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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, 2023

OR

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

For the transition period from _____________ to _____________

Commission File Number: 001-40544

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 August 10, 2023, the registrant had 27,649,226 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 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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

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

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

78

Item 6.

Exhibits

78

Signatures

79

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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, two allowed U.S. applications, 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.

4

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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;

5

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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 future 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 par value amounts)

June 30, 

December 31, 

    

2023

    

2022

 

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

60,901

$

22,397

Short-term investments

 

89,195

 

106,823

Prepaid expenses and other current assets

 

2,374

 

2,276

Total current assets

 

152,470

 

131,496

Property and equipment, net

 

245

 

242

Operating lease right-of-use assets

 

811

 

1,003

Other long-term assets

 

2,229

 

2,560

Total assets

$

155,755

$

135,301

Liabilities and Stockholders’ Equity

Current liabilities:

 

  

 

  

Accounts payable

$

5,529

$

2,575

Accrued and other current liabilities

 

7,376

 

4,822

Operating lease liabilities

 

379

 

385

Total current liabilities

 

13,284

 

7,782

Operating lease liabilities, net of current portion

 

476

 

705

Other liabilities

 

69

 

71

Total liabilities

 

13,829

 

8,558

Commitments and contingencies (Note 5)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; no shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Common stock, $0.0001 par value; 150,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 27,601,098 and 24,722,974 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

3

 

2

Additional paid-in capital

 

265,594

 

215,110

Accumulated other comprehensive loss

 

(223)

 

(466)

Accumulated deficit

 

(123,448)

 

(87,903)

Total stockholders’ equity

 

141,926

 

126,743

Total liabilities and stockholders’ equity

$

155,755

$

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 June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

 

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

$

16,034

$

8,363

$

29,522

$

15,618

General and administrative

 

4,302

 

3,852

 

8,453

 

7,615

Total operating expenses

 

20,336

 

12,215

 

37,975

 

23,233

Loss from operations

 

(20,336)

(12,215)

 

(37,975)

 

(23,233)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income

 

1,312

 

230

 

2,432

 

338

Other expense

 

(1)

 

(6)

 

(2)

 

(6)

Total other income

 

1,311

 

224

 

2,430

 

332

Net loss

$

(19,025)

$

(11,991)

$

(35,545)

$

(22,901)

Comprehensive loss:

 

  

 

  

 

  

 

  

Net loss

$

(19,025)

$

(11,991)

$

(35,545)

$

(22,901)

Other comprehensive loss:

 

  

 

  

 

  

 

  

Unrealized gain (loss) on securities

 

(22)

 

(141)

 

243

 

(726)

Comprehensive loss

$

(19,047)

$

(12,132)

$

(35,302)

$

(23,627)

Net loss per share, basic and diluted

$

(0.76)

$

(0.49)

$

(1.42)

$

(0.94)

Weighted-average shares of common stock outstanding, basic and diluted

 

25,166,505

 

24,410,503

 

24,973,250

 

24,410,448

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

Unrealized loss on investments

 

 

 

 

(22)

 

 

(22)

Issuance of common stock in connection with ATM, net

2,662,721

1

44,282

44,283

Issuance of common stock upon exercise of stock options

 

106,756

 

 

333

 

 

 

333

Issuance of common stock under ESPP

13,866

228

228

Vesting of restricted stock units

815

Stock based compensation

3,034

3,034

Net loss

 

 

 

 

 

(19,025)

 

(19,025)

Balance at June 30, 2023

 

27,601,098

$

3

$

265,594

$

(223)

$

(123,448)

$

141,926

 

 

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

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

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, 

    

2023

    

2022

 

Cash flow from operating activities:

 

  

 

  

 

Net loss

$

(35,545)

$

(22,901)

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

 

  

 

  

Stock-based compensation expense

 

5,418

 

2,248

Depreciation and amortization expense

 

43

 

28

Accretion of discounts and amortization of premiums on investments, net

 

(1,310)

 

(32)

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and other current assets

 

(98)

 

5,493

Other long-term assets

 

(55)

 

(428)

Accounts payable

 

2,894

 

875

Accrued and other liabilities

 

2,554

 

191

Operating lease assets and liabilities, net

 

(43)

 

(11)

Other liabilities

 

(225)

 

Net cash used in operating activities

$

(26,367)

$

(14,537)

Cash flow from investing activities:

 

  

 

  

Purchases of short-term investments

(48,346)

(71,791)

Maturities of short-term investments

67,750

59,744

Purchases of property and equipment

 

(46)

 

(158)

Net cash provided by (used in) investing activities

$

19,358

$

(12,205)

Cash flow from financing activities:

 

  

 

  

Proceeds from sale of common stock in connection with ATM, net

 

44,888

 

Payments for offering costs

(159)

Proceeds from issuance of common stock under ESPP

228

Proceeds from issuance of common stock upon exercise of stock options

 

556

 

2

Net cash provided by financing activities

$

45,513

$

2

Net increase (decrease) in cash and cash equivalents

 

38,504

 

(26,740)

Cash and cash equivalents at the beginning of the year

 

22,397

 

54,197

Cash and cash equivalents at the end of the period

$

60,901

$

27,457

Supplemental disclosure of noncash investing and financing activities:

 

  

 

  

Right-of-use asset obtained in exchange for operating lease liability

$

$

765

Offering costs included in accounts payable

$

75

$

1

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) At-the-Market Offering

On April 5, 2023, the Company entered into an ATM Equity OfferingSM 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 June 30, 2023, 2,662,721 shares were sold under the Sales Agreement generating approximately $44.3 million of net proceeds after deducting Agent commissions and other offering costs. Following execution of the sale, the Company reclassified $0.6 million of deferred offering costs into additional paid-in capital.

(c) 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, 2023, the Company had cash, cash equivalents and available-for-sale securities of $150.1 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, cash equivalents and available-for-sale securities 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, 2023 and for the three and six months ended June 30, 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.

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The results for the three and six months ended June 30, 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) 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, 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.

(c) 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 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 June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Numerator:

 

  

 

  

 

  

 

  

Net loss

$

(19,025)

$

(11,991)

$

(35,545)

$

(22,901)

Net loss available to common stockholders

$

(19,025)

$

(11,991)

$

(35,545)

$

(22,901)

Denominator:

 

  

 

  

 

  

 

  

Weighted-average common stock outstanding, basic and diluted

 

25,166,505

 

24,410,503

 

24,973,250

 

24,410,448

Net loss per share, basic and diluted

$

(0.76)

$

(0.49)

$

(1.42)

$

(0.94)

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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, 

    

2023

    

2022

Options to purchase common stock

 

5,158,609

 

3,953,390

Unvested restricted stock units

31,066

1,631

 

5,189,675

 

3,955,021

(d) 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):

Fair Value Measurements Using

Quoted Prices in

Active Markets

Significant Other

Significant

for Identical

Observable

Unobservable

June 30, 

Assets

Inputs

Inputs

    

2023

    

(Level 1)

    

(Level 2)

    

(level 3)

Assets:

  

  

  

  

Cash equivalents

 

  

 

  

 

  

 

  

Money market funds

$

44,750

$

44,750

$

$

Commercial paper

 

4,992

 

 

4,992

 

Total cash equivalents

 

49,742

 

44,750

 

4,992

 

Short-term investments

 

  

 

  

 

  

 

  

Commercial paper

 

47,750

 

 

47,750

 

Agency bonds

38,458

38,458

U.S. Treasury bills

 

2,987

 

2,987

Total short-term investments

 

89,195

 

2,987

 

86,208

 

Total fair value of assets

$

138,937

$

47,737

$

91,200

$

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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, agency bonds 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):

As of June 30, 2023

 

Gross

Gross

 

Amortized

unrealized

unrealized

Estimated fair

 

    

Maturity

    

cost

    

gains

    

losses

    

value

 

Commercial paper

 

1 year or less

 

47,827

2

(79)

 

47,750

U.S. Treasury bills

 

2 years or less

 

2,995

 

 

(9)

 

2,986

Agency bonds

 

2 years or less

 

38,596

 

 

(137)

 

38,459

$

89,418

$

2

$

(225)

$

89,195

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 bonds

 

2 years or less

 

24,536

 

2

 

(133)

 

24,405

$

107,289

$

18

$

(484)

$

106,823

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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 June 30, 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

$

37,293

 

$

(79)

$

$

 

$

37,293

$

(79)

U.S. Treasury bills

 

2,193

 

(9)

 

 

 

2,193

(9)

Agency bonds

 

32,957

 

(132)

 

5,501

 

(5)

 

38,458

(137)

$

72,443

$

(220)

$

5,501

$

(5)

$

77,944

$

(225)

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 bonds

 

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 June 30, 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 June 30, 2023 and December 31, 2022, no allowance for credit losses was recorded. During the six months ended June 30, 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 gain (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 $0.5 million as of June 30, 2023 and $0.3 million as of December 31, 2022.

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(4) BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets

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