SEC Filing - Aerovate Therapeutics, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 30, 2022

☐	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: 001-40544

AEROVATE THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		83-1377888
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

930 Winter Street, Suite M-500 Waltham, MA		02451
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 443-2400

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.0001 per share		AVTE		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, 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 August 11, 2022, the registrant had 24,448,144 shares of common stock, $0.0001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION	6
Item 1.	Financial Statements (Unaudited)	6
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss	7
	Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit)	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits	80
Signatures		81

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SUMMARY OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

	●	We are a clinical-stage biopharmaceutical company with a limited operating history.
	●	We have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We may never achieve or maintain profitability.
	●	We have no products approved for commercial sale and have not generated any revenue from product sales.
	●	Our business is entirely dependent on the successful development, regulatory approval and commercialization of AV-101, our only product candidate under development.
	●	The ongoing COVID-19 pandemic, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect our business and our financial results and could cause a disruption to the development of AV-101. As a result of medical complications associated with pulmonary arterial hypertension (PAH), the patient populations that AV-101 targets may be particularly susceptible to COVID-19, which may make it more difficult for us to identify patients able to enroll in our current and future clinical trials and may impact the ability of enrolled patients to complete any such trials.
	●	We are conducting our first late-stage clinical trial of AV-101, a dry powder formulation of imatinib for the treatment of PAH administered using a dry powder inhaler, to assess its safety and tolerability. Although we believe that AV-101 has therapeutic potential for PAH based on oral imatinib’s results in the Phase 3 IMPRES trial, we are utilizing a novel dry powder formulation which may not achieve better or similar levels of clinical activity or may have similar tolerability challenges as oral imatinib. The results of earlier studies and trials of oral imatinib in pulmonary arterial hypertension, or PAH, patients and our Phase 1 clinical trial of AV-101 may not be predictive of future trial results for AV-101.
	●	If we encounter difficulties with site initiation and patient enrollment in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
	●	We face, and will continue to face, significant competition and our failure to effectively compete may prevent us from achieving significant market penetration for AV-101, if approved. Most of our competitors have significantly greater resources than we do and we may not be able to successfully compete.
	●	We rely, and intend to continue to rely, on qualified third parties to supply all components of AV-101. As a result, we are dependent on several third parties, some of which are sole source suppliers, for the manufacture of AV-101 and our supply chain, and if we experience problems with any of these suppliers, or they fail to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, it would materially and adversely affect our business.
	●	We rely, and intend to continue to rely, on third parties in the conduct of all of our clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for AV-101.
	●	We have two issued U.S. patents and many pending patent applications with respect to AV-101 (of which two have recently received a notice of allowance). We can provide no assurance that any of our other current or future patent applications will result in issued patents. If we cannot protect our patent rights or our other proprietary rights, others may develop products similar or identical to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop.
	●	We may be unable to obtain regulatory approval for AV-101 under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of AV-101 and adversely impact our potential to generate revenue, our business and our results of operations.
	●	AV-101 is a drug-device combination product, which may result in additional regulatory risks.
	●	We plan to conduct clinical trials for AV-101 outside the United States, and the U.S. Food and Drug Administration, European Medicines Agency, and applicable foreign regulatory authorities may not accept data from such trials.
	●	We will need to increase the size of our organization, and we may experience difficulties in managing growth.
	●	We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and retaining highly qualified personnel, our business may be materially and adversely affected.
	●	Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

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The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission (“SEC”). If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full under Item 1A of this Quarterly Report on Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

	●	the initiation, timing, progress, results and cost of our research and development program for AV-101 and our current and future clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work and the period during which the results of the trials will become available;

	●	our expectations regarding the potential market size and size of the potential patient populations for AV-101, if approved for commercial use;

	●	our clinical and regulatory development plans;

	●	our expectations with regard to the data to be derived from our planned Phase 2b/Phase 3 clinical trial; or any other product candidates that we may identify or develop;

	●	the timing or likelihood of regulatory filings and approvals for AV-101;

	●	our ability to commercialize AV-101, if approved;

	●	the pricing and reimbursement of AV-101, if approved;

	●	the implementation of our business model and strategic plans for our business and AV-101;

	●	estimates of our future expenses, revenues, capital requirements and our needs for additional financing, and our ability to obtain additional capital;

	●	the scope of protection we are able to establish and maintain for intellectual property rights covering AV-101, including the projected terms of patent protection;

	●	regulatory developments in the United States and foreign countries;

	●	our ability to enter into strategic collaborations, including for the commercialization of AV 101 outside the United States;

	●	the rate and degree of market acceptance of AV 101;

	●	our ability to contract with third-party suppliers, manufacturers and contract research organizations, or CROs, and their ability to perform adequately;

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	●	the success of competing therapies for PAH that are or may become available;

	●	developments relating to our competitors and our industry, including the impact of government regulation;

	●	our ability to attract and retain key scientific or management personnel;

	●	our ability to obtain additional funding for our operations, when needed, including funding necessary to complete further development and commercialization of AV-101, if approved;

	●	our financial performance;

	●	the effect of the ongoing COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our clinical trials and any future studies or trials; and

	●	other risks and uncertainties, including those listed under the section titled “Risk Factors.”

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

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PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

Aerovate Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	June 30,			December 31,
	2022			2021

Assets
Current assets:
Cash and cash equivalents	$	27,457		$	54,197
Short-term investments		124,531			113,178
Prepaid expenses and other current assets		1,461			6,958
Total current assets		153,449			174,333
Property and equipment, net		316			186
Operating lease right-of-use asset		1,188			542
Other long-term assets		731			302
Total assets	$	155,684		$	175,363

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	2,068		$	1,208
Accrued and other current liabilities		1,341			1,150
Operating lease liability		347			192
Total current liabilities		3,756			2,550
Operating lease liabilities, net of current portion		862			382
Other liabilities		13			13
Total liabilities		4,631			2,945

Commitments and contingencies (Note 5)		-
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		—			—
Common stock, $0.0001 par value; 150,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 24,418,434 and 24,410,393 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		2			2
Additional paid-in capital		211,129			208,867
Accumulated other comprehensive loss		(785	)		(59	)
Accumulated deficit		(59,293	)		(36,392	)
Total stockholders’ equity		151,053			172,418
Total liabilities and stockholders’ equity	$	155,684		$	175,363

See accompanying notes to unaudited interim condensed consolidated financial statements.

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Aerovate Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	8,363		$	4,327		$	15,618		$	6,523
General and administrative		3,852			1,447			7,615			2,031
Total operating expenses		12,215			5,774			23,233			8,554
Loss from operations		(12,215	)		(5,774	)		(23,233	)		(8,554	)
Other income (expense):
Interest income		230			2			338			2
Other expense		(6	)		(3	)		(6	)		(4	)
Total other income (expense)		224			(1	)		332			(2	)
Net loss	$	(11,991	)	$	(5,775	)	$	(22,901	)	$	(8,556	)
Comprehensive loss:
Net loss	$	(11,991	)	$	(5,775	)	$	(22,901	)	$	(8,556	)
Other comprehensive loss:
Unrealized loss on securities		(141	)		—			(726	)		—
Comprehensive loss	$	(12,132	)	$	(5,775	)	$	(23,627	)	$	(8,556	)
Net loss per share, basic and diluted	$	(0.49	)	$	(23.80	)	$	(0.94	)	$	(35.29	)
Weighted-average shares of common stock outstanding, basic and diluted		24,410,503			243,076			24,410,448			243,076

See accompanying notes to unaudited interim condensed consolidated financial statements.

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Aerovate Therapeutics, Inc.

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

(Unaudited)

(in thousands, except share amounts)


	Series A Redeemable				Series Seed Redeemable										Accumulated						Total
	Convertible Preferred Stock				Convertible Preferred Stock				Common Stock				Additional Paid-In		Other Comprehensive			Accumulated			Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Loss			Deficit			(Deficit)
Balance at December 31, 2021		—	$	—		—	$	—		24,410,393	$	2	$	208,867	$	(59	)	$	(36,392	)	$	172,418
Balance at December 31, 2021										24,410,393	$	2	$	208,867	$	(59	)	$	(36,392	)	$	172,418
Unrealized loss on investments		—		—		—		—		—		—		—		(585	)		—			(585	)
Stock based compensation		—		—		—		—		—		—		1,024		—			—			1,024
Net loss		—		—		—		—		—		—		—		—			(10,910	)		(10,910	)
Balance at March 31, 2022		—	$	—		—	$	—		24,410,393	$	2	$	209,891	$	(644	)	$	(47,302	)	$	161,947
Balance at March 31, 2022										24,410,393	$	2	$	209,891	$	(644	)	$	(47,302	)	$	161,947
Unrealized loss on investments		—		—		—		—		—		—		—		(141	)		—			(141	)
Stock based compensation		—		—		—		—		—		—		1,224		—			—			1,224
Issuance of common stock upon exercise of stock options		—		—		—		—		8,041		—		14		—			—			14
Net loss		—		—		—		—		—		—		—		—			(11,991	)		(11,991	)
Balance at June 30, 2022		—	$	—		—	$	-		24,418,434	$	2	$	211,129	$	(785	)	$	(59,293	)	$	151,053
Balance at June 30, 2022										24,418,434	$	2	$	211,129	$	(785	)	$	(59,293	)	$	151,053


	Series A Redeemable				Series Seed Redeemable										Accumulated					Total
	Convertible Preferred Stock				Convertible Preferred Stock				Common Stock				Additional Paid-In		Other Comprehensive		Accumulated			Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Loss		Deficit			(Deficit)
Balance at December 31, 2020		6,489,534	$	12,285		4,000,000	$	4,000		243,076	$	—	$	63	$	—	$	(13,407	)	$	(13,344	)
Balance at December 31, 2020										243,076	$	—	$	63	$	—	$	(13,407	)	$	(13,344	)
Issuance of Series A redeemable convertible preferred stock at $1.893 per share, net of issuance costs of $13		4,224,274		7,983		—		—		—		—		—		—		—			—
Accretion of Series A redeemable convertible preferred stock to redemption value		—		13		—		—		—		—		—		—		(13	)		(13	)
Stock based compensation		—		—		—		—		—		—		23		—		-			23
Net loss		—		—		—		—		—		—		—		—		(2,781	)		(2,781	)
Balance at March 31, 2021		10,713,808	$	20,281		4,000,000	$	4,000		243,076	$	—	$	86	$	—	$	(16,201	)	$	(16,115	)
Balance at March 31, 2021										243,076	$	—	$	86	$	—	$	(16,201	)	$	(16,115	)
Issuance of Series A redeemable convertible preferred stock at $1.893 per share, net of issuance costs of $9		29,338,346		55,529		—		—		—		—		—		—		—			—
Issuance of Series A redeemable convertible preferred stock, net of issuance costs		29,338,346		55,529		—		—		—		—		—		—		—			—
Accretion of Series A redeemable convertible preferred stock to redemption value		—		9		—		—		—		—		—		—		(9	)		(9	)
Stock based compensation		—		—		—		—		—		—		321		—		—			321
Net loss		—		—		—		—		—		—		—		—		(5,775	)		(5,775	)
Balance at June 30, 2021		40,052,154	$	75,819		4,000,000	$	4,000		243,076	$	—	$	407	$	—	$	(21,985	)	$	(21,578	)
Balance at June 30, 2021										243,076	$	—	$	407	$	—	$	(21,985	)	$	(21,578	)

See accompanying notes to unaudited interim condensed consolidated financial statements.

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Aerovate Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Six months ended June 30,
	2022			2021
Cash flow from operating activities:
Net loss	$	(22,901	)	$	(8,556	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		2,248			344
Depreciation and amortization expense		28			4
Accretion of discounts and amortization of premiums on investments, net		(32	)		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		5,493			(56	)
Other long-term assets		(428	)		(74	)
Accounts payable		875			563
Accrued and other liabilities		191			(5	)
Operating lease assets and liabilities, net		(11	)		–
Net cash used in operating activities		(14,537	)		(7,780	)

Cash flow from investing activities:
Purchases of short-term investments		(71,791	)		—
Sales and maturities of short-term investments		59,744			—
Purchases of property and equipment		(158	)		(40	)
Net cash used in investing activities		(12,205	)		(40	)

Cash flow from financing activities:
Proceeds from sale of Series A redeemable convertible preferred stock, net of issuance costs		—			63,512
Payments for deferred offering costs		—			(1,115	)
Proceeds from issuance of common stock upon exercise of stock options		2			—
Net cash provided by financing activities		2			62,397

Net (decrease) increase in cash		(26,740	)		54,577
Cash and cash equivalents at the beginning of the year		54,197			4,573
Cash and cash equivalents at the end of the period	$	27,457		$	59,150

Supplemental disclosure of noncash investing and financing activities:
Right-of-use asset obtained in exchange for operating lease liability	$	765		$	—
Deferred offering costs included in accounts payable	$	1		$	1,901

See accompanying notes to unaudited interim condensed consolidated financial statements.

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AEROVATE THERAPEUTICS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED consolidated FINANCIAL STATEMENTS

(1) ORGANIZATION AND NATURE OF OPERATIONS

(a) Organization and Nature of Operations

Aerovate Therapeutics Inc. (“Aerovate” or the “Company”) was incorporated in the state of Delaware in July 2018, and is headquartered in Waltham, Massachusetts. The Company has a wholly owned subsidiary, Aerovate Securities Corporation. The Company is a clinical stage biopharmaceutical company that is focused on the development of drugs that meaningfully improve the lives of patients with rare cardiopulmonary disease. The Company’s initial focus is on advancing AV-101, the Company’s dry powder inhaled formulation of imatinib for the treatment of pulmonary arterial hypertension (“PAH”). The Company initiated a Phase 2b/Phase 3 trial of AV-101 in PAH patients in December 2021.

(b) Liquidity and Management Plans

Since inception, the Company has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations and has not realized revenues from its planned principal operations. The Company has incurred losses and negative cash flows from operations since inception. In addition, the Company expects to incur substantial operating losses for the next several years as it continues its research and development activities. As of June 30, 2022, the Company had cash and cash equivalents and short-term investments of $152.0 million.

Management plans to continue to incur substantial costs in order to conduct research and development activities and additional capital will be needed to undertake these activities. The Company intends to raise such capital through debt or equity financings or other arrangements to fund operations. Management believes that the Company’s current cash and cash equivalents and short-term investments will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.

(2) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the Securities Act). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP for complete financial statements. Because all of the disclosures required by GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

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(b) Reverse Stock Split

On June 22, 2021, the Company effected a 1-for-3.1060103 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding common stock. Accordingly, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. The par value of the common stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

(c) Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international markets. Actual results could differ materially from those estimates. Accounting estimates and management judgements reflected in the consolidated financial statements include: normal recurring accruals, including the accrual for research and development expenses, stock-based compensation and fair value of investments. Estimates and assumptions are reviewed quarterly. Any revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(d) Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include convertible preferred stock prior to the conversion of such shares to common stock and outstanding stock options under the Company’s equity incentive plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

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The following table summarizes the Company’s net loss per share (in thousands, except share and per share amounts):

SCHEDULE OF NET LOSS PER SHARE


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Numerator:
Net loss	$	(11,991	)	$	(5,775	)	$	(22,901	)	$	(8,556	)
Accretion of Series A redeemable convertible preferred stock to redemption value		—			(9	)		—			(22	)
Net loss available to common stockholders	$	(11,991	)	$	(5,784	)	$	(22,901	)	$	(8,578	)

Denominator:
Weighted-average common stock outstanding, basic and diluted		24,410,503			243,076			24,410,448			243,076
Net loss per share, basic and diluted	$	(0.49	)	$	(23.80	)	$	(0.94	)	$	(35.29	)

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would have had an anti-dilutive effect are as follows (in common stock equivalent shares):


	As of June 30,
	2022		2021
Options to purchase common stock		3,953,390		2,770,954
Unvested restricted stock units		1,631		—
Series Seed redeemable convertible preferred stock		—		1,287,825
Series A redeemable convertible preferred stock		—		12,895,029
Antidilutive Securities		3,955,021		16,953,808

(e) Recently Issued and Recently Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and does not believe any will have a material impact on the Company’s condensed consolidated financial statements or related financial statement disclosures.

(3) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

SCHEDULE OF FAIR VALUE INSTRUMENTS


			Fair Value Measurements Using
	June 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (level 3)
Assets:
Cash equivalents
Money market funds	$	16,286	$	16,286	$	—	$	—
Commercial paper		5,991		—		5,991		—
Total cash equivalents		22,277		16,286		5,991		—

Short-term investments
U.S. Treasury bills		32,147		32,147		—		—
Corporate debt securities		1,991		—		1,991		—
Commercial paper		84,905		—		84,905		—
Agency bond		5,488		—		5,488		—
Total short-term investments		124,531		32,147		92,384		—

Total fair value of assets	$	146,808	$	48,433	$	98,375	$	—

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			Fair Value Measurements Using
	December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (level 3)
Assets:
Cash equivalents
Money market funds	$	39,653	$	39,653	$	—	$	—
Commercial paper		14,448		—		14,448		—
Total cash equivalents		54,101		39,653		14,448		—

Short-term investments
U.S. Treasury bills		25,135		25,135		—		—
Corporate debt securities		10,715		—		10,715		—
Commercial paper		77,328		—		77,328		—
Total short-term investments		113,178		25,135		88,043		—

Total fair value of assets	$	167,279	$	64,788	$	102,491	$	—

Cash Equivalents and Short-Term Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and commercial paper, and short-term investments consisted of U.S. Treasury bills, corporate debt securities and commercial paper. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

The following tables summarize the Company’s short-term investments (in thousands):

SCHEDULE OF SHORT TERM INVESTMENT


		As of June 30, 2022
	Maturity	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Corporate debt securities	1 year or less	$	2,001	$	—	$	(10	)	$	1,991
Commercial paper	1 year or less		85,197		—		(292	)		84,905
U.S. Treasury bills	2 years or less		32,620		—		(473	)		32,147
Agency bond	2 years or less		5,498		—		(10	)		5,488
		$	125,316	$	—	$	(785	)	$	124,531


		As of December 31, 2021
	Maturity	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Corporate debt securities	1 year or less	$	10,726	$	—	$	(11	)	$	10,715
Commercial paper	1 year or less		77,328		9		(9	)		77,328
U.S. Treasury bills	2 years or less		25,183		—		(48	)		25,135
		$	113,237	$	9	$	(68	)	$	113,178

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The Company considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of June 30, 2022 and December 31, 2021 were caused by fluctuations in market value and interest rates as a result of the economic environment and not credit risk. As of June 30, 2022 and December 31, 2021, no allowance for credit losses was recorded. During the six months ended June 30, 2022, the Company did not recognize any impairment losses related to its short-term investments. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. Unrealized gains and losses are included in accumulated other comprehensive loss. The Company excludes accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. It is the Company’s policy to present the accrued interest receivable balance as part of prepaid expenses and other current assets in the balance sheets. Accrued interest receivable related to short-term investments was $0.1 million as of June 30, 2022 and December 31, 2021.

(4) BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	June 30,		December 31,
	2022		2021
Prepaid research and development	$	820	$	5,233
Prepaid expenses		415		1,485
Other current assets		226		240
Total prepaid expenses and other current assets	$	1,461	$	6,958

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2022		2021
Accrued payroll and other employee benefits	$	817	$	790
Accrued research and development		373		217
Other		151		143
Total accrued and other current liabilities	$	1,341	$	1,150

(5) COMMITMENTS AND CONTINGENCIES

In August 2021, the Company entered into a lease agreement (the “Waltham Lease”) for approximately 5,000 square feet of office space in Waltham, Massachusetts for the Company’s corporate headquarters. The Waltham Lease has a term of thirty-nine months (“Lease Term”), unless extended or earlier terminated. The Company has the option to extend the Waltham Lease for one additional period of three years. The Lease Term has an initial abatement period, and the initial base rent payable will be approximately $18,000 per month following the abatement period. The initial base rent payable will increase by approximately 2% per year over the Lease Term. The Waltham Lease commencement date was September 1, 2021.

In April 2022, the Company entered into a lease agreement (the “Foster City Lease”) for approximately 3,500 square feet of office space in Foster City, California. The Foster City Lease has a term of thirty-nine months, unless extended or earlier terminated. The Company has the option to extend the Foster City Lease for on additional period of one year. The base rent payable under the Lease Term will be $22,600 per month and will be subject to annual increase of 3% on each anniversary.

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As of June 30, 2022, the future minimum annual lease payments under the operating leases were as follows (in thousands):


2022	$	147
2023		449
2024		489
2025		242
Total operating lease payments		1,327
Less: Amount representing interest		(118	)
Present value of net minimum lease payments	$	1,209
Operating lease liabilities:
Current		347
Non-current		862
Total lease liabilities	$	1,209
Weighted-average remaining lease term (in years)		3.0
Weighted-average incremental borrowing rate		6	%

Supplemental cash flow information related to cash paid for amounts included in the measurement of operating lease liabilities was as follows (in thousands):

SCHEDULE OF SUPPLEMENTAL CASH FLOW


	Six months ended June 30,
	2021		2020
Cash paid included in operating cash flows	$	113	$	—

Rent expense was as follows (in thousands):

SCHEDULE OF RENT EXPENSES


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Operating lease	$	92	$	—	$	142	$	—
Short-term lease		11		—		46		—
Total rent expense	$	103	$	—	$	188	$	—

(6) STOCKHOLDERS’ EQUITY

On July 2, 2021, the Company’s certificate of amendment to its certificate of incorporation became effective, which provided 150,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of undesignated preferred stock with a par value of $0.0001 per share.

In August 2018, the Company issued 241,467 shares of common stock to RA Capital Healthcare Fund, L.P. at a price of $0.0012 per share. On July 2, 2021, in conjunction with the Company’s initial public offering, or IPO, the Company issued 9,984,463 shares of its common stock and all outstanding shares of the Company’s redeemable convertible preferred stock were converted into 14,182,854 shares of the Company’s common stock.

The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders.

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As of June 30, 2022, the Company had reserved the following shares of common stock, on an as-converted basis, for future issuance:


	June 30, 2022
Common stock options granted and outstanding		3,953,390
Reserved for exercise of outstanding stock options		1,552,307
Reserved for vesting of outstanding restricted stock units		1,631
Reserved for future ESPP issuances		230,000
Total		5,737,328

(7) STOCK-BASED COMPENSATION

The Company’s 2021 Stock Option and Incentive Plan (the “2021 Plan”) was adopted by the Company’s board of directors and approved by the Company’s stockholders in June 2021 and became effective as of June 29, 2021. Upon the effectiveness of the 2021 Plan, the Company’s 2018 Equity Incentive Plan (the “2018 Plan”) was terminated and no further grants may be made thereunder. The Company’s 2021 Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards to its officers, directors, employees, consultants and advisors.

As of June 30, 2022, a total of 3,576,415 shares of the Company’s common stock is authorized for issuance with respect to awards granted under the 2021 Plan. The share limit will automatically increase on the first trading day in January of each year (commencing with 2022) by an amount equal to the lesser of (1) 4% of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, or (2) such lesser number as determined by the Company’s board of directors. Effective January 1, 2022, the number of shares available under the 2021 Plan increased by 976,415 shares, as determined by the Company’s board of directors.

Any shares subject to awards granted under the 2021 Plan or the 2018 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, or otherwise fail to vest, as well as shares used to pay the purchase or exercise price of such awards or related tax withholding obligations, will become available for new award grants under the 2021 Plan.

As of June 30, 2022, 2,022,477 options had been granted and 1,631 restricted stock units had been awarded under the 2021 Plan, with 1,552,307 shares authorized under the 2021 Plan available for future issuance. As of June 30, 2022, a total of 1,930,913 options had been granted under the 2018 Plan.

The options that are granted under the 2021 Plan and the 2018 Plan are exercisable at various dates as determined upon grant and terminate within 10 years of the date of grant. The vesting period generally occurs over three to four years.

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The following table summarizes the option activity under the 2021 Plan and 2018 Plan for the six months ended June 30, 2022:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Vested and expected to vest at December 31, 2021		3,454,374		$	6.85		9.42	$	19,378
Granted		507,057		$	13.08		9.79
Exercised		(8,041	)		1.74
Cancelled/Forfeited		—			—
Outstanding at June 30, 2022		3,953,390		$	7.66		9.02	$	31,633
Vested and exercisable at June 30, 2022		875,657		$	5.91		8.80	$	8,533
Vested and expected to vest at June 30, 2022		3,953,390		$	7.66		9.02	$	31,633

The weighted-average grant date fair value of stock option grants was $8.73 per share for the six months ended June 30, 2022. All exercisable options are vested and all outstanding options are vested or expected to vest.

(b)

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (the “ESPP”) was adopted by the Company’s board of directors and stockholders in June 2021 and became effective upon the consummation of the IPO. A total of 230,000 shares of the Company’s common stock is initially available for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. As of June 30, 2022, no shares had been issued under the ESPP, and the full number of shares authorized under the ESPP Plan was available for issuance purposes upon the effectiveness of the ESPP.

(c)

Stock-Based Compensation Expense

The Company estimated the fair value of stock options using the Black-Scholes valuation model. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation expense for an award is reversed in the period that the award is forfeited. The fair value of stock options was estimated using the following assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Expected term (in years)		5.5 - 6.1			5.8 - 6.1			5.5 - 6.1			5.8 - 6.1
Expected volatility		73.8 - 76.5	%		68.7 - 69.6	%		73.6 - 76.5	%		68.7 - 69.6	%
Risk-free interest rate		2.5 - 3.4	%		1.0 - 1.2	%		1.6 - 3.4	%		1.0 - 1.2	%
Expected dividend		—			—			—			—

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Stock-based compensation expense recognized for all equity awards has been reported in the statements of operations and comprehensive loss as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	445	$	101	$	701	$	113
General and administrative		779		220		1,547		231
Total	$	1,224	$	321	$	2,248	$	344

As of June 30, 2022, there was approximately $14.8 million of total unrecognized stock-based compensation expense related to nonvested stock-based compensation arrangements granted under the 2021 Plan and 2018 Plan, which is expected to be recognized over a weighted-average period of approximately 3.0 years.

(d)

Restricted Stock Units

A summary of the status of and changes in unvested restricted stock unit activity under the Company’s equity award plans for the six months ended June 30, 2022 was as follows:

	Units		Weighted- Average Grant Date Fair Value Per Unit
Unvested restricted stock units as of December 31, 2021		–		–
Granted		1,631	$	12.26
Vested		–		–
Forfeited		–		–
Unvested restricted stock units as of June 30, 2022		1,631	$	12.26

Stock-based compensation of restricted stock units is based on the fair value of the Company’s common stock on the date of grant and recognized over the vesting period. Restricted stock units awarded by the Company vest in equal amounts annually over two years.

As of June 30, 2022, the Company had unrecognized stock-based compensation expense related to its unvested restricted stock units of $20,000, which is expected to be recognized over the remaining weighted-average vesting period of 2.0 years.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 appearing elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 30, 2022. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Quarterly Report. See “Special Note Regarding Forward-Looking Statements” in this Quarterly Report.

Overview

We are a clinical stage biopharmaceutical company focused on developing drugs that meaningfully improve the lives of patients with rare cardiopulmonary disease. Our initial focus is on advancing AV-101, our dry powder inhaled formulation of imatinib for the treatment of pulmonary arterial hypertension, or PAH, a devastating disease impacting approximately 70,000 people in the United States and Europe. Imatinib, marketed as Gleevec tablets, was originally developed for the treatment of multiple cancers. Oral imatinib also demonstrated statistically significant improvement on the primary endpoint, six-minute walk distance, and multiple secondary hemodynamic endpoints in PAH patients in an international Phase 3 trial conducted by Novartis but was poorly tolerated due to adverse events, or AEs, and never was approved for the treatment of PAH. AV-101, delivered using a dry powder inhaler, is designed to provide lung concentrations at or above those observed with the oral dose while limiting systemic levels of the drug. We have completed a Phase 1 study in healthy volunteers and AV-101 was generally well-tolerated with no serious adverse events reported. We announced the initiation of Inhaled iMatinib Pulmonary Arterial Hypertension Clinical Trial (IMPAHCT), our Phase 2b/Phase 3 trial of AV-101 in PAH patients in December 2021, and we have assembled a team with deep expertise in developing innovative PAH and inhaled therapies and commercializing novel drugs.

We do not have any products approved for sale and have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future.

COVID-19 Pandemic

The global coronavirus disease 2019, or COVID-19, pandemic continues to evolve, and we will continue to monitor the COVID-19 situation. The extent of the impact of the ongoing COVID-19 pandemic and its variants on our business, operations and clinical development timelines, supply chain and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak, including the identification of new variants of the virus, and its impact on our clinical trial enrollment and trial sites, both of which could impact the timing of our release of trial data, contract research organizations, or 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 ongoing COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with only necessary or advisable modifications to employee travel.

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the ongoing COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.

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Components of Results of Operations

Revenue

We currently have no products approved for sale, and we have not generated any revenue to date. In the future, we may generate revenue from collaboration or license agreements we may enter into with respect to our drug candidate, as well as product sales from any approved product, which approval we do not expect to occur for at least the next several years, if ever. Our ability to generate product revenue will depend on the successful development and eventual commercialization of AV-101 and any other drug candidates we may pursue. If we fail to complete the development of AV-101 in a timely manner, or to obtain regulatory approval, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.

Operating Expenses

Research and Development

To date, our research and development expenses have related to the development of AV-101. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

	●	external research and development expenses incurred under agreements with CROs and consultants to conduct and support clinical trials of AV-101 and our preclinical studies;

	●	costs related to manufacturing AV-101 for use in clinical trials; and

	●	personnel-related costs, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts.

Our research and development expenses consist principally of direct costs, such as fees paid to CROs, investigative sites and consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. We deploy our personnel related resources across all of our research and development activities. We track direct expenses on a clinical and non-clinical basis.

We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of AV-101. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and nonclinical studies of AV-101 or any future product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We will need to raise substantial additional capital in the future.

Our future clinical development costs may vary significantly based on factors such as:

	●	per patient trial costs;

	●	the number of trials required for approval;

	●	the number of sites included in the trials;

	●	the countries in which the trials are conducted;

	●	the length of time required to enroll eligible patients;

	●	the number of patients that participate in the trials;

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	●	the number of doses evaluated in the trials;

	●	the drop-out or discontinuation rates of patients;

	●	potential additional safety monitoring requested by regulatory agencies;

	●	the duration of patient participation in the trials and follow-up; and

	●	the efficacy and safety profile of the product candidate.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, and insurance costs. We anticipate that our general and administrative expenses will increase for the foreseeable future to support our continued research and development activities, pre-commercial preparation activities and commercialization activities for AV-101. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and short-term investments.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021 (Unaudited)

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,
	2022			2021			Change
	(unaudited)
Operating expenses:
Research and development	$	8,363		$	4,327		$	4,036
General and administrative		3,852			1,447			2,405
Total operating expenses		12,215			5,774			6,441
Loss from operations		(12,215	)		(5,774	)		(6,441	)
Other income (expense):
Interest income		230			2			228
Other expense		(6	)		(3	)		(3	)
Total other income (expense)		224			(1	)		225
Net loss	$	(11,991	)	$	(5,775	)	$	(6,216	)

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2022 were $8.4 million compared to $4.3 million for the three months ended June 30, 2021. The increase of $4.0 million was primarily due to our ongoing Phase 2b/Phase 3 trial causing increases of $3.3 million in clinical costs, $1.0 million in payroll costs, $0.3 million in stock-based compensation and $0.2 million in other miscellaneous costs, partially offset by lower contract manufacturing costs of $0.6 million and preclinical costs of $0.2 million.

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General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2022 were $3.9 million compared to $1.4 million for the three months ended June 30, 2021. The increase of $2.4 million was primarily due to becoming a public company and hiring additional employees causing increases of $0.9 million in professional services related to other consulting expenses, corporate legal fees, audit and accounting services and $0.7 million in insurance expenses, in addition to $0.2 million in payroll costs and stock-based compensation of $0.6 million.

Total Other Income (Expense)

Other income for the three months ended June 30, 2022 was $0.2 million compared to other expense of $1,000 for the three months ended June 30, 2021. The change of $0.2 million was due to interest earned on our cash and cash equivalents and short-term investments for the three months ended June 30, 2022.

Comparison of the Six Months Ended June 30, 2022 and 2021 (Unaudited)

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

2022

2021

Change

(unaudited)

Operating expenses: