TERNS PHARMACEUTICALS, INC. Management discussion and analysis of the financial situation and results of operations. (Form 10-Q)

TERNS PHARMACEUTICALS, INC.  Management discussion and analysis of the financial situation and results of operations.  (Form 10-Q)
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q and our audited consolidated financial statements
and related notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2021, which was filed with the SEC on March 7, 2022. In
addition to historical financial information, this discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Special Note Regarding Forward-Looking
Statements" and "Risk Factors" and elsewhere in this Quarterly Report on Form
10-Q. Our fiscal year ends on December 31 each year.

Overview


We are a clinical-stage biopharmaceutical company developing a portfolio of
small-molecule product candidates to address serious diseases including
oncology, obesity and non-alcoholic steatohepatitis (NASH). Our programs are
based on mechanisms of action that have achieved proof-of-concept in clinical
trials in indications with large unmet needs.

The most advanced product candidates in our pipeline - TERN-701, TERN-601 and
TERN-501 - were internally discovered. TERN-701 is our allosteric BCR-ABL
tyrosine kinase inhibitor (TKI) that is in clinical development in China for
chronic myeloid leukemia (CML), a form of cancer that starts in bone marrow.
TERN-601 is our small-molecule glucagon-like peptide-1 receptor (GLP-1R) agonist
for metabolic diseases such as obesity, with the goal of initiating a
first-in-human clinical trial in 2023. TERN-501 is our highly selective thyroid
hormone receptor beta (THR-?) agonist for NASH in Phase 2a development. We
expect our existing cash and cash equivalents to support our operations into
2025 and be sufficient to generate three key clinical data readouts from our
three programs in CML, obesity and NASH. Additionally, we are conducting
pre-clinical studies exploring TERN-201, our vascular adhesion protein-1 (VAP-1)
inhibitor, in combination with immune checkpoint inhibitors for solid tumor
indications, and have an ongoing discovery effort for the TERN-800 series of
small-molecule glucose-dependent insulinotropic polypeptide receptor (GIPR)
modulators for obesity.

TERN-701: Oral Allosteric BCR-ABL Tyrosine Kinase Inhibitor for Chronic Myeloid Leukemia


TERN-701 is our proprietary, oral, potent, allosteric BCR-ABL TKI specifically
targeting the ABL myristoyl pocket for chronic myeloid leukemia. CML is a form
of cancer that begins in the bone marrow and leads to growth of leukemic cells.
CML accounts for approximately 15% of newly diagnosed cases of leukemia in
adults. In the United States, the prevalence of CML is approximately 90,000 and
is expected to reach 180,000 cases by 2030. In 2022, approximately 9,000 new
cases of CML will be diagnosed, with a mortality rate of 1,200 patients
expected. The standard of care (SOC) for CML includes active-site TKIs including
imatinib, nilotinib, dasatinib, bosutinib and ponatinib. However, an unmet
medical need remains due to (1) an increasing number of patients becoming
refractory or intolerant to the current SOC, (2) BCR-ABL mutations that are
difficult for active-site TKIs to treat (e.g., T315I), or (3) safety warnings
for active-site TKIs used in CML patients who are resistant or intolerant to
prior TKI therapy.

Allosteric TKIs, which bind to the myristoyl-binding pocket, represent a new
treatment class for CML and have the potential to address active-site TKI
shortcomings, including off-target activity and limited efficacy against active
site resistance mutations. Asciminib is the only allosteric TKI that has been
approved by the FDA for use in third-line CML patients and is being evaluated in
clinical trials for earlier lines of treatment. In a Phase 3 trial, asciminib
was shown to be more than twice as effective as bosutinib, a second generation
active-site TKI, in achieving a major molecular response (MMR) in third-line CML
patients after 96 weeks of treatment (37.6% asciminib v. 15.8% bosutinib;
p=0.001). The discontinuation rate after 96 weeks due to the lack of efficacy or
adverse events in patients on asciminib was nearly half of the rate of patients
on bosutinib (31.2% asciminib v. 60.5% bosutinib).

Similar to asciminib, TERN-701 aims to address the limitations of active-site
TKIs with the goal of achieving improved tumor suppression through a combination
of (1) potent activity against BCR-ABL including a broad range of mutations, and
(2) improved safety and tolerability profiles. As CML patient survival rates and
treatment durations continue to increase, physicians are seeking additional
efficacious CML therapies for patients whose tolerability, co-morbidity and/or
drug-drug interaction profiles change over time, limiting their available
treatment options and the effectiveness of mainstay therapies. We intend to
initiate a clinical trial for TERN-701 in the second half of 2023 in the United
States, with potential interim top-line readouts from initial cohorts in 2024.

We retain all worldwide development and commercialization rights for TERN-701
outside of greater China. In July 2020, Hansoh Pharmaceuticals in-licensed
TERN-701 for development in the greater China region. TERN-701 is referred to by
Hansoh Pharmaceuticals as HS-10382. Hansoh is responsible for all development
costs in the greater China region, including the ongoing Phase 1 trial.


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In May 2022, Hansoh initiated an open-label, multicenter, dose-escalation and
expansion, first-in-human study in chronic or accelerated phase CML patients,
who are resistant or intolerant to prior active-site BCR-ABL TKI treatment. The
trial is comprised of two parts, with dose escalation being conducted in Part 1
to determine the maximum tolerated or maximum applicable dose followed by dose
expansion in Part 2 of the trial, in which additional CML patients will be
enrolled to receive one or more doses selected from Part 1. Part 2 of the trial
will evaluate major cytogenetic response at six months as its primary endpoint,
with key secondary endpoints including molecular response, hematologic response,
measures of PK and an evaluation of safety and tolerability. The Phase 1 trial
for TERN-701, which is conducted and funded by Hansoh in China, is illustrated
below:

                     [[Image Removed: img254958980_0.jpg]]

TERN-601: Oral Small-Molecule Glucagon-Like Peptide-1 (GLP-1) Receptor Agonist for Obesity


We are also developing an oral small-molecule glucagon-like peptide-1 receptor
(GLP-1R) agonist for the treatment of obesity known as TERN-601. Obesity
represents a large unmet medical need, with recent studies estimating the
aggregate U.S. national cost of obesity to exceed $260 billion. While
approximately 50% of Americans meet the criteria for medical obesity, only 2% of
adults receive therapies for weight loss. GLP-1R agonism has many potentially
beneficial effects including increased insulin secretion by the pancreas,
reduced glucagon secretion in the liver, slowed gastric emptying into the gut,
increased sense of satiety in the brain and reduced inflammation. Synthetic
GLP-1 peptides have been approved for obesity and diabetes. Semaglutide
(Wegovy), a GLP-1R peptide agonist recently approved for chronic weight
management in overweight or obese patients, appears to be expanding the primary
care market for obesity treatment, as 75% of Wegovy patients are receiving
anti-obesity medication for the first time. However, approved synthetic GLP-1R
peptide agonists are biologic molecules with complex manufacturing processes and
may require higher doses for weight loss than for management of diabetes. These
GLP-1R peptide agonists also require frequent subcutaneous injections, and
titration or drug holidays for management of their poor tolerability profiles.
These barriers are likely to limit their widespread use for chronic weight
management, particularly if efficacious oral treatments become available.

We aim to develop small molecule, orally administered GLP-1R agonists with a
convenient oral dosing schedule for the treatment of obesity. Our GLP-1R agonist
program has screened more than 20,000 molecular permutations through our
proprietary quantitative structure activity relationship (QSAR) model to
identify several potentially suitable small-molecule scaffolds with potentially
improved properties relative to other GLP-1R agonism-based approaches. We have
optimized these series of compounds and identified structures that we believe
are suitable for oral administration as a single-agent or in combination with
other drug candidates within our pipeline, including small-molecule GIPR
modulators.


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We designated a lead development candidate for our GLP-1R agonist program as
TERN-601 in the fourth quarter of 2021. We are conducting IND-enabling
activities for TERN-601 with the goal of initiating a first-in-human clinical
trial in 2023 and receiving top-line data in 2024. We expect that the Phase 1
clinical program for TERN-601 will include a single ascending dose (SAD) trial
in healthy volunteers and a multiple ascending dose (MAD) proof-of-concept trial
in obese healthy volunteers and/or people with Type 2 diabetes that would
potentially assess changes in body weight and glycemic control parameters, such
as HbA1c. We also continue to evaluate other small-molecule GLP-1R agonists that
have the potential to exhibit differentiated properties from TERN-601 and other
GLP-1 product candidates.

TERN-501: Oral Thyroid Hormone Receptor Beta Agonist (THR-?) for NASH


TERN-501 is an orally administered THR-? agonist with high metabolic stability,
enhanced liver distribution and greater selectivity for THR-? compared to other
THR-? agonists in development. In November 2021, we announced positive top-line
data from a Phase 1 clinical trial of TERN-501 in healthy volunteers with mildly
elevated low-density lipoprotein (LDL) cholesterol. This Phase 1 trial included
single ascending dose (SAD), multiple ascending dose (MAD) and drug-drug
interaction (DDI) cohorts evaluating the safety, tolerability, pharmacodynamics
and pharmacokinetics of TERN-501. In the SAD and MAD cohorts, single and
multiple doses of TERN-501 were generally well-tolerated with a similar
incidence of adverse events (AEs) across all TERN-501 treatment groups and
placebo. All AEs were mild to moderate with no apparent dose relationship, no
treatment-emergent serious AEs and no discontinuations of study or study drug
due to any AE. There were no cardiac safety signals, no incidence of diarrhea
and no differences between TERN-501 groups and placebo in change from baseline
in heart rate, blood pressure or other vital signs. Thyroid function test
results were consistent with THR-? agonists currently in clinical development,
and there were no findings of clinical hyper- or hypo-thyroidism. There were no
differences between placebo and any TERN-501 dose group in liver function
abnormalities or mean change from baseline in liver transaminases at Day 15 in
the MAD cohorts. TERN-501 demonstrated a predictable pharmacokinetic profile
with low variability: study drug plasma exposures were linear and approximately
dose-proportional with no overlap between dose strengths. Significant effects on
sex hormone binding globulin (SHBG), a key pharmacodynamic marker of THR-?
engagement linked to NASH histologic efficacy, were observed following treatment
with TERN-501. The SHBG increases observed with 14 days of TERN-501 treatment
were significant, dose dependent and have been associated with robust reductions
in magnetic resonance imaging proton density fat fraction (MRI-PDFF) and NAFLD
Activity Score in a precedent late-stage clinical NASH trial. The overall
pharmacokinetic profile from this trial indicates that TERN-501 is well-suited
for co-formulation with other small-molecule NASH agents as an oral, once-daily
fixed dose combination. In the DDI cohort, the combination of TERN-501 and
TERN-101, our liver-distributed, non-bile acid FXR agonist, was well-tolerated.
Preliminary pharmacokinetic results support the co-administration of TERN-501
and TERN-101 in NASH patients, with no apparent need for dose adjustment.

In April 2022, the U.S. Food and Drug Administration (FDA) cleared our
investigational new drug (IND) application for our clinical-stage combination
therapy candidates in NASH, including combinations of TERN-501 and TERN-101 as
well as future studies of other potential combination therapy regimens. Under
the IND, we are proceeding with a multicenter randomized, double-blind,
placebo-controlled Phase 2a clinical trial in noncirrhotic NASH patients using a
factorial design, which includes both monotherapy and combination arms of
TERN-501 and TERN-101. This Phase 2a trial, known as the DUET trial, is expected
to enroll approximately 140 adult patients with elevated body mass index (BMI ?
25 kg/m2) and NASH with fibrosis, but not cirrhosis, based on prior liver biopsy
and/or imaging criteria and clinical criteria. All patients must have liver fat
content measured by MRI-PDFF of ?10%, MRI corrected T1 (cT1) relaxation time of
? 800 msec, and meet other inclusion and exclusion criteria. The clinical trial
includes a 12-week treatment period and a 4-week follow-up period. The primary
endpoint will be the relative change from baseline in MRI-PDFF at Week 12 for
TERN-501 monotherapy compared with placebo. Secondary endpoints include
assessment of changes in PDFF (combination vs. placebo) and cT1 (TERN-501
monotherapy vs. placebo as well as TERN-501 and TERN-101 combination vs.
placebo). Dosing in the DUET trial started in July 2022, and top-line data are
expected in the second half of 2023. The Phase 2a DUET trial design is
illustrated in the figure below:

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                     [[Image Removed: img254958980_1.jpg]]

TERN-201: Oral Vascular Adhesion Protein 1 (VAP-1) Inhibitor in Combination with Immune Checkpoint Inhibitors for Solid Tumors


TERN-201 is a highly-selective inhibitor of VAP-1 that has demonstrated
sustained target engagement in clinical trials without the off-target
liabilities associated with other VAP-1 inhibitors in development. As part of
our oncology pipeline development, we are engaging in preclinical research to
evaluate the use of TERN-201 in combination with immune checkpoint inhibitors
for solid tumor indications.

VAP-1 is an adhesion molecule and amine oxidase enzyme expressed on the surface
of endothelial cells that supports rolling, adhesion, and transmigration of
certain leukocytes into sites of inflammation. VAP-1 has also been associated
with the recruitment of certain lymphocytes to several human tumors, including
hepatocellular carcinoma and head and neck cancer, where VAP-1 expressed on
tumor endothelium supports lymphocyte binding. Additionally, bioinformatic
analyses have shown that VAP-1 expression is associated with poor prognosis of
glioma patients. An analysis of various human cancers revealed that VAP-1
expression was a negative prognostic factor in patients with colorectal, renal,
and urothelial cancers. In mouse models of melanoma and lymphoma, VAP-1
inhibition was also shown to decrease the number of CD11b-positive cells, which
may suppress immune response, potentially resulting in the slowing of tumor
growth.

Efficacy of cancer immunotherapy utilizing immune checkpoint inhibitors such as
anti-CTLA4 and PD-1/PD-L1 antibodies is often diminished by underlying
immunosuppressive resistance to the therapies in the tumor microenvironment.
VAP-1 may contribute to tumor progression through migration of such
immunosuppressive myeloid cells. In a recent publication, VAP-1 inhibition was
shown to reduce tumor growth in murine colon cancer models. Furthermore,
synergistic effects were observed with VAP-1 inhibition in combination with
anti-CTLA4 or anti-PD-1 antibodies.

TERN-800 Series: Discovery Series of Small Molecule Glucose-Dependent Insulinotropic Polypeptide Receptor (GIPR) Modulators for Obesity


As part of our ongoing discovery efforts, we are evaluating a family of
small-molecule glucose-dependent insulinotropic polypeptide (GIP) receptor
modulators, designated as the TERN-800 series, for obesity. GIP is secreted in
response to nutrient ingestion to enhance meal-stimulated insulin secretion in a
glucose-dependent manner by activating its associated GIP receptor (GIPR) in
pancreatic beta cells and other cells in various tissues. In preclinical
studies, GIPR activation appears to reduce food intake and promote weight loss
when combined with its incretin partner GLP-1. The overlapping body
weight-lowering actions of both GIP and GLP-1 suggests that combining the
actions of these two peptide hormones may bolster glucose-lowering and
appetite-suppressing effects beyond those observed with individual agents.

In a preclinical study, two weeks of simultaneous administration of equimolar
amounts of a GLP-1R and a GIPR agonist reduced food intake, body weight, and fat
mass in mice to a greater extent than either agent alone. Late stage dual
GLP-1/GIP receptor agonists,

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tirzepatide (Lilly) and NNC0090-2746 (Novo Nordisk), have shown improved
glycemic control compared to GLP-1 agonist alone, and decreased body weight in
clinical trials. Additionally, a monomolecular combination of a GIPR
antagonist/GLP-1R agonist, AMG 133 (Amgen), enhanced the observed weight loss in
animal obesity models. In a Phase 1 clinical study of AMG 133, a single high
dose resulted in approximately 8 kilograms of weight loss.

Similar to our discovery process for GLP-1, we have synthesized small molecule
ligands targeting the GIP receptor and are currently assessing their activity at
relevant G-protein coupled receptors. We plan to combine GIPR modulators with
GLP-1 receptor agonists, such as TERN-601, for the treatment of obesity and
metabolic diseases. We believe our small molecules have the advantage of oral
bioavailability and the ability to dose adjust to achieve an optimal response.
Combining GIPR modulators with GLP-1 represents a promising strategy under
investigation for the treatment of obesity.

Since the commencement of our operations, we have devoted substantially all of
our resources to research and development activities, organizing and staffing
our company, business planning, raising capital, establishing and maintaining
our intellectual property portfolio, conducting preclinical studies and clinical
trials and providing general and administrative support for these operations. We
expect our cash and cash equivalents will be sufficient to fund our operating
expenses and capital expenditure requirements into 2025, including three
clinical data readouts from our three lead programs.

We do not have any product candidates approved for commercial sale, and we have
not generated any revenue from product sales. Our ability to generate product
revenue sufficient to achieve profitability, if ever, will depend on the
successful development and eventual commercialization of one or more of our
product candidates which we expect, if it ever occurs, will take a number of
years.

We will not generate any revenue from product sales unless and until we
successfully complete clinical development and obtain regulatory approval for
one or more of our product candidates. If we obtain regulatory approval for any
of our product candidates, we expect to incur significant expenses related to
developing our internal commercialization capability to support product sales,
marketing and distribution.

We do not own or operate, and currently have no plans to establish, any
manufacturing facilities. We rely, and expect to continue to rely, on third
parties for the manufacture of our product candidates for preclinical and
clinical testing, as well as for commercial manufacturing if any of our product
candidates obtain marketing approval. We believe that this strategy allows us to
maintain a more efficient infrastructure by eliminating the need for us to
invest in our own manufacturing facilities, equipment and personnel while also
enabling us to focus our expertise and resources on the development of our
product candidates.

The coronavirus disease 2019 (COVID-19) pandemic is rapidly evolving. The
COVID-19 pandemic continues to impact countries worldwide, including the United
States and China where we have business operations. The extent of the impact of
the COVID-19 pandemic on our business, operations and development timelines and
plans remains uncertain, and will depend on future developments, including the
duration and spread of the outbreak and its impact on supply chains, our
development activities, planned clinical trial enrollment, future trial sites,
contract research organizations (CROs), third-party manufacturers and other
third parties with whom we do business, as well as its impact on regulatory
authorities and our key scientific and management personnel. The ultimate impact
of the COVID-19 pandemic or a similar health epidemic is highly uncertain and
will depend on future developments, including the duration and/or severity of
the outbreak, the impact of any resurgences and new variants that emerge,
actions by the government authorities to contain the spread of the virus, the
availability, adoption and effectiveness of any vaccines, and when and to what
extent normal economic and operating conditions can resume. To the extent
possible, we are conducting business as usual, with necessary or advisable
modifications to employee travel and to the on-site and in-person activities of
our personnel. We will continue to actively monitor the rapidly evolving
situation related to the COVID-19 pandemic and may take further actions that
alter our operations, including those that may be required by federal, state or
local authorities in the United States and China, or that we determine are in
the best interest of our employees and other third parties with whom we do
business. At this point, the extent to which the COVID-19 pandemic may affect
our business, operations and development timelines and plans, including the
resulting impact on our expenditures and capital needs, remains uncertain.

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Results of operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2022 and 2021:



                                      Three Months Ended                       Nine Months Ended September
                                         September 30,                                     30,
(in thousands)                       2022             2021         Change         2022             2021         Change
Results of Operations
Operating expenses:
Research and development          $   12,161       $    7,153     $  5,008     $   28,959       $   21,849     $  7,110
General and administrative             5,131            4,715          416         16,242           14,133        2,109
Total operating expenses              17,292           11,868        5,424         45,201           35,982        9,219
Loss from operations                 (17,292 )        (11,868 )     (5,424 )      (45,201 )        (35,982 )     (9,219 )
Other income:
Interest income                          499               49          450            782              115          667
Other (expense) income, net              (14 )              4          (18 )          (64 )             30          (94 )
Total other income, net                  485               53          432            718              145          573
Loss before income taxes             (16,807 )        (11,815 )     (4,992 )      (44,483 )        (35,837 )     (8,646 )
Income tax expense                       (13 )            (20 )          7            (40 )            (73 )         33
Net loss                          $  (16,820 )     $  (11,835 )   $ (4,985 )   $  (44,523 )     $  (35,910 )   $ (8,613 )


Revenue

To date, we have not generated, and do not expect to generate for the
foreseeable future, any revenue from the sale of products. We may generate
revenue from pre-specified clinical, regulatory and sales milestones as part of
an exclusive option and license agreement for TERN-701 in greater China with
Hansoh Healthtech Co., Ltd. and Jiangsu Hansoh Pharmaceutical Group Company Ltd.
(collectively, Hansoh).

Research and development expenses


Research and development expenses consist of personnel-related expenses,
including salaries, benefits and stock-based compensation expense, for personnel
engaged in research and development functions. Research and development expenses
also include clinical and nonclinical development of our product candidates.

The increase in research and development expenses for the three months ended
September 30, 2022, compared to the same period in 2021, was primarily due to a
$3.8 million increase in clinical program expenses and a $1.2 million increase
in personnel-related expenses due to higher headcount.

The increase in research and development expenses for the nine months ended
September 30, 2022, compared to the same period in 2021, was primarily due to a
$3.7 million increase in personnel-related expenses due to higher headcount, a
$3.3 million increase in clinical program expenses and a $0.1 million increase
due to higher allocated facility-related and depreciation expenses to research
and development expenses.

General and adminsitrative expenses


General and administrative expenses consist of personnel-related expenses,
including salaries, benefits and stock-based compensation expense, for personnel
in administrative functions. General and administrative expenses also include
professional fees for legal, patent, consulting, investor and public relations,
accounting and tax services.

The increase in general and administrative expenses for the three months ended
September 30, 2022, compared to the same period in 2021, was primarily due to a
$0.5 million increase in personnel-related expenses due to higher headcount. The
increase was partially offset by a $0.1 million decrease in expenses related to
professional services consulting.

The increase in general and administrative expenses for the nine months ended
September 30, 2022, compared to the same period in 2021, was primarily due to a
$1.9 million increase in personnel-related expenses due to higher headcount and
a $0.3 million increase in insurance and professional services consulting. These
increases were partially offset by a $0.1 million decrease due to higher
allocated facility-related and depreciation expenses to research and development
expenses.


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Interest income

Interest income consists primarily of interest income on our marketable securities.

Interest income for the three months ended September 30, 2022 I was $0.5 millioncompared to less than $0.1 million for the same period in 2021.

Interest income for the nine months ended September 30, 2022 I was $0.8 millioncompared to $0.1 million for the same period in 2021.

Other (expense) income, net


Other (expense) income, net for the three months ended September 30, 2022 was
less than $0.1 million of expense, compared to less than $0.1 million of income
for the same period in 2021.

Other (expense) income, net for the nine months ended September 30, 2022 was
$0.1 million of expense, compared to less than $0.1 million of income for the
same period in 2021.

Income tax expense

Income tax expense for the three months ended September 30, 2022 it was less than
$0.1 millioncompared to less than $0.1 million for the same period in 2021.

Income tax expense for the nine months ended September 30, 2022 it was less than
$0.1 millioncompared to $0.1 million for the same period in 2021.

Liquidity and capital resources

uses of cash


Our primary use of cash is to fund operating expenses, which consist primarily
of research and development expenditures and general and administrative
expenditures. 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 and accrued expenses.

We expect our existing cash and cash equivalents to be sufficient to fund our
operating expenses and capital expenditures into 2025, including three clinical
data readouts from our three lead programs. However, we continue to anticipate
that our research and development expenses, general and administrative expenses
and capital expenditures will remain significant to support our ongoing and
planned activities. We expect to continue to incur net operating losses for at
least the next several years.

Liquidity Sources


We have primarily funded our operations through proceeds from the issuance of
shares of our common stock, convertible preferred stock and issuance of our
convertible promissory notes. We have devoted substantially all of our resources
to research and development activities, organizing and staffing our company,
raising capital, establishing and maintaining our intellectual property
portfolio, conducting preclinical studies and clinical trials and providing
general and administrative support for these operations.

Since our inception, we have not generated any revenue from product sales and we
have incurred significant operating losses and negative cash flows from our
operations. As of September 30, 2022, we had an accumulated deficit of $226.6
million, a net loss of $44.5 million, negative cash flows from operations of
$37.9 million, and cash, cash equivalents and marketable securities of $187.3
million.

In May 2020we receive profit from $16.8 million from the issuance of convertible notes (the 2020 Bonds) and a bridge loan.


In December 2020, we issued and sold shares of our convertible preferred stock
for gross proceeds of $87.4 million (including conversion of the $15.0 million
of 2020 Notes and effective conversion of the $1.8 million bridge loan, plus
accrued interest).

In February 2021, we completed our initial public offering of 8,625,000 shares
of our common stock, including the exercise in full by the underwriters of their
option to purchase additional shares of common stock. The net proceeds from this
offering were $133.0 million after deducting underwriting discounts and
commissions and offering expenses.

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In March 2022, we entered into a Sales Agreement with Cowen and Company, LLC
(Cowen), as sales agent, pursuant to which we have the ability to offer and
sell, from time to time, through Cowen, shares of our common stock having an
aggregate offering price of up to $75.0 million in an at-the-market offering.
The shares are offered pursuant to our shelf registration statement on Form S-3
filed with the Securities and Exchange Commission (SEC). There were no sales of
our common stock pursuant to this agreement through September 30, 2022.

In August 2022, we issued 12,250,000 shares of our common stock at a price of
$2.42 per share and, to certain investors in lieu of common stock, pre-funded
warrants to purchase 14,630,000 shares of common stock at a price of $2.4199 per
pre-funded warrant. The purchase price per share of each pre-funded warrant
represents the per share offering price for the common stock, minus the $0.0001
per share exercise price of such pre-funded warrant. Aggregate net proceeds were
$60.7 million after deducting underwriting discounts and commissions and
offering expenses.

We believe that our existing cash and cash equivalents will be sufficient to
fund our operating expenses and capital expenditure requirements into 2025. We
will need substantial additional funding to support our operating activities.

Future funding requirements


We expect to incur significant expenses and operating losses for the foreseeable
future as we advance the preclinical and clinical development of our product
candidates. We expect that our research and development and general and
administrative costs will remain significant for the foreseeable future in
connection with conducting additional preclinical studies and clinical trials
for our current and future research programs and product candidates, contracting
with CROs and contract manufacturing organizations (CMOs) to support preclinical
studies and clinical trials, expanding our intellectual property portfolio, and
providing general and administrative support for our operations. As a result, we
will need additional capital to fund our operations, which we may obtain from
additional equity or debt financings, collaborations, licensing arrangements or
other sources.

Our primary uses of cash are to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, hiring staff, raising capital, and providing general and administrative support for these operations. .


We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue the research and development of, continue or
initiate clinical trials of, and seek marketing approval for, our product
candidates. In addition, if we obtain marketing approval for our product
candidates, we expect to incur significant commercialization expenses related to
any approved products, marketing, manufacturing, and distribution to the extent
that such sales, marketing and distribution are not the responsibility of
potential collaborators. Furthermore, we expect to incur additional costs
associated with operating as a public company. Accordingly, we will need to
obtain substantial additional funding in connection with our continuing
operations. If we are unable to raise capital when needed or on attractive
terms, we would be forced to delay, reduce, or eliminate our research and
development programs or future commercialization efforts.

Identifying potential product candidates and conducting preclinical studies and
clinical trials is a time-consuming, expensive, and uncertain process that takes
many years to complete, and we may never generate the necessary data or results
required to obtain marketing approval and achieve product sales. In addition,
our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of product candidates
that we do not expect to be commercially available for many years, if at all.
Accordingly, we will need to continue to rely on additional financing to achieve
our business objectives. Adequate additional financing may not be available to
us on acceptable terms, or at all.

Cash flow

operating activities


Net cash used in operating activities during the nine months ended September 30,
2022 was $37.9 million and consisted primarily of our net loss of $44.5 million
as well as a $2.9 million decrease from changes in operating assets and
liabilities. This was partially offset by non-cash adjustments of $8.1 million
of stock-based compensation, $0.6 million of net amortization of marketable
securities, $0.4 million of depreciation and $0.4 million in amortization of
operating lease assets.

Net cash used in operating activities during the nine months ended September 30,
2021 was $31.2 million and consisted primarily of our net loss of $35.9 million
as well as a $2.0 million decrease from changes in operating assets and
liabilities. This was partially offset by non-cash adjustments of $5.6 million
of stock-based compensation, $0.4 million of depreciation and $0.7 million of
net amortization on marketable securities.

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Investment activities


Net cash used in investing activities during the nine months ended September 30,
2022 was $7.7 million and consisted primarily of $91.7 million in purchases of
investments and $0.2 million in purchases of property and equipment. This was
partially offset by proceeds from the sale and maturity of investments of $84.2
million.

Net cash used in investing activities during the nine months ended September 30,
2021 was $113.3 million and consisted primarily of $146.6 million in purchases
of investments and $0.1 million in purchases of property and equipment. This was
partially offset by proceeds from the sale and maturity of investments of $33.4
million.

Financing activities

Net cash provided by financing activities during the nine months ended September
30, 2022 was $61.1 million and consisted of $61.1 million in proceeds from the
issuance of common stock and pre-funded warrants in connection with the August
2022 Financing and $0.1 million of proceeds from the issuance of common stock
under our employee stock purchase plan. This was partially offset by $0.1
million in payments of deferred offering costs.

Net cash provided by financing activities during the nine months ended September
30, 2021 was $134.4 million and consisted primarily of $136.4 million in
proceeds from the issuance of common stock upon closing of the IPO in February
2021 and $0.9 million of proceeds from stock option exercises. This was
partially offset by $2.7 million in payments of deferred offering costs and a
$0.2 million net payment on loans payable.

Critical Accounting Policies and Estimates


There have been no material changes to our critical accounting policies and use
of estimates from those disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2021. For a discussion of our critical accounting policies
and use of estimates, refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and
Significant Estimates in Part II, Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2021.

Recent Accounting Pronouncements


We are subject to several recently issued accounting pronouncements. Note 1 -
Organization, Basis of Presentation, and Summary of Significant Accounting
Policies - Recent Accounting Pronouncements which is contained in Part I, Item 1
of this Quarterly Report on Form 10-Q, describes these new accounting
pronouncements and is incorporated herein by reference.

off-balance sheet arrangements


We do not have any off-balance sheet arrangements (as defined by applicable
regulations of the SEC) that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures or capital resources.

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