Altimmune – SEC Filing

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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 September 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 001-32587

ALTIMMUNE, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-2726770
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

910 Clopper Road Suite 201S, Gaithersburg, Maryland		20878
(Address of Principal Executive Offices)		(Zip Code)

(240) 654-1450

(Registrant’s Telephone Number, Including Area Code)

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	ALT	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 Act). Yes ☐ No ⌧

As of November 4, 2022, there were 49,159,056 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

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ALTIMMUNE, INC.

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1

	Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (unaudited)	2

	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	23


PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	Signatures	26

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALTIMMUNE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30,		December 31,
	2022		2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	127,465	$	190,301
Restricted cash		34		34
Total cash, cash equivalents and restricted cash		127,499		190,335
Short-term investments		74,362		—
Accounts receivable		633		429
Income tax and R&D incentive receivables		3,720		5,410
Prepaid expenses and other current assets		4,790		7,952
Total current assets		211,004		204,126
Property and equipment, net		1,172		1,448
Intangible assets, net		12,419		12,419
Other assets		682		872
Total assets	$	225,277	$	218,865
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,419	$	2,034
Contingent consideration		—		6,090
Accrued expenses and other current liabilities		14,323		10,152
Total current liabilities		15,742		18,276
Other long-term liabilities		4,506		1,454
Total liabilities		20,248		19,730
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.0001 par value; 200,000,000 shares authorized; 49,161,637 and 40,993,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		5		4
Additional paid-in capital		566,551		497,342
Accumulated deficit		(356,224)		(293,171)
Accumulated other comprehensive loss, net		(5,303)		(5,040)
Total stockholders’ equity		205,029		199,135
Total liabilities and stockholders’ equity	$	225,277	$	218,865

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues	$	2	$	158	$	42	$	1,133
Operating expenses:
Research and development		20,262		29,206		51,359		54,356
General and administrative		4,492		4,156		13,329		11,636
Impairment loss on construction-in-progress		—		—		—		8,070
Total operating expenses		24,754		33,362		64,688		74,062
Loss from operations		(24,752)		(33,204)		(64,646)		(72,929)
Other income (expense):
Interest expense		(64)		(33)		(191)		(67)
Interest income		1,053		13		1,402		88
Other income (expense), net		50		(286)		185		(293)
Total other income (expense), net		1,039		(306)		1,396		(272)
Net loss before income taxes		(23,713)		(33,510)		(63,250)		(73,201)
Income tax benefit		197		—		197		—
Net loss		(23,516)		(33,510)		(63,053)		(73,201)
Other comprehensive income — unrealized (loss) gain on short-term investments		(143)		(2)		(263)		4
Comprehensive loss	$	(23,659)	$	(33,512)	$	(63,316)	$	(73,197)
Net loss per share, basic and diluted	$	(0.48)	$	(0.81)	$	(1.37)	$	(1.79)
Weighted-average common shares outstanding, basic and diluted		49,286,535		41,370,768		45,881,547		40,843,905

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)


								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity
Balance at December 31, 2021	40,993,768	$	4	$	497,342	$	(293,171)	$	(5,040)	$	199,135
Stock-based compensation	—		—		2,033		—		—		2,033
Exercise of stock options	95,771		—		197		—		—		197
Vesting of restricted stock awards including withholding, net	17,568		—		(170)		—		—		(170)
Issuance of common stock from Employee Stock Purchase Plan	16,450		—		113		—		—		113
Issuance of common stock in at-the-market offerings, net	335,485		—		2,990		—		—		2,990
Issuance of common stock upon exercise of warrants	1,760,854		—		—		—		—		—
Net loss	—		—		—		(19,430)		—		(19,430)
Balance at March 31, 2022	43,219,896	$	4	$	502,505	$	(312,601)	$	(5,040)	$	184,868
Stock-based compensation	—	$	—	$	2,048	$	—	$	—	$	2,048
Exercise of stock options	152,913		—		403		—		—		403
Vesting of restricted stock awards including withholding, net	(5,865)		—		(80)		—		—		(80)
Issuance of common stock in at-the-market offerings, net	2,157,717		1		21,346		—		—		21,347
Issuance of common stock related to contingent consideration liability	847,444		—		6,176		—		—		6,176
Unrealized (loss) gain on short-term investments	—		—		—		—		(120)		(120)
Net loss	—		—		—		(20,107)		—		(20,107)
Balance at June 30, 2022	46,372,105	$	5	$	532,398	$	(332,708)	$	(5,160)	$	194,535
Stock-based compensation	—	$	—	$	2,128	$	—	$	—	$	2,128
Exercise of stock options	76,161		—		268		—		—		268
Vesting of restricted stock awards including withholding, net	(7,744)		—		(140)		—		—		(140)
Issuance of common stock in at-the-market offerings, net	2,711,013		—		31,829		—		—		31,829
Issuance of common stock from Employee Stock Purchase Plan	9,945		—		68		—		—		68
Other increase	157		—		—		—		—		—
Unrealized loss on short-term investments	—		—		—		—		(143)		(143)
Net loss	—		—		—		(23,516)		—		(23,516)
Balance at September 30, 2022	49,161,637	$	5	$	566,551	$	(356,224)	$	(5,303)	$	205,029

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)


								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity
Balance at December 31, 2020	37,142,946	$	4	$	417,337	$	(186,421)	$	(5,044)	$	225,876
Stock-based compensation	—		—		1,218		—		—		1,218
Vesting of restricted stock awards including withholding, net	(6,349)		—		(92)		—		—		(92)
Issuance of common stock from Employee Stock Purchase Plan	8,733		—		106		—		—		106
Retirement of common stock in exchange for common stock warrant	(1,000,000)		—		(7,540)		(9,660)		—		(17,200)
Issuance of common stock warrant in exchange for retirement of common stock	—		—		17,200		—		—		17,200
Issuance of common stock in at-the-market offerings, net	2,110,800		—		34,178		—		—		34,178
Issuance of common stock upon cashless exercise of warrants	1,050		—		10		—		—		10
Unrealized gain on short-term investments	—		—		—		—		5		5
Net loss	—		—		—		(14,864)		—		(14,864)
Balance at March 31, 2021	38,257,180	$	4	$	462,417	$	(210,945)	$	(5,039)	$	246,437
Stock-based compensation	—	$	—	$	1,485	$	—	$	—	$	1,485
Exercise of stock options	38,217		—		94		—		—		94
Vesting of restricted stock awards including withholding, net	(7,583)		—		(90)		—		—		(90)
Issuance of common stock in at-the-market offerings, net	1,405,710		—		18,178		—		—		18,178
Unrealized (loss) gain on short-term investments	—		—		—		—		1		1
Net loss	—		—		—		(24,827)		—		(24,827)
Balance at June 30, 2021	39,693,524	$	4	$	482,084	$	(235,772)	$	(5,038)	$	241,278
Stock-based compensation	—	$	—	$	1,497	$	—	$	—	$	1,497
Exercise of stock options	398		—		6		—		—		6
Vesting of restricted stock awards including withholding, net	(6,521)		—		(124)		—		—		(124)
Issuance of common stock from Employee Stock Purchase Plan	15,367		—		119		—		—		119
Unrealized loss on short-term investments	—		—		—		—		(2)		(2)
Net loss	—		—		—		(33,510)		—		(33,510)
Balance at September 30, 2021	39,702,768	$	4	$	483,582	$	(269,282)	$	(5,040)	$	209,264

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(63,053)	$	(73,201)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of contingent consideration liability		86		1,560
Impairment loss on construction-in-progress		—		8,070
Stock-based compensation expense		6,209		4,200
Depreciation and amortization		31		434
Unrealized (gains) losses on foreign currency exchange		(183)		297
Changes in operating assets and liabilities:
Accounts receivable		(204)		3,036
Prepaid expenses and other assets		3,204		(5,263)
Accounts payable		(615)		(606)
Accrued expenses and other liabilities		7,555		6,916
Income tax and R&D incentive receivables		1,690		(1,714)
Net cash used in operating activities		(45,280)		(56,271)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of short-term investments		—		82,406
Purchases of short-term investments		(74,292)		(7,592)
Purchases of property and equipment, net		(88)		(11,970)
Cash paid for internally developed patents		—		(190)
Net cash (used in) provided by investing activities		(74,380)		62,654
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of deferred offering costs		—		(118)
Proceeds from issuance of common stock in at-the-market offerings, net		56,166		52,356
Proceeds from issuance of common stock from Employee Stock Purchase Plan		181		225
Proceeds from exercises of stock options, net		477		100
Net cash provided by financing activities		56,824		52,563
Net (decrease) increase in cash and cash equivalents and restricted cash		(62,836)		58,946
Cash, cash equivalents and restricted cash at beginning of period		190,335		115,952
Cash, cash equivalents and restricted cash at end of period	$	127,499	$	174,898

SUPPLEMENTAL NON-CASH ACTIVITIES:
Common stock issued related to contingent consideration liability	$	6,176	$	—
Operating lease liability and right of use asset addition	$	—	$	72

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Altimmune, Inc., headquartered in Gaithersburg, Maryland, United States, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware.

The Company is focused on developing treatments for obesity and liver diseases. The Company’s pipeline includes next generation peptide therapeutics for obesity and non-alcoholic steatohepatitis (“NASH”) (for both, pemvidutide, formerly known as ALT-801), and for chronic hepatitis B (HepTcell). Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff and raising capital, and has financed its operations through the issuance of common and preferred stock, long-term debt and proceeds from research grants and government contracts. The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K which was filed with the SEC on March 15, 2022. In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on the same basis as the audited consolidated financial statements, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2022 or any future years or periods.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2022, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC.

Use of Estimates

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic, including any resurgences or the emergence of new variants, may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change.

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The Company considered the potential impact of the COVID-19 pandemic on the Company’s estimates and assumptions and determined that there was not a material impact to the Company’s unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2022. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

3. Fair Value Measurements

The Company’s assets measured at fair value on a recurring basis as of September 30, 2022 consisted of the following (in thousands):


	Fair Value Measurement at September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - money market funds	$	123,921	$	123,921	$	—	$	—
Short-term investments		74,362		—		74,362		—
Total	$	198,283	$	123,921	$	74,362	$	—

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 consisted of the following (in thousands):


	Fair Value Measurement at December 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - money market funds	$	65,634	$	65,634	$	—	$	—
Total	$	65,634	$	65,634	$	—	$	—
Liabilities:
Contingent consideration liability (see Note 6)	$	6,090	$	—	$	—	$	6,090
Total	$	6,090	$	—	$	—	$	6,090

As described in Note 6 the remaining milestone payment underlying the contingent consideration liability was fully settled in shares of the Company’s common stock. As of September 30, 2022, the Company had no contingent consideration liability.

Short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data (Level 2). The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments had quoted prices as of September 30, 2022 as shown below (in thousands):


	September 30, 2022
	Amortized Cost		Unrealized Loss		Market Value
United States treasury securities	$	17,784	$	(112)	$	17,672
Commercial paper and corporate debt securities		49,931		(124)		49,807
Asset backed securities		6,910		(27)		6,883
Total	$	74,625	$	(263)	$	74,362

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. Assets recorded at fair value on a non-recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired. During the nine months ended September 30, 2022, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis. During the year ended December 31, 2021, the Company recorded non-cash impairment charges to property and equipment, net on a non-recurring basis (see below).

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Lonza Manufacturing Agreement

In March 2021, the Company expanded its manufacturing collaboration with Lonza Houston, Inc. (“Lonza”) for the manufacture of AdCOVID or other adenovirus-based vaccines. Under the expanded agreement, the Company had committed approximately $23.0 million to Lonza to procure long-lead equipment and construct a dedicated manufacturing suite for clinical and commercial production of adenovirus-based vaccines. In June 2021, the Company announced the discontinuation of further development of AdCOVID following the Company’s review of findings from its Phase 1 clinical trial. Construction continued at Lonza, and the Company assessed its strategic options with respect to the suite. This work was completed during the fourth quarter of 2021. The Company capitalized a total of $11.4 million as construction-in-progress (“CIP”) during the nine months ended September 30, 2021 under this expanded agreement.

In connection with the discontinuation of further development of AdCOVID, the Company recorded a non-cash impairment charge of $8.1 million in the unaudited consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021 to write-down the CIP associated with the construction of the Lonza facility to its fair value of $3.3 million as of September 30, 2021. As of September 30, 2021, the fair value of the CIP related assets was primarily determined utilizing the cost approach, which reflected the replacement cost of the asset being appraised, adjusted for contractual restrictions on the assets, the probability of satisfying the contractual restrictions, physical deterioration, functional obsolescence and economic obsolescence. The fair value measurement was considered a Level 3 measurement within the valuation hierarchy.

Furthermore, the remaining $3.3 million CIP was fully charged to impairment during the three months ended December 31, 2021 upon termination of the agreement.

4. Operating Leases

The Company rents office and laboratory space in the United States which expires in April 2025. Rent expense under the Company’s operating leases was $0.1 million and $0.4 million during each of the three and nine months ended September 30, 2022 and 2021, respectively. Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreement. The office space lease also includes an option to renew the lease as of the end of the term. The Company has determined that the lease renewal option is not reasonably certain of being exercised.

The cash paid for operating lease liabilities for each of the nine months ended September 30, 2022 and 2021 was $0.4 million.

Supplemental other information related to the operating leases balance sheet information is as follows (in thousands):



	September 30, 2022			December 31, 2021
Operating lease obligations (see Note 5 and 7)	$	1,230		$	1,535
Operating lease right-of-use assets (included in "Other assets" in Balance Sheet)	$	649		$	798
Weighted-average remaining lease term (years)		2.6			3.3
Weighted-average discount rate		7.2	%		7.2	%

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5. Accrued Expenses

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


	September 30, 2022		December 31, 2021
Accrued professional services	$	624	$	396
Accrued payroll and employee benefits		2,110		2,313
Accrued research and development		9,930		6,988
Lease obligation, current portion (see Note 4)		442		411
Income tax payable		1,169		—
Accrued interest and other		48		44
Total accrued expenses and other current liabilities	$	14,323	$	10,152

6. Contingent Consideration

The Company entered into an Agreement and Plan of Merger and Reorganization, dated July 8, 2019, by and among the Company, Springfield Merger Sub, Inc., Springfield Merger Sub, LLC, Spitfire Pharma, Inc. and David Collier, as the Stockholder Representative (the “Spitfire Merger Agreement”) to acquire all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”). Spitfire was a privately held, preclinical pharmaceutical company developing a novel GLP-1/glucagon receptor dual agonist for the treatment of NASH.

The transaction closed on July 12, 2019. The Company issued 1,887,250 unregistered shares of its common stock as upfront consideration to certain former securityholders of Spitfire, representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.

The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business. The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

The Spitfire Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows:

●

a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Spitfire Merger Agreement;

●

a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation (first patient, first dosing) of a Phase 2 clinical trial of a product candidate anywhere in the world (a “Phase 2 Milestone Event”); and

●

payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the Amended and Restated License Agreement, dated July 12, 2019, by and between Mederis Diabetes, LLC and Spitfire, within ten years following the approval of a new drug application filed with the FDA.

The Regulatory Milestones were payable in shares of the Company’s common stock, with the number of shares of the Company’s common stock issued in connection with each milestone amount, if any, dependent on the share price at the time of achievement. The number of shares issued in consideration for the IND Milestone Consideration Amount was determined based on the lower of (A) the average of the closing prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95.

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The number of shares issued in consideration for the Phase 2 Milestone Consideration Amount was determined based on the lower of (A) the average of the closing trading prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.

The contingent payments related to the Regulatory Milestones were stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity (“ASC 480”). Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months following issuance and 50% are released at 6 months following issuance. The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies. Accordingly, the Company will recognize the Sales Milestones when the contingency is probable and the amount can be reasonably estimated.

On November 3, 2020, the Company received acknowledgement from the Australian Government Department of Health on the Company’s submitted clinical trial notification (“CTN”) which triggered the obligation to settle the IND Milestone payment to the former owners. As a result, on November 19, 2020, the Company issued 1,694,906 shares of its common stock valued at $9.57 per share for the amount value of $13.6 million to the former Spitfire stockholders. Pursuant to the Spitfire Merger Agreement, the Company issued the shares within sixty days of the submission of the CTN, which was October 29, 2020. From September 30, 2020 through November 19, 2020, the date of issuance, the Company recognized a decrease in the fair value of the IND Milestone payment of $5.4 million to research and development expense and reclassified the balance in the contingent consideration liability associated with the fair value of the IND Milestone payment to equity in the Company’s consolidated balance sheet.

On April 26, 2022, the Company dosed the first patient in the Phase 2 MOMENTUM trial of pemvidutide in obesity, which triggered the obligation to pay the Phase 2 Milestone Consideration Amount to the former owners. As a result, on June 10, 2022, the Company issued 847,444 shares of its common stock valued at $8.55 per share for the amount value of $7.2 million to the former Spitfire stockholders. From the last valuation date on March 31, 2022 through June 10, 2022, the date of issuance, the Company recognized an increase in the fair value of the Phase 2 Milestone Consideration Amount of $1.9 million to research and development expense and reclassified the balance in the contingent consideration liability to equity in the Company’s consolidated balance sheet. As of September 30, 2022, the Company had no contingent consideration liability.

Below is a summary of the contingent consideration activity (in thousands):


	Nine Months Ended September 30,
	2022		2021
Beginning balance	$	6,090	$	5,390
Change in fair value		86		1,560
Fair value of payments settled in common stock (Phase II Milestone)		(6,176)		—
Ending balance	$	—	$	6,950

7. Other Long-Term Liabilities

During the nine months ended September 30, 2022, the Company received a total of $3.4 million in cash for research and development (“R&D”) incentive credit that the Company earned during the fiscal years 2021 and 2020 through the participation in the Australian research and development incentive credit program administered through the Australian Tax Office. The Company recorded the receipt as long-term liability until there is reasonable assurance that the Company will comply with the conditions attached to the incentive credit. See Note 2. Summary of Significant Accounting Policies in the Company’s 2021 Annual Report on Form 10-K for accounting policies related to research and development incentive credits.

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The Company’s other long-term liabilities are summarized as follows (in thousands):



	September 30, 2022		December 31, 2021
Research and development incentive credit	$	3,402	$	—
Lease obligation, long-term portion (see Note 4)		788		1,124
Conditional economic incentive grants		250		250
Other		66		80
Total other long-term liabilities	$	4,506	$	1,454

8. Common Stock

Public Offering

On July 16, 2020, the Company offered and sold (i) 3,369,564 shares of common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants of the Company to purchase 1,630,436 shares of common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of the Company’s common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The Company has assessed the Pre-Funded Warrants for appropriate equity or liability classification and determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”). The Pre-Funded Warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the Pre-Funded Warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time of issuance. As of September 30, 2022, 760,870 of the Pre-Funded Warrants were exercised, leaving 869,566 remaining Pre-Funded Warrants unexercised.

At-the-Market Offerings

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C. and B. Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offerings program under which the Company offered and sold shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million (the “Shares”) through the Sales Agents (the “2021 Offering”). All the Shares offered and sold in the 2021 Offering were issued pursuant to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on December 31, 2020, which was declared effective on January 11, 2021 (“2021 Shelf”), the prospectus supplement relating to the 2021 Offering filed with the SEC on February 25, 2021 and any applicable additional prospectus supplements related to the 2021 Offering that form a part of the Registration Statement.

During the nine months ended September 30, 2022, the Company sold 5,204,415 shares of Common Stock under the 2021 Agreement resulting in approximately $56.2 million in proceeds, net of $1.9 million commission and other offering costs. As of September 30, 2022, the Company has sold 10,004,869 shares of Common Stock under the 2021 Agreement resulting in approximately $121.0 million in proceeds, net of $4.0 million commission and other offering costs, As of September 30, 2022, there were no remaining shares available for issuance under the 2021 Agreement. The Company

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recorded approximately $0.3 million of other offering costs which offset the proceeds received from the shares sold through September 30, 2022.

Exchange Agreement

On February 25, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with an investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,000,000 shares of the Company’s common stock, par value $0.0001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.0001 per share. The Exchange Warrants did not have an expiration date and were exercisable at any time except that the Exchange Warrants could not be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99% of the Company’s common stock, subject to certain exceptions. In accordance with FASB Accounting Standards Codification Topic 505, Equity, the Company recorded the retirement of the common stock exchanged as a reduction of common shares outstanding and a corresponding debit to additional paid-in-capital and accumulated deficit at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants were classified as equity in accordance with ASC 480 and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in-capital and is not subject to remeasurement. The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants. On January 24, 2022, the Exchange Warrants to purchase 1,000,000 shares were net exercised, resulting in the issuance of 999,984 shares of common stock, and no Exchange Warrants remain outstanding.

9. Warrants

A summary of warrant activity during the nine months ended September 30, 2022 is as follows:


				Weighted-Average
			Weighted	Remaining
	Number of		Average	Contractual Term
	Warrants		Exercise Price	(Years)
Warrants outstanding, December 31, 2021	2,776,191
Expired	(155)
Exercises (see Note 8)	(1,760,870)
Warrants outstanding, September 30, 2022	1,015,166	$	0.66	1.2

The warrants outstanding as of September 30, 2022 included 869,566 Pre-Funded Warrants with an exercise price of $0.0001 per-share and no expiration date.

10. Stock-Based Compensation

Stock Options

The Company’s stock option awards generally vest over four years and typically have a contractual life of ten years. As of September 30, 2022, there was $13.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.6 years. During the nine months ended September 30, 2022, the Company granted 1,433,427 stock options with a weighted average exercise price of $8.39 and per share weighted average grant date fair value of $6.97.

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Information related to stock options outstanding as of September 30, 2022 is as follows (in thousands, except share and per share data):


				Weighted-Average
		Weighted-		Remaining
	Number of	Average		Contractual Term	Aggregate Intrinsic
	Stock Options	Exercise Price		(Years)	Value
Outstanding	3,528,473	$	9.09	5.9	$	16,975
Exercisable	1,382,587	$	8.75	5.8	$	7,824
Unvested	2,145,886	$	9.31	6.0	$	9,151