PARDES BIOSCIENCES, INC. Discussion and Analysis of the Administration’s Financial Situation and Results of Operations. (Form 10-Q)

PARDES BIOSCIENCES, INC.  Discussion and Analysis of the Administration’s Financial Situation and Results of Operations.  (Form 10-Q)
You should read the following discussion and analysis of our financial condition
and results of operations together with the unaudited condensed financial
statements and the notes thereto included elsewhere in this Quarterly Report on
Form 10-Q for the quarter ended September 30, 2022 and with our audited
consolidated financial statements and notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31, 2021 filed with the
Securities and Exchange Commission (SEC) on March 29, 2022 and other filings we
have made with the SEC. As discussed under the heading "Cautionary Note
Regarding Forward-Looking Statements," this discussion contains forward-looking
statements that reflect our plans, estimates and beliefs and involve numerous
risks and uncertainties, including but not limited to those described in Part
II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. Actual
results may differ materially from those described in or implied by any
forward-looking statements.


Overview

We are a clinical-stage biopharmaceutical company focused on discovering,
developing and commercializing novel oral anti-viral therapeutics to improve the
lives of patients suffering from life-threatening disease, starting with our
lead product candidate, PBI-0451, which is in clinical development and intended
to treat and prevent COVID-19 in adult and pediatric patients. COVID-19 is
caused by infection with the severe acute respiratory syndrome coronavirus 2
(SARS-CoV-2) and has emerged as the most significant pandemic threat to the
world in many decades. We have built a discovery platform designed to target
reactive nucleophiles, such as those in cysteine proteases. By leveraging our
understanding of structure-based drug design, reversible covalent chemistry and
viral biology, we have discovered and are developing novel product candidates
with low nanomolar potency against SARS-CoV-2 and broad activity against all
known pathogenic human coronaviruses. Our lead product candidate, PBI-0451,
inhibits the main coronaviral cysteine protease (Mpro), a viral protein
essential for replication of all known coronaviruses, including SARS-CoV-2. In
preclinical studies, PBI-0451 has demonstrated activity against all coronaviral
proteases tested to date, as well as inhibition of replication of multiple
coronaviruses, including SARS-CoV-2 clinical variants of concern, including
those in the Omicron-lineage. Moreover, in preclinical studies, PBI-0451
demonstrated the potential for oral bioavailability across multiple preclinical
species and more recently, oral bioavailability in healthy volunteers in our
Phase 1 clinical trials. We believe the anti-viral potency seen against
SARS-CoV-2 in preclinical in vitro studies and demonstrated oral bioavailability
in humans supports its potential to be an oral direct acting antiviral (DAA) for
use against COVID-19.

We plan to develop PBI-0451 for both oral treatment and prophylaxis of COVID-19
in adult and pediatric patients. Given the highly conserved nature of the Mpro
target, which is shared among all known coronaviruses, including emerging
variants of concern, we believe PBI-0451 will likely continue to retain its
potency and activity against current and most emerging SARS-CoV-2 variants of
concern.

At this time, we are focusing on PBI-0451 and our next generation coronavirus
Mpro inhibitor program. Our ability to generate revenue from product sales
sufficient to achieve profitability will depend heavily on the successful
development and eventual commercialization or partnership for one or more of our
product candidates.

On December 23, 2021, we completed the Business Combination with FSDC II, which
resulted in FSDC II acquiring 100% of our issued and outstanding securities.
Together with FSDC II's cash resources, additional funding for our operations
was provided through a private investment in public equity (PIPE Investment),
which was completed concurrently with the Merger.

We accounted for the Business Combination as a reverse recapitalization which is
the equivalent of Old Pardes issuing stock for the net assets of FSDC II, with
FSDC II treated as the acquired company for accounting purposes. The net assets
of FSDC II were stated at historical cost with no goodwill or other intangible
assets recorded. Reported results from operations included herein prior to the
Business Combination are those of Old Pardes. The shares and corresponding
capital amounts and loss per share related to Old Pardes' outstanding redeemable
convertible preferred stock and common stock prior to the Business Combination
have been retroactively restated to reflect the Conversion Ratio established in
the Merger Agreement. For additional information please refer to Note 4,
Business Combination, to the audited consolidated financial statements included
in Part II, Item 8 of our Form 10-K for the fiscal year ended December 31, 2021.

Since inception in 2020, we have devoted substantially all our efforts and
financial resources to organizing and staffing our company, business planning,
raising capital, discovering product candidates, preparing and filing related
patent applications and conducting research and development activities for our
product candidates. We have not yet successfully completed any Phase 2 clinical
trials evaluating the efficacy of any of our product candidates, including
PBI-0451, nor have we obtained any regulatory approvals, manufactured a
commercial-scale drug, or conducted sales and marketing activities. We do not
have any products approved for sale and we have not generated any revenue from
product sales. We may never be able to develop or commercialize a marketable
product.

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recent developments


In January 2022, the United States Food and Drug Administration (FDA) cleared
our Investigational New Drug (IND) application for PBI-0451. In June 2022, the
FDA designated the investigation of PBI-0451 for treatment and prevention of
SARS-CoV-2 infection and associated diseases (i.e., COVID-19) as a Fast Track
development program.

We have completed our first-in-human Phase 1 clinical trial (Study
PBI-0451-0001, NCT 05011812) with PBI-0451 that assessed single and multiple
dosing, food effect, formulation, and CYP3A4/P-glycoprotein drug drug-drug
interactions. In that clinical trial, there were zero drug discontinuations and
no drug-related grade 2, 3, 4 or serious adverse events (collectively, AEs) and
no evidence of relationship between dose/exposure and severity, relatedness or
incidence of AEs. The most common AEs considered possibly related/probably
related are gastrointestinal-related (abdominal bloating, decreased appetite,
diarrhea, dyspepsia, flatulence, nausea) and headache; no AEs of dysgeusia were
reported. No clinically significant treatment emergent adverse findings in
laboratory values, vital signs or electrocardiogram assessments were reported.
PBI-0451 was well tolerated at doses up to 2100 mg/day for ten days. We believe
PBI-0451 at 700 mg (two 350 mg tablets) administered twice daily with food has
the potential to achieve and maintain exposures expected to demonstrate potent
antiviral activity.

We have also completed a food effect study for our clinical and intended
commercial tablet formulation of PBI-0451. In in vitro toxicology studies, we
observed a lack of mutagenic or genotoxic potential, phototoxicity or
teratogenicity. We have also conducted fertility and embryo fetal development
toxicology studies with PBI-0451 that have not identified drug-related adverse
findings to date. No direct drug-related adverse findings were observed at the
highest doses tested in 14-day or 28-day good laboratory practice (GLP)
toxicology studies conducted across multiple preclinical species. PBI-0451 does
not require ritonavir boosting and based on data to date, we believe PBI-0451
has the potential to be used broadly by patients due to an observed favorable
drug-drug interaction profile.

Following productive discussions with the FDA, we commenced a Phase 2 clinical
trial in September 2022 (Study PBI-0451-0002, NCT 05543707) evaluating PBI-0451
for the treatment of COVID-19. The Phase 2 clinical trial expects to enroll 210
non-hospitalized symptomatic adults with COVID-19 who are not at increased risk
of progressing to severe illness at approximately 75 sites in the United States.
Given the favorable drug-drug interaction profile observed to date, the use of
concomitant medications for underlying health conditions is not restricted in
the Phase 2 clinical trial. The study is evaluating antiviral activity, safety,
and efficacy of PBI-0451 compared with placebo. The primary objective is to
determine the proportion of patients below the limit of detection for infectious
SARS-CoV-2 on day three of treatment by infectious virus assay from nasal swab
samples. Secondary objectives assessed include additional virologic assessments,
safety and tolerability, time to sustained clinical recovery through day 28
defined as key COVID-19 symptoms, and hospitalizations and deaths. Data from the
Phase 2 clinical trial is expected in the first quarter of 2023.

During the pendency of our Phase 2 clinical trial, we will continue to engage in
discussions with the FDA regarding our clinical development program for
PBI-0451, including clinical design, patient populations, endpoints (primary and
secondary), comparator, and other key study design elements for our potential
Phase 3 clinical trials. Subject to Phase 2 clinical trial results and continued
discussions with the FDA and global regulatory authorities, we are currently
planning to initiate our Phase 3 program in the first half of 2023.

Liquidity Summary


As of September 30, 2022, cash and cash equivalents were $209.1 million and we
believe that our existing cash resources will be sufficient for at least the
next 12 months to allow us to fund current planned operations, including
supporting working capital and capital expenditure requirements. We have based
this estimate on assumptions that may prove to be wrong, and we could exhaust
our available capital resources sooner than we expect. See "- Liquidity and
Capital Resources" below. Our future viability beyond that point is dependent on
our ability to raise additional capital to finance our operations.

Through September 30, 2022, we have funded our operations with gross cash
proceeds of $44.5 million from sales of preferred stock, gross cash proceeds of
$7.1 million from the sale of SAFEs, which were converted into shares of
convertible preferred stock in January 2021, and net proceeds of approximately
$257.5 million in connection with the Business Combination and the PIPE
Investment, which we currently believe will be sufficient to allow us to fund
current planned operations for at least 12 months from the issuance date of
these unaudited condensed financial statements. See Note 1, Description of
Business, in this Quarterly Report on Form 10-Q for additional information
related to the Business Combination.

We have incurred operating losses since our inception. As of September 30, 2022,
we had an accumulated deficit of $123.9 million and had not yet generated
revenues. In addition, we expect to continue to incur significant and increasing
expenses and operating losses for the foreseeable future. While we have decided
to focus our current research and development activities on PBI-0451 and our
next generation coronavirus Mpro inhibitor program, we expect that our research
and development expenses, general and administrative expenses and capital
requirements will continue to increase substantially in connection with our
ongoing development activities, particularly if and as we:

continue preclinical studies and initiate new clinical trials for PBI-0451, our lead product candidate being tested for the treatment of COVID-19;

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advance the development of our portfolio of other product candidates, including through business development efforts to invest in or license other candidate products or technologies;

maintain, expand and protect our portfolio of intellectual property;

Hire additional clinical, quality control, medical, scientific, and technical staff to support our clinical operations;

seek regulatory approvals for any candidate product that successfully completes clinical trials;

undertake any pre-commercialization activities to establish sales, marketing and
distribution capabilities for any product candidates for which we may receive
regulatory authorization or approval;

expand our infrastructure to accommodate our growing employee base and transition to operating as a public company;

increase manufacturing requirements for our clinical development, emergency use authorization, and commercial readiness activities; Y

add operational, financial and management information systems and personnel,
including personnel to support our research and development programs, and any
future commercialization efforts.

Furthermore, we expect to incur additional costs associated with operating as a
public company, including significant legal, accounting, investor relations and
other expenses that we did not incur as a private company in prior years.

As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Until such time, if ever,
as we can generate significant revenue from product sales, we expect to finance
our operations through a combination of private and public equity offerings,
debt financings or other capital sources, which may include collaborations with
other companies, government funding, or other strategic transactions. To the
extent that we raise additional capital through the sale of private or public
equity or convertible debt securities, existing ownership interests will be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our stockholders. Debt financing
and preferred equity financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making acquisitions or capital expenditures
or declaring dividends. If we raise additional funds through collaborations or
other strategic transactions with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs
or product candidates, or grant licenses on terms that may not be favorable to
us. We may be unable to raise additional funds or enter into such other
agreements or arrangements when needed on favorable terms, or at all. If we fail
to raise capital or enter into such agreements as and when needed, we may have
to significantly delay, scale back or discontinue the development and
commercialization of one or more of our product candidates or delay our pursuit
of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of increased expenses
or when or if we will be able to achieve or maintain profitability. Even if we
are able to generate product sales, we may not become profitable. If we fail to
become profitable or are unable to sustain profitability on a continuing basis,
we may be unable to continue our operations at planned levels and be forced to
reduce or terminate our operations.

COVID-19 pandemic


In March 2020, the World Health Organization declared the COVID-19 outbreak a
pandemic. To date, our financial condition and operations have not been
significantly impacted by the COVID-19 pandemic. However, we cannot at this time
predict the specific extent, duration, or full impact that the COVID-19 pandemic
will have on our financial condition and operations, including ongoing and
planned clinical trials and other operations required to support those clinical
trials and research and development activities to advance our pipeline. The
impact of the COVID-19 pandemic on our financial performance will depend on
future developments, including the duration and spread of the outbreak and
related governmental advisories and restrictions. These developments and the
impact of the COVID-19 pandemic on the financial markets and the overall economy
are highly uncertain and cannot be predicted. If the financial markets and/or
the overall economy are impacted for an extended period, our results may be
materially adversely affected.

Components of Our Results of Operations

Income


We have not generated any revenue since inception and do not expect to generate
any revenue from the sale of products in the near future, if ever. If our
development efforts are successful and we commercialize our products, or if we
enter into collaboration or license agreements with third parties, we may
generate revenue in the future from product sales, as well as upfront, milestone
and royalty payments from such collaboration or license agreements, or a
combination thereof.
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operating expenses

Research and development expenses

Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the development of our potential product candidates. We spend research and development costs as they are incurred, which include:

expenses incurred to conduct preclinical studies, nonclinical studies, and clinical trials necessary to obtain regulatory approval;

expenses incurred under agreements with contract research organizations (CROs)
that are primarily engaged in the oversight and conduct of our drug discovery
efforts and preclinical studies, clinical trials and contract manufacturing
organizations (CMOs) that are primarily engaged to provide preclinical and
clinical drug substance and product for our research and development programs;

other costs related to acquiring and manufacturing materials in connection with
our drug discovery efforts and preclinical studies and clinical trial materials,
including manufacturing validation batches, as well as investigative site and
consultants that conduct our clinical trials, preclinical studies and other
scientific development services;

employee-related expenses, including salaries and benefits, travel, and stock-based compensation expenses for employees involved in research and development roles; Y

costs related to meeting regulatory requirements.


We recognize research and development expenses as incurred. Any advance payments
that we make for goods or services to be received in the future for use in
research and development activities are recorded as prepaid expenses. Such
amounts are expensed as the related goods are delivered or the related services
are performed, or until it is no longer expected that the goods will be
delivered or the services rendered. We estimate and accrue for the value of
goods and services received from CROs, CMOs and other third parties each
reporting period based on an evaluation of the progress to completion of
specific tasks. This process involves reviewing open contracts and purchase
orders, communicating with our personnel and service providers to identify
services that have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the service when we have
not yet been invoiced or otherwise notified of actual costs.

At any one time, we may be working on multiple programs. We do not allocate
employee costs and overhead costs associated to specific programs because these
costs are deployed across multiple programs and, as such, are not separately
classified. We use internal resources to manage our research and discovery as
well as our preclinical, nonclinical, manufacturing and clinical development
activities. To date, substantially all of the research and development costs
incurred have been in connection with the development of our lead product
candidate, PBI-0451.

Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
As a result, we expect that our research and development expenses will increase
substantially over the next several years as we commence Phase 3 clinical trials
for PBI-0451, as well as conduct preclinical and clinical development, including
submitting regulatory filings, for our other product candidates. We also expect
our discovery research efforts and our related personnel costs will increase
and, as a result, we expect our research and development expenses, including
costs associated with stock-based compensation, will increase above historical
levels. In addition, we may incur additional expenses related to milestone and
royalty payments payable to third parties with whom we may enter into license,
acquisition and option agreements to acquire the rights to future product
candidates.

At this time, we cannot reasonably estimate or know the nature, timing and costs
of the efforts that will be necessary to complete the preclinical and clinical
development of any of our product candidates or when, if ever, material net cash
inflows may commence from any of our product candidates. The successful
development and commercialization of our product candidates is highly uncertain.
This is due to the numerous risks and uncertainties associated with product
development and commercialization, including the uncertainty of the following:

the scope, progress, outcome and costs of our pre-clinical and non-clinical development activities, clinical trials and other research and development activities;

establish an appropriate safety and efficacy profile with clinically enabling trials;

successful patient enrollment and the initiation and completion of clinical trials;

the timing, receipt, and terms of marketing approvals from applicable regulatory authorities, including the FDA and notU.S regulators;

the extent of any post-market approval engagement with the appropriate regulatory authorities;

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establish clinical and commercial manufacturing capabilities or make arrangements with third-party manufacturers to ensure that we or our third-party manufacturers can successfully manufacture products;

timely development and delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;

obtain, maintain, defend and enforce patent claims and other intellectual property rights;

significant and changing government regulations;

launch commercial sales of our candidate products, if and when approved, either alone or in collaboration with others; Y

maintain a continuing acceptable safety profile of our product candidates after approval, if any, of our product candidates.


Any changes in the outcome of any of these variables with respect to the
development of our product candidates in preclinical, nonclinical and clinical
development could mean a significant change in the costs and timing associated
with the development of these product candidates. For example, if the FDA or
another regulatory authority were to delay our planned start of clinical trials
or require us to conduct clinical trials or other testing beyond those that we
currently expect or if we experience significant delays in enrollment in any of
our planned clinical trials, we could be required to expend significant
additional financial resources and time on the completion of clinical
development of that product candidate.

General and adminsitrative expenses


General and administrative expenses consist primarily of employee-related
expenses, including salaries and related benefits, travel and stock-based
compensation for personnel in executive, business development, finance, human
resources, legal, information technology and administrative functions. General
and administrative expenses also include insurance costs and professional fees
for legal, patent, consulting, investor and public relations, pre-commercial
planning, accounting and audit services. Our general and administrative costs
are expensed as incurred.

We anticipate that our general and administrative expenses will increase in the
future as we increase our headcount to support the continued development of our
product candidates. We also anticipate that we will incur significantly
increased accounting, audit, legal, regulatory, compliance and director and
officer insurance costs as well as investor and public relations expenses
associated with operating as a public company. Additionally, if and when we
believe a regulatory approval of a product candidate appears likely, we
anticipate an increase in payroll and other employee-related expenses as a
result of our preparation for commercial operations, especially as it relates to
the sales and marketing of that product candidate.

Income taxes


We have incurred net losses in every period since our inception and have not
recorded any U.S. federal or state income tax benefits for the losses, as they
have been offset by valuation allowances.

Interest and Other Income, Net

Interest and other income, net consists primarily of interest income.

Results of Operations

Comparison of the three and nine months ended September 30, 2022 and 2021

The following table sets forth our results of operations for the periods presented (in thousands):


                  Three Months Ended September 30,                      

Nine months done September 30th,

                     2022                2021             Change          2022                2021             Change
Operating
expenses:
Research and
development       $   17,375       $          8,081     $    9,294     $   50,918       $         17,792     $   33,126
General and
administrative         6,919                  3,434          3,485         22,736                  6,389         16,347
Total operating
expenses              24,294                 11,515         12,779         73,654                 24,181         49,473
Interest and
other income, net        959                      3            956          1,242                     10          1,232
Net loss          $  (23,335 )     $        (11,512 )   $  (11,823 )   $  (72,412 )     $        (24,171 )   $  (48,241 )



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Research and development expenses

The following table summarizes the components of research and development expenses for the periods presented (in thousands):

                                  Three Months Ended September                     Nine Months Ended
                                              30,                                    September 30,
                                     2022              2021        Change        2022            2021         Change
External costs:
PBI-0451                          $   12,755         $   6,156     $ 6,599     $  38,080       $  13,715     $ 24,365
Discovery programs                        51               301        (250 )         409             492          (83 )
Total external costs                  12,806             6,457       6,349        38,489          14,207       24,282
Internal costs:
Salaries and benefits                  3,097             1,066       2,031         7,320           2,377        4,943
Stock-based compensation               1,220               115       1,105         4,255             246        4,009
Other unallocated costs                  252               443        (191 )         854             962         (108 )
Total internal costs                   4,569             1,624       2,945        12,429           3,585        8,844
Total research and development
expenses                          $   17,375         $   8,081     $ 9,294     $  50,918       $  17,792     $ 33,126




Research and development expenses were $17.4 million for the three months ended
September 30, 2022, compared to $8.1 million for the three months ended
September 30, 2021, an increase of $9.3 million. Research and development
expenses were $50.9 million for the nine months ended September 30, 2022,
compared to $17.8 million for the nine months ended September 30, 2021, an
increase of $33.1 million. These increases were primarily driven by increased
costs related to advancing our lead product candidate, PBI-0451, into the clinic
and higher personnel costs, including stock-based compensation, as we have grown
our organization.

General and adminsitrative expenses


General and administrative expenses were $6.9 million for the three months ended
September 30, 2022, compared to $3.4 million for the three months ended
September 30, 2021, an increase of $3.5 million. General and administrative
expenses were $22.7 million for the nine months ended September 30, 2022,
compared to $6.4 million for the nine months ended September 30, 2021, an
increase of $16.3 million. These increases were due to increased personnel
costs, including stock-based compensation, increased professional fees related
to legal, pre-commercial planning and consulting services, and costs associated
with being a public company, including directors' and officers' insurance and
compliance fees.

Interest and Other Income, Net


Interest and other income, net was $1.0 million for the three months ended
September 30, 2022 compared to $0.0 million for the three months ended September
30, 2021, an increase of $1.0 million. Interest and other income, net was $1.2
million for the nine months ended September 30, 2022 compared to $0.0 million
for the nine months ended September 30, 2021, an increase of $1.2 million. These
increases were due to higher interest rates on a greater balance of earning
assets.

Liquidity and Capital Resources

Sources of Liquidity and Capital


Since inception, we have not generated any revenue from any product sales or any
other sources and have incurred operating losses and negative cash flows from
our operations. We have not yet commercialized any of our product candidates,
and we do not expect to generate revenue from sales of any product candidates
for several years, if ever. Through September 30, 2022, we have funded our
operations with gross cash proceeds of $44.5 million from sales of preferred
stock, gross cash proceeds of $7.1 million from the sale of SAFEs, which were
converted into shares of convertible preferred stock in January 2021, and net
proceeds of approximately $257.5 million in connection with the Business
Combination and the PIPE Investment. See Note 1, Description of Business, in
this Quarterly Report on Form 10-Q for additional information.

As of September 30, 2022, we had cash and cash equivalents of $209.1 million and
an accumulated deficit of $123.9 million. We believe that our existing cash
resources will be sufficient for at least the next 12 months to allow us to fund
current planned operations, including supporting working capital requirements.
We have based this estimate on assumptions that may prove to be wrong, and we
could exhaust our available capital resources sooner than we expect. In the long
term, our ability to support working capital and capital expenditure
requirements will depend on many factors, including our ability to raise
additional capital to finance our operations. See "- Liquidity Overview" above.
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CRO and CMO agreements


We have entered into agreements in the normal course of business with certain
vendors for the provision of goods and services, which includes manufacturing
services with CMOs and development services with CROs. These agreements may
include certain provisions for purchase obligations and termination obligations
that could require payments for the cancellation of committed purchase
obligations or for early termination of the agreements. The amount of the
cancellation or termination payments vary and are based on the timing of the
cancellation or termination and the specific terms of the agreements.

During the periods presented, we did not have, and we do not currently have, any
commitments or obligations, including contingent obligations, arising from
arrangements with unconsolidated entities or persons that have or are reasonably
likely to have a material current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, cash requirements or capital resources.

Cash flow


The following table summarizes our cash flows for the periods presented (in
thousands):

                                                            Nine Months Ended September 30,
                                                              2022                   2021
Net cash used in operating activities                   $        (59,226 )     $        (20,137 )
Net cash (used in) provided by financing activities                 (397 )               43,110

Net increase (decrease) in cash and cash equivalents $(59,623)

   $         22,973


Operating Activities

During the nine months ended September 30, 2022, net cash used in operating
activities consisted of a net loss of $72.4 million. Changes to our working
capital included increases to our accrued expenses of $4.0 million and prepaid
expenses and other assets of $1.6 million and a decrease in accounts payable of
$0.6 million. Non-cash activities included a charge of $8.1 million to
stock-based compensation expense of which $2.6 million related to the
accelerated recognition of stock compensation expense for our former Chief
Executive Officer and President, Dr. Uri Lopatin, who transitioned to a
consultant on July 31, 2022. See Note 8, Stock-Based Compensation, in this
Quarterly Report on Form 10-Q for additional information.

During the nine months that ended September 30, 2021net cash used in operating activities was $20.1 millionprimarily as a result of a net loss of $24.2 millionpartially offset by changes in our working capital, including increases in accrued expenses from $2.7 million and accounts payable from $1.1 million.

Financing activities

During the nine months that ended September 30, 2022net cash used in financing activities $0.4 million was related to payments for transaction costs associated with the Business Combination.

During the nine months that ended September 30, 2021net cash provided by financing activities of $43.1 million consisted primarily of net proceeds from the issuance of Series A Convertible Preferred Stock.

Funding Requirements


Our primary use of cash is to fund operating expenses, predominantly related to
our research and development activities. Cash used to fund operating expenses is
impacted by the timing of when we pay these expenses, as reflected in the change
in our outstanding accounts payable, accrued expenses and prepaid expenses.

We expect our expenses to increase substantially in connection with our ongoing
activities, particularly if and as we advance our clinical development program
for PBI-0451. We also incur and will continue to incur additional costs
associated with operating as a public company, including significant insurance,
legal, accounting, investor relations and other expenses that we did not incur
as a private company. The timing and amount of our operating expenditures will
depend largely on our ability to:

advancing preclinical development of our early-stage program and initiating clinical trials of our product candidates;

manufacture, or have manufactured on our behalf, our preclinical, nonclinical
and clinical drug material and develop processes for late stage and commercial
manufacturing;

seek authorizations and/or regulatory approvals for any candidate product that successfully completes clinical trials;

establish a sales, marketing, medical affairs, managed care and distribution
infrastructure to commercialize any product candidates for which we may obtain
marketing approval and intend to commercialize on our own;

hire additional clinical, quality control, and scientific staff;

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expand our operational, financial and management systems and increase personnel,
including personnel to support our clinical development, and manufacturing and
commercialization efforts;

manage the costs of preparing, filing and processing patent applications, maintaining and protecting our intellectual property rights, including the enforcement and defense of intellectual property-related claims; Y

manage the costs of operating as a public company.

working capital

Due to the many risks and uncertainties associated with the research, development, and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

the scope, progress, results and costs of researching and developing our product candidates and conducting pre-clinical and non-clinical studies and clinical trials;

the costs, timing and outcome of regulatory review of our product candidates;

the costs, time and capacity to manufacture our product candidates to fuel our preclinical and clinical development efforts and our clinical trials;

the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

the costs of manufacturing commercial-grade products and the inventory needed to support a possible future commercial launch;

the possibility of receiving additional non-dilutive funding, including grants from organizations and foundations;

revenue, if any, received from the commercial sale of our products, should any of our product candidates receive marketing approval;

the costs of preparing, filing, and prosecuting patent applications, obtaining, maintaining, expanding, and enforcing our intellectual property rights, and defending intellectual property-related claims;

our ability to establish and maintain favorable partnerships, if any; Y

the extent to which we acquire or license other candidate products and technologies.

Critical accounting policies and significant judgments and estimates


The preparation of our unaudited condensed financial statements in conformity
with U.S. generally accepted accounting principles requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, as of the date of the financial
statements, and the reported amounts of revenue and expenses during the reported
period. If these estimates differ significantly from actual results, the impact
to the unaudited condensed consolidated financial statements may be material.
There have been no material changes in our critical accounting policies and
estimates from those disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2021. Please refer to Part II, Item 7 of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2021, for a
discussion of our critical accounting policies and significant judgments and
estimates.

Recent Accounting Pronouncements


We have not adopted any significant accounting policies since December 31, 2021.
Upon evaluation of recently issued accounting pronouncements, we do not believe
any will have a material impact on our condensed financial statements or related
financial statement disclosures.

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