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 March 31, 2023

☐	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	(I.R.S. Employer
incorporation or organization)	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 May 10, 2023, the registrant had 24,923,874 shares of common stock, $0.0001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION	7
Item 1.	Financial Statements (Unaudited)	7
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Operations and Comprehensive Loss	8
	Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity	9
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	78
Item 5.	Other Information	78
Item 6.	Exhibits	79
	Signatures	80

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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 coronavirus disease-19, or COVID-19, pandemic, or any future 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, or PAH, the patient populations that AV-101 targets may be particularly susceptible to COVID-19 and its variants, 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 PAH patients and our Phase 1 clinical trial of AV-101 in healthy volunteers may not be predictive of future trial results for AV-101.

●

If we continue to encounter difficulties with site activation 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 four issued U.S. patents and many pending patent applications with respect to AV-101. 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.

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●

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 are currently conducting, and may in the future conduct clinical trials for AV-101 outside the United States, and the U.S. Food and Drug Administration, or FDA, European Medicines Agency, or EMA, 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.

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, or the 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.

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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 ongoing global 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;

●

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;

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●

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 COVID-19 pandemic or any similar pandemic, epidemic, or outbreak of an infectious disease, 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 above under “Summary of the Material and Other Risks Associated with our Business” and 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)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	26,571	$	22,397
Short-term investments		92,358		106,823
Prepaid expenses and other current assets		1,640		2,276
Total current assets		120,569		131,496
Property and equipment, net		267		242
Operating lease right-of-use assets		908		1,003
Other long-term assets		2,649		2,560
Total assets	$	124,393	$	135,301

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	4,726	$	2,575
Accrued and other current liabilities		5,538		4,822
Operating lease liabilities		373		385
Total current liabilities		10,637		7,782
Operating lease liabilities, net of current portion		591		705
Other liabilities		70		71
Total liabilities		11,298		8,558

Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; no shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		—		—
Common stock, $0.0001 par value; 150,000,000 shares authorized at March 31, 2023 and December 31, 2022, respectively; 24,816,940 and 24,722,974 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		2		2
Additional paid-in capital		217,717		215,110
Accumulated other comprehensive loss		(201)		(466)
Accumulated deficit		(104,423)		(87,903)
Total stockholders’ equity		113,095		126,743
Total liabilities and stockholders’ equity	$	124,393	$	135,301

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 March 31,
	2023		2022
Operating expenses:
Research and development	$	13,488	$	7,255
General and administrative		4,151		3,764
Total operating expenses		17,639		11,019
Loss from operations		(17,639)		(11,019)
Other income (expense):
Interest income		1,120		109
Other expense		(1)		—
Total other income		1,119		109
Net loss	$	(16,520)	$	(10,910)
Comprehensive loss:
Net loss	$	(16,520)	$	(10,910)
Other comprehensive loss:
Unrealized gain (loss) on securities		265		(585)
Comprehensive loss	$	(16,255)	$	(11,495)
Net loss per share, basic and diluted	$	(0.67)	$	(0.45)
Weighted-average shares of common stock outstanding, basic and diluted		24,777,847		24,410,393

See accompanying notes to unaudited interim condensed consolidated financial statements.

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Aerovate Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)



						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Gain/(Loss)		Deficit		Equity
Balance at December 31, 2022	24,722,974	$	2	$	215,110	$	(466)	$	(87,903)	$	126,743
Unrealized gain on investments	—		—		—		265		—		265
Issuance of common stock upon exercise of stock options	93,966		—		223		—		—		223
Stock based compensation	—		—		2,384		—		—		2,384
Net loss	—		—		—		—		(16,520)		(16,520)
Balance at March 31, 2023	24,816,940	$	2	$	217,717	$	(201)	$	(104,423)	$	113,095



						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
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

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)


	Three months ended March 31,
	2023		2022
Cash flow from operating activities:
Net loss	$	(16,520)	$	(10,910)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		2,384		1,024
Depreciation and amortization expense		21		11
Accretion of discounts and amortization of premiums on investments, net		(671)		29
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		636		2,129
Other long-term assets		(89)		(25)
Accounts payable		2,121		1,587
Accrued and other liabilities		716		497
Operating lease assets and liabilities, net		(31)		(3)
Other liabilities		9		—
Net cash used in operating activities	$	(11,424)	$	(5,661)

Cash flow from investing activities:
Purchases of short-term investments		(15,609)		(32,890)
Maturities of short-term investments		31,000		12,519
Purchases of property and equipment		(16)		(28)
Net cash provided by (used in) investing activities	$	15,375	$	(20,399)

Cash flow from financing activities:
Proceeds from exercise of stock options		223		—
Net cash provided by financing activities	$	223	$	—

Net increase (decrease) in cash and cash equivalents		4,174		(26,060)
Cash and cash equivalents at the beginning of the year		22,397		54,197
Cash and cash equivalents at the end of the period	$	26,571	$	28,137

Supplemental disclosure of noncash investing and financing activities:
Deferred offering costs included in accounts payable	$	104	$	—
Purchases of property and equipment in accounts payable	$	30	$	85

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 global Phase 2b/Phase 3 trial of AV-101 in adults with PAH in December 2021.

(b) Initial Public Offering

On July 2, 2021, the Company completed its initial public offering (“IPO”). The Company’s Registration Statement on Form S-1 (File No. 333-256949) relating to the IPO was declared effective by the Securities and Exchange Commission (“SEC”) on June 29, 2021. The shares began trading on The Nasdaq Global Market on June 30, 2021. The Company issued 9,984,463 shares of its common stock, including 1,302,321 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at an offering price of $14.00 per share. Immediately prior to the closing of the Company’s IPO on July 2, 2021, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into 14,182,854 shares of the Company’s common stock. In aggregate, the shares issued in the IPO generated approximately $126.9 million in net proceeds after deducting underwriting discounts and commissions and other offering costs.

At-the-Market Offering

On April 5, 2023, the Company entered into an ATM Equity Offering^SM Sales Agreement, or the Sales Agreement, with BofA Securities, Inc., or the Agent, pursuant to which the Company can sell, from time to time, at its option, up to an aggregate of $75.0 million of shares of its common stock, through the Agent, as its sales agent. As of May 15, 2023, no shares were sold under the Sales Agreement.

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 March 31, 2023, the Company had cash and cash equivalents and short-term investments of $118.9 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.

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(2) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 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 months ended March 31, 2023 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, 2022 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, 2022. 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”).

(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.

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, fair value of investments, and operating lease right-of-use assets and lease liabilities. 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.

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(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.

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


	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss	$	(16,520)	$	(10,910)
Net loss available to common stockholders	$	(16,520)	$	(10,910)

Denominator:
Weighted-average common stock outstanding, basic and diluted		24,777,847		24,410,393
Net loss per share, basic and diluted	$	(0.67)	$	(0.45)

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 March 31,
	2023	2022
Options to purchase common stock	5,107,865	3,703,931
Unvested restricted stock units	31,881	—
	5,139,746	3,703,931

(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.

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(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):


			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
	March 31,		Assets		Inputs		Inputs
	2023		(Level 1)		(Level 2)		(level 3)
Assets:
Cash equivalents
Money market funds	$	26,049	$	26,049	$	—	$	—
Total cash equivalents		26,049		26,049		—		—

Short-term investments
Commercial paper		53,686		—		53,686		—
U.S. Treasury bills		12,468		12,468		—		—
Agency bonds		26,204		—		26,204		—
Total short-term investments		92,358		12,468		79,890		—

Total fair value of assets	$	118,407	$	38,517	$	79,890	$	—


			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(level 3)
Assets:
Cash equivalents
Money market funds	$	18,436	$	18,436	$	—	$	—
Total cash equivalents		18,436		18,436		—		—

Short-term investments
Commercial paper		55,577		—		55,577		—
U.S. Treasury bills		26,841		26,841		—		—
Agency Bonds		24,405		—		24,405		—
Total short-term investments		106,823		26,841		79,982		—

Total fair value of assets	$	125,259	$	45,277	$	79,982	$	—

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.

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


		As of March 31, 2023
				Gross		Gross
		Amortized		unrealized		unrealized		Estimated fair
	Maturity	cost		gains		losses		value
Commercial paper	1 year or less		53,734		5		(53)		53,686
U.S. Treasury bills	2 years or less		12,525		—		(57)		12,468
Agency bond	2 years or less		26,300		2		(98)		26,204
		$	92,559	$	7	$	(208)	$	92,358


		As of December 31, 2022
				Gross		Gross
		Amortized		unrealized		unrealized		Estimated fair
	Maturity	cost		gains		losses		value
Commercial paper	1 year or less	$	55,645	$	16	$	(84)	$	55,577
U.S. Treasury bills	1 year or less		27,108		—		(267)		26,841
Agency bond	2 years or less		24,536		2		(133)		24,405
		$	107,289	$	18	$	(484)	$	106,823

The following tables summarize the Company’s short-term investments with unrealized losses for less than 12 months and 12 months or greater (in thousands):


		As of March 31, 2023
		Less than 12 months			12 months or Greater
			Unrealized				Unrealized		Total		Total Unrealized
		Fair Value	Losses		Fair Value		Losses		Fair Value		Losses
Commercial paper	$	35,656	$	(53)	$	—	$	—	$	35,656	$	(53)
U.S. Treasury bills		1,980		(3)		10,488		(54)		12,468		(57)
Agency bond		23,985		(98)		—		—		23,985		(98)
	$	61,621	$	(154)	$	10,488	$	(54)	$	72,109	$	(208)


		As of December 31, 2022
		Less than 12 months			12 months or Greater
			Unrealized				Unrealized		Total		Total Unrealized
		Fair Value	Losses		Fair Value		Losses		Fair Value		Losses
Commercial paper	$	34,928	$	(84)	$	—	$	—	$	34,928	$	(84)
U.S. Treasury bills		1,971		(6)		24,833		(261)		26,804		(267)
Agency bond		22,964		(133)		—		—		22,964		(133)
	$	59,863	$	(223)	$	24,833	$	(261)	$	84,696	$	(484)

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 March 31, 2023 and December 31, 2022 were caused by fluctuations in market value and interest rates as a result of the economic environment and not credit risk. As of March 31, 2023 and December 31, 2022, no allowance for credit losses was recorded. During the three months

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ended March 31, 2023 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.

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. Accrued interest receivable related to short-term investments was $0.3 million as of March 31, 2023 and December 31, 2022.

(4) BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets

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


	March 31,		December 31,
	2023		2022
Prepaid expenses	$	1,114	$	1,503
Other current assets		266		295
Prepaid research and development		260		478
Total prepaid expenses and other current assets	$	1,640	$	2,276

Accrued and Other Current Liabilities

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


	March 31,		December 31,
	2023		2022
Accrued research and development	$	4,267	$	2,751
Accrued payroll and other employee benefits		1,019		1,691
Other		252		380
Total accrued and other current liabilities	$	5,538	$	4,822

(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 March 31, 2023, the future minimum annual lease payments under the operating leases were as follows (in thousands):


	Total Minimum
	Lease Payments
2023		$	284
2024			508
2025			242
Total operating lease payments			1,034
Less: Amount representing interest			(70)
Present value of net minimum lease payments		$	964

As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date. The components of operating leases for the three months ended March 31, 2023 and year ended and December 31, 2022 were as follows (in thousands except lease term and discount rate):


	March 31,			December 31,
Operating lease liabilities:	2023			2022
Current		373			385
Non-current		591			705
Total lease liabilities	$	964		$	1,090
Weighted-average remaining lease term (in years)		2.2			2.4
Weighted-average incremental borrowing rate		6	%		6	%

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


	Three months ended March 31,
	2023		2022
Cash paid included in operating cash flows	$	123	$	54

Operating lease expense was as follows (in thousands):


	Three months ended March 31,
	2023		2022
Operating lease	$	111	$	51
Short-term lease		—		34
Total rent expense	$	111	$	85

(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.

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

As of March 31, 2023, the Company had reserved the following shares of common stock, on an as-converted basis, for future issuance:


		March 31, 2023
Common stock options granted and outstanding		5,107,865
Shares reserved for issuance under the 2021 Plan		933,657
Reserved for vesting of outstanding restricted stock units		31,881
Reserved for future ESPP issuances		463,360
Total		6,536,763

(7) STOCK-BASED COMPENSATION

(a) Stock Option Plan

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 March 31, 2023, a total of 4,565,333 shares of the Company’s common stock were 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. The number of shares available under the 2021 Plan increased by 976,415 and 988,918 shares, effective January 1, 2022 and January 1, 2023, respectively, 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 March 31, 2023, 3,631,676 options had been granted under the 2021 Plan, with 933,657 shares authorized under the 2021 Plan available for future issuance. As of March 31, 2023, a total of 1,513,414 options had been granted and were outstanding 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 three months ended March 31, 2023:


				Weighted-
				Average
				Remaining	Aggregate
		Weighted-Average		Contractual Term	Intrinsic Value
	Options	Exercise Price		(in years)	(in thousands)
Vested and expected to vest at December 31, 2022	4,110,219	$	9.23	8.46	$	82,490
Granted