant Liability

Common Warrant

Pre-Funded Warrant

Balance as of January 1, 2023

$

13,657

$

Change in fair value

 

(469)

 

Balance as of March 31, 2023

$

13,188

$

The inputs utilized by management to value the warrant liability for Common and Pre-Funded Warrants are highly subjective. The assumptions used in calculating the fair value of the warrant liability for Common and Pre-Funded Warrants represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the fair value of the warrant liability for Common and Pre-Funded Warrants may be materially different in the future.

4. INVESTMENTS

Marketable Securities

Marketable securities, which the Company classifies as available-for-sale securities, primarily consist of U.S. government debt obligations. Marketable securities with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term; otherwise, they are classified as long-term on the balance sheets.

The following tables provide the Company’s marketable securities by security type (in thousands):

As of March 31, 2023

As of December 31, 2022

Gross

Gross

 

Gross

Gross

 

    

Unrealized

    

Unrealized

    

Estimated

    

    

Unrealized

    

Unrealized

    

Estimated

(in thousands)

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

US government agency debt security

$

$

-

$

$

$

13,873

$

50

$

$

13,923

Total

$

$

$

$

$

13,873

$

50

$

$

13,923

As of March 31, 2023, the Company had $0 in its investment portfolio.

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Contractual maturities of the Company’s marketable securities are summarized as follows:

As of March 31, 2023

As of December 31, 2022

Gross

Gross

 

Gross

Gross

 

Unrealized

Unrealized

    

Estimated

Unrealized

Unrealized

    

Estimated

(in thousands)

Cost

    

Gains

    

Losses

    

Fair Value

    

Cost

    

Gains

    

Losses

    

Fair Value

Due in one year or less

$

$

$

$

$

13,873

$

50

$

$

13,923

Due in one through two years

Total

$

$

  

$

$

$

13,873

$

50

  

$

$

13,923

At March 31, 2023, the Company had $0 of gross unrealized gains and $0 of gross unrealized losses.

During the three months ended March 31, 2023, the Company recorded no gross realized losses and no gross realized gains of from the sale of marketable securities.

There were no unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of March 31, 2023 or December 31, 2022.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

    

March 31, 

    

December 31,

(in thousands)

2023

2022

Prepaid research and development expenses

$

4,493

$

4,272

Insurance premium asset

366

1,131

Prepaid rent expenses

 

163

 

99

Prepaid insurance expenses

 

52

 

71

Prepaid commercial and patient advocacy

233

206

Research and development tax credit receivable

 

262

 

252

Interest receivable

23

23

Other prepaid expenses and current assets

554

674

Total prepaid expenses & other current assets

$

6,146

$

6,728

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6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

    

March 31, 

    

December 31,

(in thousands)

2023

2022

Accrued pre-clinical and clinical expenses

$

11,253

$

8,877

Short-term insurance financing note

-

622

Accrued professional fees

 

387

 

1,218

Accrued compensation and benefits

 

707

 

2,301

Accrued commercial expenses

860

896

Accrued patent expenses

 

407

 

361

Other

 

411

 

481

Total accrued expenses & other current liabilities

$

14,025

$

14,756

7. STOCK-BASED COMPENSATION

Equity Incentive Plans

In May 2019, the Company’s board of directors (the “Board”) adopted its 2019 Equity Incentive Plan (“2019 Plan”), which was subsequently approved by its stockholders and became effective on May 13, 2019. As a result, no additional awards under the Company’s 2016 Equity Incentive Plan, as amended (the “2016 Plan”) will be granted and all outstanding stock awards granted under the 2016 Plan that are repurchased, forfeited, expired, or are cancelled will become available for grant under the 2019 Plan in accordance with its terms. The 2016 Plan will continue to govern outstanding equity awards granted thereunder.

The 2019 Plan provides for the issuance of incentive stock options (“ISOs”) to employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards to the Company’s employees, officers, and directors, as well as non- employees, consultants, and affiliates to the Company. Under the terms of the 2019 Plan, stock options may not be granted at an exercise price less than fair market value of the Company’s common stock on the date of the grant. The 2019 Plan is administered by the Compensation Committee of the Company’s Board.

Initially, subject to adjustments as provided in the 2019 Plan, the maximum number of the Company’s common stock that may be issued under the 2019 Plan was 4,530,000 shares, which is the sum of (i) 1,618,841 new shares, plus (ii) the number of shares (not to exceed 2,911,159 shares) that remained available for the issuance of awards under the 2016 Plan, at the time the 2019 Plan became effective, and (iii) any shares subject to outstanding stock options or other stock awards granted under the 2016 Plan that are forfeited, expired, or reacquired. The 2019 Plan provides that the number of shares reserved and available for issuance under the 2019 Plan will automatically increase each January 1, beginning on January 1, 2020, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board. Subject to certain changes in capitalization of the Company, the aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs shall be equal to 13,000,000 shares of common stock. Stock options awarded under the 2019 Plan expire 10 years after grant and typically vest over four years.

On August 2, 2022, the Board took action in accordance with its authority under the terms of the 2019 Plan to reset the per-share exercise price of all stock options previously granted under the 2019 Plan to $1.05 per share (the "Options Repricing"), which is equal to the closing price of a share of the Company’s common stock on August 1, 2022. The Options Repricing was deemed to be a Type I modification event under ASC 718, Compensation-Stock Compensation. No other terms of the repriced stock options were modified, and the repriced stock options will continue to vest according to their original vesting schedules and will retain their original expiration dates. As a result of the Options Repricing, 1,797,517 vested and 1,380,917 unvested stock options outstanding as of August 2, 2022, with original exercise prices ranging from $1.22 to $49.60, were repriced. The Options Repricing resulted in incremental

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stock-based compensation expense of $1.4 million, of which $0.9 million related to vested stock option awards and was expensed on the repricing date, and $0.5 million of which related to unvested stock option awards and is being amortized on a ratable basis over the remaining weighted-average vesting period of those awards being approximately 2.4 years.

As of March 31, 2023, there were 968,529 shares of common stock available for issuance under the 2019 Plan.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded for employees, directors and non-employees (in thousands):

Three Months Ended

March 31, 

(in thousands)

    

2023

    

2022

Research and development

$

862

$

856

General and administrative

 

1,193

 

1,221

Total stock-based compensation expense

$

2,055

$

2,077

Stock Option Activity

During the three months ended March 31, 2023 the Company did not grant any options to shares of common stock. For the three months ended March 31, 2023, amortization of stock compensation of options amounted to $1.6 million and for the three months ended March 31, 2022, amortization of stock compensation of options amounted to $2.1 million. As of March 31, 2023 and 2022, the total unrecognized stock-based compensation balance for unvested options was $6.4 million and $13.0 million, respectively, which is expected to be recognized over 2.1 years and 2.4 years, respectively. The weighted-average fair value per share of options granted during the three months ended March 31, 2023 and 2022 was $0 and $2.22, respectively.

The following table summarizes the information about options outstanding at March 31, 2023:

    

    

    

Weighted-Average

    

 

 

Weighted-

 

Remaining

 

Aggregate

Options

 

Average

 

Contractual

 

Intrinsic

(in thousands, except for share data)

Outstanding

Exercise Price

 

Term (in years)

Value

Outstanding at December 31, 2022

 

4,874,047

$

1.97

6.9

$

Options granted

 

-

Options exercised

 

-

Forfeited

 

(26,902)

Expired

 

(8,048)

Outstanding at March 31, 2023

 

4,839,097

$

1.98

6.6

$

Exercisable at March 31, 2023

 

4,043,481

$

2.16

6.4

$

Nonvested at March 31, 2023

 

795,616

$

1.05

8.2

$

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Valuation of Stock Options Granted to Employees that Contain Service Conditions Only

The fair value of each option award granted with service-based vesting is estimated on the date of the grant using the Black-Scholes option valuation model based on the weighted average assumptions noted in the table below for those options granted in the three months ended March 31, 2023 and 2022.

Three Months Ended

 

March 31, 

    

2023

 

2022

Expected term (in years)

5.5

Volatility

 

%

69.68

%

Risk-free interest rate

 

%

1.56

%

Dividend yield

%

%

Restricted Stock Unit Activity

During the three months ended March 31, 2023, the Company granted 2,575,000 RSUs to shares of common stock. For the three months ended March 31, 2023 and 2022, amortization of stock compensation of RSUs amounted to $0.5 million and $0.1 million, respectively. As of March 31, 2023 and 2022, the unamortized compensation costs associated with non-vested restricted stock awards were $5.5 million and $5.4 million, respectively, with a weighted-average remaining amortization period of 3.6 and 3.4 years, respectively.

The following table summarizes the information about restricted stock units outstanding at March 31, 2023:

 

 

Weighted-Average

 

 

Grant Date

 

Aggregate

(in thousands, except for share data)

Shares

 

Fair Value

Intrinsic Value

Outstanding at December 31, 2022

 

815,509

$

5.96

$

$ 620

Awarded

 

2,575,000

0.99

Released

 

(50,203)

9.44

Forfeited

 

(6,408)

11.50

Outstanding at March 31, 2023

 

3,333,898

$

5.96

$

2,704

Nonvested at March 31, 2023

 

3,256,670

$

1.89

$

2,641

Weighted Average Remaining Recognition Period (in years)

3.6

2019 Employee Stock Purchase Plan

In May 2019, the Company’s Board and its stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective as of May 13, 2019. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the U.S. Internal Revenue Code of 1986, as amended. The number of shares of common stock initially reserved for issuance under the ESPP was 180,000 shares. The ESPP provides for an annual increase on the first day of each year beginning in 2020 and ending in 2029, in each case subject to the approval of the Board, equal to the lesser of (i) 1% of the shares of common stock outstanding on the last day of the calendar month before the date of the automatic increase and (ii) 360,000 shares; provided that prior to the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (i) and (ii). As of March 31, 2023, no shares of common stock had been issued under the ESPP. The first offering period has not yet been decided by the Board.

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8. STOCKHOLDERS’ EQUITY

As of March 31, 2023, and December 31, 2022, the authorized capital stock of the Company consisted of 200,000,000 shares of common stock, par value $0.0001 per share and 10,000,000 shares of preferred stock, par value $0.0001 per share, respectively.

Common Stock

Goldman Equity Distribution Agreement

In June 2020, the Company entered into an equity distribution agreement ( the “Goldman Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“Goldman”) to sell shares of the Company’s common stock, from time to time, having an aggregate offering price of up to $100.0 million. The issuance and sale of shares of common stock by the Company pursuant to the Goldman Equity Distribution Agreement is deemed an “at-the-market” offering under the Securities Act of 1933, as amended, or the Securities Act. Goldman is entitled to compensation for its services equal to up to 3.0% of the gross offering proceeds of all shares of the Company’s common stock sold through it as a sales agent pursuant to the Goldman Equity Distribution Agreement. The Goldman Equity Distribution Agreement was terminated as of January 24, 2022.

Cowen Equity Distribution Agreement

On January 26, 2022, the Company entered into the Cowen Equity Distribution Agreement to sell shares of the Company’s common stock, from time to time, having an aggregate offering price of up to $100.0 million. Pursuant to the Cowen Equity Distribution Agreement shares of our common stock may be offered and sold through the sales agent in sales deemed “at-the-market” offerings under the Securities Act of 1933, as amended, or the Securities Act. Under the Cowen Equity Distribution Agreement, the sales agent will be entitled to compensation of up to 3% of the gross offering proceeds of all shares of our common stock sold through it pursuant to the Cowen Equity Distribution Agreement. In connection with the sale of shares of our common stock on our behalf, the sales agent may be deemed to be “underwriters” within the meaning of the Securities Act, and the compensation paid to the sales agent may be deemed to be underwriting commissions or discounts. As of March 31, 2023, the Company has not sold any shares of common stock pursuant to the Cowen Equity Distribution Agreement.

June 2022 Offering

On June 27, 2022, the Company completed the June Offering, an underwritten public offering of 20,000,000 shares of common stock, par value $0.0001 per share, 10,000,000 Pre-Funded Warrants, and accompanying Common Warrants to purchase up to 30,000,000 shares of common stock. The shares and accompanying Common Warrants were offered at a price to the public of $1.00 per share and warrant, and the Pre-Funded Warrants and accompanying Common Warrants were offered at a price to the public of $0.9999, resulting in aggregate net proceeds of approximately $27.8 million, after deducting underwriting discounts and commissions and offering expenses. The Pre-Funded Warrants and the Common Warrants are immediately exercisable and will expire five years from the date of issuance. Holders may not exercise any Pre-Funded Warrants or Common Warrants that would cause the aggregate number of shares of common stock beneficially owned by the holder to exceed 9.99% of the Company’s outstanding common stock immediately after exercise. Holders of the Pre-Funded Warrants and/or Common Warrants (together with affiliates) who immediately prior to June 27, 2022 beneficially owned more than 9.99% of the Company’s outstanding common stock may not exercise any portion of their Pre-Funded Warrants or Common Warrants if the holder (together with affiliates) would beneficially own more than 19.99% of the Company’s outstanding common stock after exercise. The Pre-Funded Warrants and Common Warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions for no consideration of assets to the Company’s stockholders. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants and/or Common Warrants will be entitled to receive, upon exercise, the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants and/or Common Warrants immediately prior to such transaction. The Pre-Funded Warrants and Common Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which the Company’s

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stockholders are entitled. The Company intends to use the net proceeds from the June Offering for general corporate purposes, which may include research and development costs, including the conduct of clinical trials and process development and manufacturing of the Company’s product candidates, expansion of the Company’s research and development capabilities, working capital and capital expenditures.

9. WARRANTS

Warrants Issued with Series A Preferred Stock

On January 26, 2017, in connection with the sale and issuance of the Series A Preferred Stock, the Company issued equity-classified warrants to purchase 309,389 shares of common stock (the “2017 Warrants”), valued at $0.2 million, and included in the issuance costs of the Series A Preferred Stock. The warrants vested immediately and have an exercise price of $2.49 per share and expire on March 13, 2027.

The fair value of warrants issued was estimated using the Black-Scholes option pricing model with the following assumptions for the 2017 Warrants.

Contractual term (in years)

    

10.0

 

Volatility

 

74.48

%

Risk-free interest rate

 

3.20

%

Dividend yield

 

0.00

%

Warrants Issued with the 2018 Notes

On January 18, 2018, the Company entered into a placement agent agreement through which it became obligated to issue common stock warrants in connection with the issuance of convertible promissory notes, issued on February 5, 2018 (the “2018 Notes”). The obligation to issue the 2018 Notes Warrants was recorded as a liability at its fair value, (see Note 3), which was initially $0.1 million, and was included in the issuance costs of the 2018 Notes. On November 5, 2018, in connection with the extinguishment of the 2018 Notes into shares of Series B Preferred Stock, the Company issued the 2018 Notes Warrants, which were equity-classified warrants upon issuance, to purchase 76,847 shares of common stock, valued at $0.3 million. The 2018 Notes Warrants vested immediately upon issuance and have an exercise price of $4.48 per share as of March 31, 2023 and expire on November 4, 2028.

Warrants Issued with Series B Preferred Stock

In November and December 2018, in connection with the sale and issuance of the Series B Preferred Stock, the Company was obligated to issue equity-classified warrants to purchase 72,261 shares of common stock (collectively the “2018 Warrants”), valued in the aggregate at $0.2 million, which was included in the issuance costs for the Series B Preferred Stock. The warrants vest immediately upon issuance, have an exercise price of $5.51 per share as of March 31, 2023 and expire 10 years from the date of issuance.

The fair value of the 2018 Warrants was estimated using the Black-Scholes option pricing model with the following assumptions:

Contractual term (in years)

    

10.0

 

Volatility

 

73.22

%

Risk-free interest rate

 

2.70

%

Dividend yield

 

0.00

%

In February 2019, in connection with the sale and issuance of the Series B Preferred Stock, the Company was obligated to issue warrants to purchase 23,867 shares of common stock (collectively the “2019 Warrants”), valued in the aggregate at $0.1 million, which was included in the issuance costs for the Series B Preferred Stock. The warrants vested

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immediately upon issuance, have an exercise price of $5.51 per share as of March 31, 2023 and expire 10 years from the date of issuance.

The fair value of the 2019 Warrants was estimated using the Black-Scholes option pricing model with the following assumptions:

Contractual term (in years)

    

10.0

 

Volatility

 

73.22

%

Risk-free interest rate

 

2.70

%

Dividend yield

 

0.00

%

The inputs utilized by management to value the warrants are highly subjective. The assumptions used in calculating the fair value of the warrants represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the fair value of the warrants may be materially different in the future.

Warrants Issued with June 2022 Offering

On June 27, 2022, in connection with the sale and issuance common stock as part of the June Offering, the Company issued 10,000,000 Pre-Funded Warrants at an exercise price of $0.0001 per share, and 30,000,000 accompanying Common Warrants at an exercise price of $1.00 per share. Each share of common stock and accompanying Common Warrant was sold at a public offering price of $1.00, less underwriting discounts and commissions, and each Pre-Funded Warrant and accompanying Common Warrant was sold at a public offering price of $0.9999, less underwriting discounts and commissions, as described in the prospectus supplement, dated June 22, 2022, filed with the Securities and Exchange Commission on June 24, 2022.

The Pre-Funded Warrants and the Common Warrants are immediately exercisable and will expire five years from the date of issuance. Holders may not exercise any Pre-Funded Warrants or Common Warrants that would cause the aggregate number of shares of common stock beneficially owned by the holder to exceed 9.99% of the Company’s outstanding common stock immediately after exercise. Holders of the Pre-Funded Warrants and/or Common Warrants (together with affiliates) who immediately prior to June 27, 2022 beneficially owned more than 9.99% of the Company’s outstanding common stock may not exercise any portion of their Pre-Funded Warrants or Common Warrants if the holder (together with affiliates) would beneficially own more than 19.99% of the Company’s outstanding common stock after exercise. The Pre-Funded Warrants and Common Warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions for no consideration of assets to the Company’s stockholders. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants and/or Common Warrants will be entitled to receive, upon exercise, the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants and/or Common Warrants immediately prior to such transaction. The Pre-Funded Warrants and Common Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which the Company’s stockholders are entitled.

On June 28, 2022, a warrantholder exercised 1,750,000 Pre-Funded Warrants on a cash basis and received 1,750,000 shares of common stock. The Company received $175 in cash proceeds for the exercise of these Pre-Funded Warrants.

As of March 31, 2023, the Company had 8,250,000 Pre-Funded Warrants outstanding with a weighted average exercise price of $0.0001 per share and an average contractual life of 5 years. As of March 31, 2023, the Company had 30,000,000 Common Warrants outstanding with a weighted average exercise price of $1.00 per share and an average contractual life of 5 years.

The Common Warrants were accounted for as liabilities under ASC 815-40, as these warrants provide for a settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the

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statement of operations. The Pre-Funded Warrants were initially recorded at fair value as a liability as the Company could be required to settle the Pre-Funded Warrants in cash in the event of an acquisition of the Company under certain circumstances. In December 2022, the Company amended the Pre-Funded Warrants to remove the potential requirement that they could be settled in cash under certain circumstances. At December 31, 2022, the Pre-funded Warrants are recorded as equity, using their fair value as of the amendment date.

The fair value of the Common and Pre-Funded Warrants were estimated using the Black-Scholes option pricing model with the following assumptions: