Amylyx Pharmaceuticals, Inc. (AMLX)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial information and the notes thereto appearing elsewhere in this Annual Report.

This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage pharmaceutical company with a mission to develop novel therapies for communities with high unmet medical needs. We have preclinical and clinical development programs underway in neurodegenerative diseases and endocrine conditions. We are advancing a pipeline in which we have matched investigational therapies with diseases where they can make the greatest impact, based on well-defined mechanistic rationale, clear clinical outcomes and biomarkers, and rigorous preclinical data, agnostic of modality. We are currently developing three investigational therapies for potential impact across several diseases: avexitide in PBH and congenital HI, AMX0035 in Wolfram syndrome and PSP, and AMX0114 in ALS.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $176.5 million. In January 2025, we received net proceeds of $65.5 million from the January 2025 Offering. We believe our existing cash, cash equivalents and marketable securities as of December 31, 2024, along with the proceeds from the January 2025 Offering, will be sufficient to meet our anticipated operating and capital expenditure requirements through 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources” below.

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Components of Our Results of Operations

Product Revenue, Net

Product revenue, net recognized during the years ended December 31, 2024 and 2023 relates to units of ALBRIOZA and RELYVRIO sold in Canada and the U.S., respectively. In April 2024, we announced we had started a process with the FDA and Health Canada to voluntarily discontinue the marketing authorizations for RELYVRIO®/ALBRIOZA™ (sodium phenylbutyrate and taurursodiol [also known as ursodoxicoltaurine]; also known as AMX0035) for the treatment of ALS and remove the product from the market in the U.S. and Canada, or the “RELYVRIO®/ALBRIOZA™ Discontinuation. This decision was informed by topline results from the global Phase 3 PHOENIX trial, which failed to meet its prespecified primary and secondary endpoints, engagement with regulatory authorities, and discussions with the ALS community. As a result, we do not expect to generate revenue from the sale of RELYVRIO®/ALBRIOZA™ in future periods.

As of April 4, 2024, RELYVRIO/ALBRIOZA was no longer available for new patients. Patients who were currently on therapy in the U.S. and Canada who, in consultation with their physician, wished to stay on treatment had the option to be transitioned to a free drug program. Patients and their physicians were informed that final shipments of free drug were made to allow treatment through early 2025. The NDA is now on the Discontinued Drug Product List of the Orange Book and we have filed a formal request to withdraw the NDA. We have completed the collection of data on survival and we will continue to share any learnings from PHOENIX to help inform future ALS research. We wound down the Open Label Extension as planned.

Operating Expenses

Cost of Sales

Cost of sales consists primarily of costs associated with the manufacturing of RELYVRIO, ALBRIOZA and certain period costs and losses on purchase commitments with contract manufacturing organizations. Following our announcement of a process to discontinue the marketing authorizations for RELYVRIO®/ALBRIOZA™ and remove the product from the market in the U.S. and Canada, we did not report product cost of sales following the discontinuation of these products.

Acquired In-process Research and Development Expenses

Acquired in-process research and development, or IPR&D, expenses relate to upfront or other payments pursuant to our business development transactions, including the Eiger Acquisition (as defined below).

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of avexitide, AMX0035, AMX0114 and other potential future product candidates. We expense research and development costs as incurred. These expenses include:

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expenses incurred under agreements with CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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manufacturing scale-up expenses and the cost of acquiring and manufacturing drug product for our preclinical studies and clinical trials, including manufacturing registration and validation batches, as well as pre-commercial manufacturing activities;

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expenses to acquire technologies to be used in research and development;

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employee-related expenses, including salaries, payroll taxes, related benefits and stock-based compensation expense for employees engaged in research and development functions; and

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costs related to compliance with quality and regulatory requirements.

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Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

Certain of our indirect research and development expenses are not tracked on an indication-by-indication basis. We do not allocate employee costs and facilities, including depreciation or other indirect costs, to specific indications because these costs are deployed across multiple indications and, as such, are not separately classified. We use internal resources to oversee the research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple indications and, therefore, we do not track their costs by indication.

Research and development activities are central to our business model. Product candidates such as avexitide and AMX0035 in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, such as AMX0114, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. Despite a decline in research and development expenses in 2024 compared to 2023, we expect that our research and development expenses will increase in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of avexitide, AMX0035 and any future product candidates. Our clinical development costs may vary significantly based on factors such as:

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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potential additional safety monitoring requested by regulatory agencies;

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

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the cost and timing of manufacturing our current or future product candidates;

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the phase of development of our current or future product candidates;

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the efficacy and safety profile from clinical trials and preclinical studies of our current or future product candidates; and

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the number of product candidates we are developing.

The successful development and commercialization of avexitide, AMX0035 and any other current or future product candidates is highly uncertain, due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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the timing and progress of preclinical and clinical development activities;

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the number and scope of preclinical and clinical trials for separate indications we decide to pursue;

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raising additional funds, if necessary;

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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

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our ability to maintain our current development activities and to establish new ones;

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our ability to establish new licensing or collaboration arrangements;

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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any other comparable foreign regulatory authority;

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the availability of drug substance and drug product for use in production of avexitide, AMX0035 or other product candidates;

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establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials;

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our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the U.S. and internationally;

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our ability to protect our rights in our intellectual property portfolio;

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obtaining and maintaining third-party insurance coverage and adequate reimbursement in the future for any approved products;

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the acceptance of our products and product candidates, if approved, by patients, the medical community and third-party payors;

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competition with other products; and

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a continued acceptable safety profile of our therapies in pre-approval market access programs or in commercial access following approval.

A change in the outcome of any of these variables with respect to the development of avexitide, AMX0035 or any other current or future product candidates could have a significant impact on the cost and timing associated with the development of our product candidates. We may never succeed in obtaining or maintaining, as applicable, regulatory approval for avexitide, AMX0035 or any other current or future product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, sales, marketing, as well as administrative functions. Selling, general and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; corporate insurance costs; administrative travel expenses; sales and marketing expenses; information technology; charitable donations to independent charitable foundations; facility-related and other operating costs. In April 2024, we announced the Restructuring Plan designed to focus our resources on key clinical and preclinical programs. The restructuring included a reduction in force which reduced our workforce by approximately 70% and a decrease in external financial commitments outside our priority areas. As a result, our selling, general and administrative expenses decreased in 2024 as compared to 2023. However, we expect that general and administrative expenses will increase in future periods as we advance our clinical pipeline.

Restructuring Expenses

Restructuring expenses consists primarily of employee severance and termination benefits, contract termination costs, impairment of long-lived assets and other costs. Such costs are based on estimates of fair value in the period liabilities are incurred. We evaluate and adjust these costs as appropriate for changes in circumstances as additional information becomes available.

Income Taxes

We have historically not incurred significant income taxes. We continue to maintain a full valuation allowance against all of our deferred tax assets based on management’s evaluation of all available evidence, including our history of incurring significant losses from operations. As a result, we don’t expect to incur material income taxes for the foreseeable future.

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Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

* NM - not meaningful

Product revenue, net

Product revenue, net was $87.4 million for the year ended December 31, 2024, compared to $380.8 million for the year ended December 31, 2023. Product revenue, net was related to units of RELYVRIO and ALBRIOZA sold in the U.S. and Canada, respectively, prior to the RELYVRIO®/ALBRIOZA™ Discontinuation.

Cost of sales

Cost of sales were $124.6 million for the year ended December 31, 2024, compared to $25.4 million for the year ended December 31, 2023. Cost of sales consisted of costs to procure, manufacture and distribute our marketed products, RELYVRIO and ALBRIOZA. As a result of the RELYVRIO®/ALBRIOZA™ Discontinuation, we recorded approximately $118.7 million of charges associated with the write-down of inventory and losses on firm purchase commitments for the year ended December 31, 2024.

Acquired In-process Research and Development Expenses

On July 9, 2024, we completed the acquisition of substantially all the assets and interests in the development, manufacture and commercialization of avexitide, an investigational, first-in-class GLP-1 receptor antagonist, from Eiger, or the Seller, or the Eiger Acquisition. During the year ended December 31, 2024, we recorded a charge of approximately $36.2 million associated with the acquired in-process research and development assets of avexitide with no alternative future use.

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Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023:

* NM - not meaningful

Research and development expenses were $104.1 million for the year ended December 31, 2024, compared to $128.2 million for the year ended December 31, 2023. The decrease of $24.1 million was primarily due to a $24.1 million decrease in spending on AMX0035 for the treatment of ALS following topline data from the PHOENIX trial in April 2024, an $8.1 million decrease in payroll and personnel-related costs due to a decrease in the number of employees following the completion of our Restructuring Plan, and a $5.2 million decrease in other costs due to an decrease in preclinical development activities.

The decrease in research and development expenses was offset by a $10.5 million increase in spending on AMX0035 for the treatment of PSP, and a $2.8 million increase in expenses for the development of avexitide following the Eiger Acquisition. The increase in spending on AMX0035 for the treatment of PSP was primarily related to costs to support the continuation of the ORION Phase 2b/3 global clinical trial.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $114.3 million for the year ended December 31, 2024 compared to $188.4 million for the year ended December 31, 2023. The decrease was primarily due to a decrease of $39.5 million in payroll and personnel-related costs, $25.5 million in consulting and professional services, and $9.1 million in other expenses. The decrease in payroll and personnel-related costs was primarily related to a decrease in the number of employees as a result of the Restructuring Plan. The decrease in consulting and professional services was primarily due to a decrease in commercial sales and marketing activity as a result of the RELYVRIO®/ALBRIOZA™ Discontinuation. The decrease in other expenses is primarily due to a decrease in charitable contributions.

Restructuring Expenses

In April 2024, we announced a restructuring to focus our financial resources on upcoming clinical milestones. Under the restructuring, we reduced our workforce by approximately 70% and decreased external financial commitments outside of our priority areas. Restructuring expenses were approximately $22.9 million for the year ended December 31, 2024 which includes employee severance and termination benefits of approximately $21.9 million, contract termination costs, impairment of long-lived assets and other costs of $1.0 million. We completed the Restructuring Plan in 2024.

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Liquidity and Capital Resources

Sources of Liquidity

In the second half of 2022, we began generating revenue from the sale of our approved drug product RELYVRIO, known as ALBRIOZA in Canada. In April 2024, we announced the RELYVRIO®/ALBRIOZA™ Discontinuation. We also announced the Restructuring Plan, which was designed to focus our resources on key clinical and preclinical programs and included a reduction in force which reduced our workforce by approximately 70% and decreased external financial commitments outside of our priority areas. We completed the Restructuring Plan in the second half of 2024.

In January 2025, we entered into an underwriting agreement with Leerink Partners LLC, as representative of the several underwriters named therein, relating to the issuance and sale of an aggregate of 19,714,285 shares of our common stock, which includes the exercise in full by the underwriters of their option to purchase an additional 2,571,428 shares, or the January 2025 Offering. The offering price per share was $3.50. The January 2025 Offering resulted in estimated proceeds of approximately $65.5 million, net of underwriting discounts and estimated offering expenses (see Note 18 Subsequent events).

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $176.5 million and an accumulated deficit of $606.7 million. We believe our existing cash, cash equivalents and marketable securities as of December 31, 2024, along with the proceeds from the January 2025 Offering, will be sufficient to meet our anticipated operating and capital expenditure requirements through 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Since inception, we have devoted substantially all of our efforts to research and development, pre-commercialization and commercialization activities, including recruiting management and technical staff, raising capital, producing materials for preclinical studies and clinical trials, and building infrastructure to support such activities. As of December 31, 2024, we have funded our operations primarily through public offerings of our common stock, private sales of preferred stock, convertible notes, and through revenue from sales of RELYVRIO and ALBRIOZA in the U.S. and Canada, respectively between July 2022 and April 2024.

We expect to finance our near-term operations through our existing cash, cash equivalents and marketable securities and if needed, the sale of equity, debt financings or other capital sources, including potential collaborations with other companies, royalty financings, or other strategic transactions. Our inability to raise capital or secure other funding as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances that our current operating plan will be achieved or that additional funding, if required, will be available on terms acceptable to us, or at all.

Capital Resources

Despite the decline in research and development and general administrative expenses in 2024 as compared to 2023, we expect our expenses to increase in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of avexitide, AMX0035 and any other current or future product candidates or acquire or in-license additional product candidates or products. We may also incur expenses related to business development activities, such as in-licensing or acquisition of product candidates. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. We expect to incur significant expenses as we:

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continue our research and development efforts of avexitide in PBH, or any other indications, and conduct clinical trials of avexitide;

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continue our research and development efforts of AMX0035, including our ongoing Phase 2b/3 trial of AMX0035 in PSP and our ongoing Phase 2 trial of AMX0035 for the treatment of Wolfram syndrome;

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continue to develop AMX0114, our antisense oligonucleotide, for the treatment of people living ALS;

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pursue INDs of AMX0035 for additional indications;

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conduct preclinical studies and clinical trials for AMX0035 for additional indications and for potential future product candidates;

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seek to identify and develop, acquire or in-license additional product candidates;

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experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges;

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develop the necessary processes, controls and manufacturing data to obtain marketing approval for current or future product candidates and to support manufacturing on a commercial scale;

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seek regulatory approvals for any current or future product candidates that successfully complete clinical trials, if any;

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incur expenses in preparation for commercialization for any approved product candidates related to product sales, marketing, manufacturing, and distribution;

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hire and retain additional personnel, such as preclinical, clinical, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, finance, general and administrative, commercial and scientific personnel; and

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develop, maintain, expand and protect our intellectual property portfolio.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

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the scope, progress, results and costs of drug discovery, laboratory testing, preclinical and clinical development for avexitide, AMX0035 and any future product candidates;

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the costs, timing and outcome of any future commercialization activities, including manufacturing, marketing, sales and distribution costs;

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the costs, timing and outcome of regulatory review of avexitide, AMX0035 and any future product candidates;

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our ability to establish and maintain collaborations, marketing, distribution and license agreements on favorable terms, if at all;

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our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development activities;

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timing delays with respect to preclinical and clinical development of avexitide, AMX0035 and any future product candidates, including as result of any future outbreak of any highly infectious or contagious diseases;

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costs associated with identifying and developing, acquiring or in-licensing additional product candidates or products;

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the costs of any future expansion of our facilities to accommodate our potential growth in personnel, and the costs of such additional personnel;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the extent to which we acquire technologies or other assets;

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the sales price and availability of adequate third-party coverage and reimbursement for any future product candidates, if and when approved;

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the costs of current and potential legal proceedings that may not be covered by our insurance; and

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the costs of operating as a public company.

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Until such time, if ever, that we can generate product revenue sufficient to sustain profitability, we may finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, current ownership interests will be diluted. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our sources and uses of cash for the years ended December 31, 2024 and 2023:

Operating Activities

During the year ended December 31, 2024, operating activities used $167.6 million of cash, primarily resulting from our net loss of $301.7 million, offset by non-cash items totaling $179.9 million including $118.7 million of inventory impairment and loss on firm purchase commitments, $33.0 million of non-cash stock-based compensation expense, $9.9 million in accretion of discounts on investments and $36.2 million of acquired IPR&D assets, which are classified as investing activities.

Changes in working capital totaled $45.8 million, primarily consisting of a $59.8 million decrease in accrued expenses, a $19.1 million decrease in accounts payable, a $9.3 million decrease in inventories and partially offset by a $39.6 million decrease in accounts receivable, net.

During the year ended December 31, 2023, operating activities provided $11.9 million of cash, primarily resulting from our net income of $49.3 million, non-cash stock-based compensation expense of $37.2 million and $1.1 million of depreciation expense, offset by an increase of $65.7 million in net cash used in our operating assets and liabilities and net amortization of premiums and discounts on investments of $9.9 million.

Net cash used in our operating assets and liabilities in 2023 primarily consisted of a $21.6 million increase in accrued expenses, a $15.9 million increase in accounts payable and a $1.8 million decrease in operating lease right-of-use assets. This was offset by a $73.1 million increase in inventories, a $24.7 million increase in accounts receivable, a $4.8 million increase in prepaid expenses and other current assets and a $2.0 million decrease in operating lease liabilities.

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Investing Activities

During the year ended December 31, 2024, net cash provided by investing activities was $75.7 million resulting from $344.0 million of investments that matured during the period offset by $232.0 million in purchases of marketable securities and a $36.2 million cash outflow to acquire IPR&D assets related to the Eiger Acquisition.

During the year ended December 31, 2023, net cash provided by investing activities was $92.1 million resulting from $394.1 million of investments matured during the period offset by $300.8 million in purchases of marketable securities and $1.2 million in purchases of property and equipment.

Financing Activities

During the year ended December 31, 2024, net cash provided by financing activities was $0.3 million. This amount consisted of $2.1 million of proceeds from exercises of stock options, offset by $1.8 million of withholding taxes paid on stock-based awards.

During the year ended December 31, 2023, net cash provided by financing activities was $3.5 million. This amount consisted of $7.0 million of proceeds from exercises of stock options, offset by $3.3 million of withholding taxes paid on stock-based awards and $0.1 million in payments of deferred offering costs.

Contractual Obligations and Commitments

We enter into agreements in the normal course of business with contract manufacturing organizations for raw material purchases and manufacturing services. As of December 31, 2024, the amounts committed under these agreements are not material.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Prior to the RELYVRIO®/ALBRIOZA™ Discontinuation, our accounting policy for revenue recognition had a substantial impact on reported results and relied on certain estimates. Specifically, revenue was reduced by variable consideration related to certain gross-to-net, or GTN. These GTN adjustments involve significant estimates and judgment, considering historical experience, payer channel mix (e.g., Medicare or Medicaid), current contract prices under applicable programs, unbilled claims and processing time lags and inventory levels in the distribution channel. Estimates were assessed each period and adjusted as required to revise information or actual experience. To date, actual GTN activity has not differed materially from our estimates. Because of the time elapsed since the RELYVRIO®/ALBRIOZA™ Discontinuation the remaining estimates and judgments related to revenue recognition are not considered significant as of December 31, 2024.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating

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with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary.

The estimate of accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs and other third-party service providers. Examples of estimated accrued research and development expenses include fees paid to:

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vendors in connection with preclinical development activities;

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CROs and investigative sites in connection with preclinical studies and clinical trials; and

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CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial information and the notes thereto appearing elsewhere in this Annual Report.

This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Amylyx Pharmaceuticals, Inc. is a commercial-stage biotechnology company with a mission to end the suffering caused by neurodegenerative diseases. We have been working in ALS and neurodegenerative diseases for over a decade and have been making significant progress in transforming the treatment of these diseases.

Since our founding in 2013, we have transformed from a research-stage company focused on addressing the needs of patients suffering from neurodegenerative diseases to a commercial enterprise with development programs across several indications.

Our first commercial product, AMX0035 (sodium phenylbutyrate [PB] and taurursodiol [TURSO], also known as RELYVRIO in the U.S. and ALBRIOZA in Canada) is the first and only ALS therapy of which we are aware that has been shown to slow disease progression, help maintain functional independence, and extend overall survival in the same clinical trial, with a generally well-tolerated side effect profile and oral administration. AMX0035 was commercially launched as RELYVRIO in the U.S. in October 2022 and commercially launched as ALBRIOZA in Canada in July 2022. Since the launch of RELYVRIO and ALBRIOZA through December 31, 2023, we have generated net product revenue of $403.0 million. We believe AMX0035 has the potential to become a widely-used ALS medication and provides an opportunity to transform ALS from a disease for which symptom management is the standard of care to a disease with meaningful interventions. In addition, we believe AMX0035 has the potential to be a foundational therapy for neurodegenerative diseases, meaning that it could be used alone or in conjunction with other therapies to change the treatment paradigm across a broad range of neurodegenerative diseases.

We are committed to bringing the benefits of AMX0035 to the more than 200,000 people living with ALS worldwide. We are building a global infrastructure to commercialize AMX0035 in additional jurisdictions where it may be approved and engaging with key stakeholders around the world to explore opportunities for access including the EU and Japan.

We continue to focus on the global PHOENIX Phase 3 clinical trial of AMX0035 for the treatment of ALS, a 48-week, randomized, double-blind, placebo-controlled trial at clinical sites in the U.S. and Europe, and expect to report topline results during or before the second quarter of 2024. If the data from PHOENIX are supportive, it will be the first time that two clinical trials have demonstrated a benefit in ALS. We believe that supportive PHOENIX data will further accelerate the commercial launch of AMX0035 and the transformation of the treatment of ALS.

In addition to ALS, we believe there is strong scientific rationale to use AMX0035 to treat other neurodegenerative diseases. AMX0035 was designed to slow or mitigate neurodegeneration by targeting ER stress and mitochondrial dysfunction, two connected central pathways that lead to neurodegeneration. We believe that our proprietary combination of PB and TURSO and their respective mechanisms of action will allow us to synergistically target abnormal cell death to better prevent neurodegeneration than treatment targeted at either mechanism of action alone. We are actively advancing clinical trials to evaluate AMX0035 in PSP and WS.

Since inception, we have devoted substantially all of our efforts to research and development, pre-commercialization and commercialization activities, including recruiting management and technical staff, raising capital, producing materials for preclinical studies and clinical trials, and building infrastructure to support such activities. As of December 31, 2023, we have funded our operations primarily through public offerings of our common stock, private sales of preferred stock, convertible notes, and more recently through revenue from sales of RELYVRIO and ALBRIOZA in the U.S. and Canada, respectively.

Prior to 2023, we had incurred operating losses and as of December 31, 2023, we had an accumulated deficit of $304.9 million. These losses resulted primarily from costs incurred in connection with research and development activities

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and selling, general and administrative costs associated with our operations. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our approved products. We may incur significant losses and our financial results will be highly dependent upon our successful commercialization of RELYVRIO in the U.S. We will continue to incur significant expenses as we advance AMX0035 and any other current or future product candidates through preclinical and clinical development, set up and initiate additional trials, hire additional clinical, scientific, management and administrative personnel, seek regulatory approval and pursue commercialization of any approved product candidates. To date, we have primarily developed AMX0035 and AMX0114 internally, with assistance from our network of CROs and other advisors. This has resulted in increased research and development spending but has enabled us to manage AMX0035 and AMX0114 efficiently through the development and manufacturing process.

We also expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. As a result, we may need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate sufficient revenue from product sales to sustain profitability, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies, royalty financings, or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances that our current operating plan will be achieved or that additional funding, if required, will be available on terms acceptable to us, or at all.

As of December 31, 2023, we had cash, cash equivalents and short-term investments of $371.4 million. We believe that the revenue we generate from commercial sales of AMX0035 in the U.S. and Canada and our existing cash, cash equivalents and short-term investments as of December 31, 2023, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least one year from the date of this Annual Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Impact of Macroeconomic Factors

The development of AMX0035 and any future product candidates could be disrupted and materially adversely affected in the future by any pandemic or calamity. In addition, economic uncertainty in various global markets, including in the U.S., Europe and the Middle East, caused by political instability and conflict, such as the ongoing conflicts in Ukraine and Israel, and economic challenges caused by global pandemics or other public health events, have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability and supply chain interruptions, which have caused record inflation globally. Our business, financial condition and results of operations could be materially and adversely affected by further negative impact on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen.

Although, to date, our business has not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the extent to which our operations will be impacted in the short and long term, or the ways in which such instability could impact our business and results of operations. The extent and duration of these market disruptions, whether as a result of the military conflict between Russia and Ukraine and effects of the Russian sanctions, the conflict in Israel, geopolitical tensions, record inflation or otherwise, are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this report.

For additional information on the various risks posed by the global economic uncertainty, please read the section entitled “Risk Factors” in this Annual Report.

Components of Our Results of Operations

Product Revenue, Net

In June 2022, AMX0035 received marketing authorization with conditions as ALBRIOZA by Health Canada for the treatment of ALS, and we began commercially selling ALBRIOZA within Canada in July 2022. In September 2022, AMX0035 received regulatory approval as RELYVRIO by the FDA for the treatment of ALS, and we launched RELYVRIO in the U.S. in October 2022. Product revenue, net recognized during the period relates primarily to units of ALBRIOZA and RELYVRIO sold in Canada and the U.S., respectively.

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Operating Expenses

Cost of Sales

Cost of sales consists primarily of costs associated with the manufacturing of RELYVRIO, ALBRIOZA and certain period costs, which include:

•
Direct materials costs;

•
Drug product manufacturing costs;

•
Packaging services;

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Transportation costs;

•
Manufacturing overhead costs; and

•
Royalties related to grants provided to us for the purpose of furthering the research and development of AMX0035 as a therapeutic benefit for ALS and AD. For additional information refer to Note 18 to our consolidated financial statements appearing at the end of this Annual Report.

As a result of global macroeconomic conditions, we may experience some disruption and volatility in our global supply chain network, and we may in the future experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of AMX0035. We expense research and development costs as incurred. These expenses include:

•
expenses incurred under agreements with CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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manufacturing scale-up expenses and the cost of acquiring and manufacturing drug product for our preclinical studies and clinical trials, including manufacturing registration and validation batches, as well as pre-commercial manufacturing activities;

•
expenses to acquire technologies to be used in research and development;

•
employee-related expenses, including salaries, payroll taxes, related benefits and stock-based compensation expense for employees engaged in research and development functions; and

•
costs related to compliance with quality and regulatory requirements.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

Certain of our indirect research and development expenses are not tracked on an indication-by-indication basis for AMX0035. We do not allocate employee costs and facilities, including depreciation or other indirect costs, to specific indications because these costs are deployed across multiple indications and, as such, are not separately classified. We use internal resources to oversee the research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple indications and, therefore, we do not track their costs by indication.

Research and development activities are central to our business model. Product candidates such as AMX0035 in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, such as AMX0114, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. We expect that our research and development expenses will continue to increase in connection with our planned clinical development activities in the near term and in the future and to fund commercialization activities in the U.S., Canada and any other jurisdictions in which AMX0035 is approved. At this time, we cannot accurately

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estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of AMX0035 and any future product candidates. Our clinical development costs may vary significantly based on factors such as:

•
per patient trial costs;

•
the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

•
potential additional safety monitoring requested by regulatory agencies;

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

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the cost and timing of manufacturing our current or future product candidates;

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the phase of development of our current or future product candidates;

•
the efficacy and safety profile from clinical trials and preclinical studies of our current or future product candidates; and

•
the number of product candidates we are developing.

The successful development and commercialization of AMX0035 and any other current or future product candidates is highly uncertain, due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

•
the timing and progress of preclinical and clinical development activities;

•
the number and scope of preclinical and clinical trials for separate indications we decide to pursue;

•
raising additional funds, if necessary;

•
the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

•
our ability to maintain our current development activities and to establish new ones;

•
our ability to establish new licensing or collaboration arrangements;

•
the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to Health Canada, the FDA or the EMA, or any other comparable foreign regulatory authority;

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the successful implementation and compliance with the terms of regulatory approvals from applicable regulatory authorities, including our marketing authorization with conditions from Health Canada for ALBRIOZA and the post-marketing requirements from the FDA for RELYVRIO;

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the successful receipt and related terms of regulatory approval for AMX0035 for the treatment of ALS, if approved in the future by the European Commission;

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the availability of drug substance and drug product for use in production of AMX0035;

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establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing;

•
our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the U.S. and internationally;

•
our ability to protect our rights in our intellectual property portfolio;

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•
the successful commercialization of ALBRIOZA in Canada and RELYVRIO in the U.S. of AMX0035 in other potential jurisdictions, if and when approved;

•
obtaining and maintaining third-party insurance coverage and adequate reimbursement;

•
the acceptance of our products and product candidates, if approved, by patients, the medical community and third-party payors;

•
competition with other product; and

•
a continued acceptable safety profile of our therapies in pre-approval market access programs or in commercial access following approval.

A change in the outcome of any of these variables with respect to the development of AMX0035 or any future product candidates could have a significant impact on the cost and timing associated with the development of our product candidates. We may never succeed in obtaining or maintaining, as applicable, regulatory approval for AMX0035 or any future product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, sales, marketing, as well as administrative functions. Selling, general and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; corporate insurance costs; administrative travel expenses; sales and marketing expenses; information technology; charitable donations to independent charitable foundations; facility-related and other operating costs. We anticipate that our selling, general and administrative expenses will continue to increase in the future as we further increase our headcount to support our continued research activities and development of AMX0035 and as we commercialize AMX0035. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We have received marketing authorization with conditions for ALBRIOZA for the treatment of ALS in Canada and marketing authorization for RELYVRIO for the treatment of ALS in adults in the U.S.

Other Income, Net

Interest Income

Interest income consists primarily of the amortization of premiums and accretion of discounts on our short-term investments, and interest income earned on our cash, cash equivalents and short-term investments.

Other Expense, Net

Other expense, net consists primarily of net realized and unrealized losses on foreign exchange transactions.

Income Taxes

Income taxes are determined using the asset and liability approach. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for tax attribute carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. Realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. During 2023, a portion of our valuation allowance has been reversed with respect to amounts we realized through current year U.S. federal and state taxable income. We continue to maintain a full valuation allowance against all of our U.S. deferred tax assets as of December 31, 2023 based on management’s evaluation of all available evidence, including our history of incurring significant losses from operations. Our evaluation of all available evidence also includes consideration of regulatory approvals of and developments related to ALBRIOZA and RELYVRIO, including actual and forecasted revenues generated from the sale of these products. Given the early stage of our product commercialization, we are uncertain about the timing and amount of future sales. We may release all or a portion of the remaining valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to,

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among other things, our level of profitability, revenue growth, clinical program progression and expectations regarding future profitability.

As of December 31, 2023 and 2022, we had NOL carryforwards of approximately $69.8 million and $203.2 million, respectively, and state NOL carryforwards of approximately $124.6 million and $164.1 million, respectively, which are available to reduce future taxable income. All U.S. federal NOL carryforwards as of December 31, 2023 carry forward indefinitely. Of the $124.6 million state net operating loss carryforwards, $82.8 million relate to Massachusetts and begin to expire in 2035. As of December 31, 2023 and 2022, we also had federal tax credits of $6.8 million and $4.6 million, respectively, and state tax credits of $1.6 million and $1.2 million, respectively. The tax credit carryforwards will expire at various dates beginning in 2035.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:

* NM - not meaningful

Product revenue, net

We began commercially selling ALBRIOZA within Canada in July 2022 and RELYVRIO within the U.S. in October 2022. For the years ended December 31, 2023 and 2022, we recorded approximately $380.8 million and $22.2 million of product revenue, net, respectively. The increase is primarily related to RELYVRIO and ALBRIOZA being sold for the entirety of 2023 compared to the majority being sold in the fourth quarter in 2022. For further discussion regarding our revenue recognition policy, see Note 2, Summary of Significant Accounting Policies, in the Notes to the consolidated financial statements included this Annual Report.

Cost of sales

Cost of sales were $25.4 million for the year ended December 31, 2023, compared to $3.0 million for the year ended December 31, 2022. During these periods, cost of sales consisted of costs to procure, manufacture and distribute our marketed products, RELYVRIO and ALBRIOZA. In addition, included in cost of sales are costs to manufacture our marketed products, which have been provided to certain patients at no cost to them through either our interim access or patient assistance programs. Drug product given to patients at no cost to them is not included in product revenue, net. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, certain of the costs of units recognized as revenue during the years ended December 31, 2023 and 2022, or approximately $11.2 million and $3.4 million, respectively, were expensed prior to obtaining regulatory approvals and, therefore, are not included in cost of sales during these periods. We expect cost of sales to increase and gross margin to decrease as we deplete these inventories. We expect to use the remaining pre-commercialization inventory for product sales in the second quarter of 2024.

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Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022:

Research and development expenses were $128.2 million for the year ended December 31, 2023, compared to $93.5 million for the year ended December 31, 2022. During these periods, most of our research and development expenses were related to the development and clinical trials of AMX0035. The increase of $34.7 million was primarily due to a $16.2 million increase in payroll and personnel-related costs, which includes a $4.2 million increase in stock-based compensation, a $5.4 million increase in spending on AMX0035 for the treatment of PSP, a $4.3 million increase in spending on AMX0035 for the treatment of ALS and a $8.8 million increase in all other costs. The increase in payroll and personnel-related costs was primarily due to an increase in the number of employees supporting research and development efforts. The increase in spending on AMX0035 for the treatment of PSP was primarily related to costs to support the initiation of the ORION Phase 3 trial. The increase in spending on AMX0035 for ALS was primarily related to costs associated with our global Phase 3 PHOENIX trial, including its open label extension phase and the increase in other costs were primarily due to an increase in preclinical development activities. We expect to increase research and development for AMX0035 in other indications in future periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $188.4 million for the year ended December 31, 2023 compared to $127.1 million for the year ended December 31, 2022. The increase of $61.2 million was primarily due to increases of $30.2 million in payroll and personnel-related costs, which includes an $11.2 million increase in stock-based compensation, $16.1 million in consulting and professional services and $14.9 million in other expenses. The increase in payroll and personnel-related costs was primarily due to hiring additional personnel in commercial and general and administrative functions to support our growth, as well as commercialization preparation initiatives in the EU. The increases in consulting and professional services and other expenses were primarily due to an increase in spending for commercial activities, operations as a public company, and other expenses.

Other Income, Net

Interest Income

Interest income for the year ended December 31, 2023 was $16.2 million compared to $4.3 million for the year ended December 31, 2022. The increase was primarily attributable to favorable interest rates and higher short-term investment and cash equivalent balances driven by the proceeds received from our 2022 follow-on offering and cash receipts from sales of AMX0035.

Provision for Income Taxes

We recorded an income tax provision of $5.0 million and $0.8 million for the years ended December 31, 2023 and 2022, respectively. The income tax provision for the year ending December 31, 2023 includes the release of a portion of our valuation allowance with respect to amounts expected to be realized through current year U.S. federal and state taxable income. Current year U.S. federal and state taxable income is significantly impacted by a TCJA tax law change in effect from January 1, 2022 that requires capitalization and amortization of all research and experimentation costs under Section 174 of the IRC.

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Liquidity and Capital Resources

Sources of Liquidity

In the second half of 2022, we began generating revenue from the sale of our approved drug product RELYVRIO, known as ALBRIOZA in Canada. To date, we have financed our operations primarily through revenue from the sale of our approved products, the sale and issuance of common stock, convertible preferred stock and convertible notes. As of December 31, 2023, we had cash, cash equivalents and short-term investments of $371.4 million.

From inception through December 31, 2023, we have raised $669.3 million in aggregate proceeds, net of issuance costs, primarily from the issuance of common stock, convertible preferred stock, convertible notes and grant agreements. Based on our current operational plans and assumptions, we believe that the revenue we generate from commercial sales of AMX0035 in the U.S. and Canada and our existing cash, cash equivalents, and short-term investments, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Capital Resources

We expect our expenses to increase in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of AMX0035 and any other current or future product candidates, execute on our commercialization plans for ALBRIOZA in Canada and RELYVRIO in the U.S., and prepare for the commercial launch of AMX0035 in other jurisdictions, if approved. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. Because we no longer qualify as an emerging growth company as defined in the JOBS Act and we are now considered a large accelerated filer, we are no longer entitled to rely on exemptions from certain compliance requirements that are applicable to companies that are emerging growth companies including, among other requirements, the auditor attestation requirements of Section 404(b) and reduced reporting requirements. Our expenses will also increase as we:

•
continue our research and development efforts, including our ongoing Phase 3 trial of AMX0035 in PSP and our ongoing Phase 2 trial of AMX0035 for the treatment of WS;

•
continue to develop AMX0114, antisense oligonucleotide, for the treatment of people living ALS;

•
continue to commercialize AMX0035 (also known as ALBRIOZA in Canada and RELYVRIO in the U.S.) for the treatment of ALS in Canada and the U.S., and pursue launch of AMX0035 in other jurisdictions, if approved;

•
pursue INDs of AMX0035 for additional indications;

•
conduct preclinical studies and clinical trials for AMX0035 for additional indications and for potential future product candidates;

•
seek to identify and develop, acquire or in-license additional product candidates;

•
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges;

•
develop the necessary processes, controls and manufacturing data to obtain additional marketing approval for AMX0035 or approval for any future product candidates and to support manufacturing on a commercial scale;

•
seek additional regulatory approvals for AMX0035 or approvals for any future product candidates that successfully complete clinical trials, if any;

•
hire and retain additional personnel, such as preclinical, clinical, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, finance, general and administrative, commercial and scientific personnel; and

•
develop, maintain, expand and protect our intellectual property portfolio.

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Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

•
the scope, progress, results and costs of drug discovery, laboratory testing, preclinical and clinical development for AMX0035 and any future product candidates;

•
the costs, timing and outcome of commercialization activities, including manufacturing, marketing, sales and distribution for AMX0035 in the U.S. and Canada, and, if approved, in the EU and other territories or for any future product candidates for which we receive regulatory approval;

•
the costs, timing and outcome of regulatory review of AMX0035 and any future product candidates;

•
our ability to establish and maintain collaborations, marketing, distribution and license agreements on favorable terms, if at all;

•
our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development activities;

•
timing delays with respect to preclinical and clinical development of AMX0035 and any future product candidates, including as result of any future outbreak of any highly infectious or contagious diseases;

•
the costs of expanding our facilities to accommodate our expected growth in personnel, and the costs of such additional personnel;

•
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•
the extent to which we acquire technologies or other assets;

•
the sales price and availability of adequate third-party coverage and reimbursement for AMX0035 and any future product candidates, if and when approved; and

•
the costs of operating as a public company.

Until such time, if ever, that we can generate product revenue sufficient to sustain profitability, we may finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, current ownership interests will be diluted. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Cash Flows

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our sources and uses of cash for the years ended December 31, 2023 and 2022:

Operating Activities

During the year ended December 31, 2023, operating activities provided $11.9 million of cash, primarily resulting from our net income of $49.3 million, non-cash stock-based compensation expense of $37.2 million and $1.1 million of depreciation expense, offset by an increase of $65.7 million in net cash used in our operating assets and liabilities and net amortization of premiums and discounts on investments of $9.9 million.

Net cash used in our operating assets and liabilities primarily consisted of a $21.6 million increase in accrued expenses, a $15.9 million increase in accounts payable and a $1.8 million decrease in operating lease right-of-use assets. This was offset by a $73.1 million increase in inventories, a $24.7 million increase in accounts receivable, a $4.8 million increase in prepaid expenses and other current assets and a $2.0 million decrease in operating lease liabilities.

During the year ended December 31, 2022, operating activities used $179.9 million of cash, primarily resulting from our net loss of $198.4 million and net amortization of premiums and discounts on investments of $2.1 million, offset by $21.7 million of non-cash stock-based compensation expense, $0.5 million of depreciation expense and a $1.6 million increase in net cash used in our operating assets and liabilities.

Net cash used in our operating assets and liabilities primarily consisted of a $26.1 million increase in accrued expenses and deferred rent due to increased spending for external research and development to support our growth, a $1.9 million increase in accounts payable and a $0.5 million decrease in interest receivable from short-term investments. This was offset by a $15.3 million increase in accounts receivable, a $9.8 million increase in inventories, a $0.5 million increase in other assets and a $5.2 million increase in prepaid expenses and other current assets.

Investing Activities

During the year ended December 31, 2023, net cash provided by investing activities was $92.1 million resulting from $394.1 million of investments matured during the period offset by $300.8 million in purchases of short-term investments and $1.2 million in purchases of property and equipment.

During the year ended December 31, 2022, net cash used in investing activities was $239.0 million, resulting from $2.5 million in purchases of property and equipment and $415.9 million in purchases of short-term investments, offset by $179.4 million of investments matured during the period.

Financing Activities

During the year ended December 31, 2023, net cash provided by financing activities was $3.5 million. This amount consisted of $7.0 million of proceeds from exercises of stock options, offset by $3.3 million of withholding taxes paid on stock-based awards and $0.1 million in payments of deferred offering costs.

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During the year ended December 31, 2022, net cash provided by financing activities was $431.8 million. This amount consisted of $200.9 million of proceeds from our initial public offering, or IPO, net of underwriter’s discounts and commissions, $231.6 million of proceeds from our 2022 follow-on offering, net of underwriter’s discounts and commissions, and $2.2 million of proceeds from exercises of stock options, offset by $2.8 million in payments of deferred offering costs.

Purchase Commitments

We enter into agreements in the normal course of business with contract manufacturing organizations for raw material purchases and manufacturing services. As of December 31, 2023, we had committed approximately $195.0 million under these agreements related to raw material purchases and manufacturing services, which are expected to be paid through 2028.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Our accounting policy for revenue recognition has a substantial impact on reported results and relies on certain estimates. Revenue is recognized following a five-step model under ASC Topic 606 - Revenue from Contracts with Customers, or Topic 606. Revenue is also reduced by variable consideration related to certain gross-to-net, or GTN, adjustments discussed below. These GTN adjustments involve significant estimates and judgment after considering historical experience, payer channel mix (e.g., Medicare or Medicaid), current contract prices under applicable programs, unbilled claims and processing time lags and inventory levels in the distribution channel. Estimates are assessed each period and adjusted as required to revise information or actual experience. In accordance with Topic 606, we recognize revenue on product sales when the customer obtains control of our product, which occurs at a point in time (upon delivery). Product revenues are recorded net of applicable GTN adjustments, including discounts and allowances. Payment from customers is typically due within 30 calendar days of the invoice date.

We will adjust our GTN estimates based on new information, including information regarding actual activity, as it becomes available. To date, actual GTN activity has not differed materially from our estimates. The following categories of GTN adjustments involve significant estimates, judgments and information obtained from external sources.

Provider Chargebacks and Discounts

We participate in programs with government entities such as the U.S. Department of Veterans Affairs, and other parties, including covered entities under the 340B Drug Pricing Program, whereby pricing on products is extended below wholesaler list price to participating entities. These entities purchase products through wholesalers at the lower program price and the wholesalers then charge us the difference between their acquisition cost and the lower program price. Product revenue and accounts receivable is reduced for the estimated amount of unprocessed charge-back claims attributable to a sale.

Customers are offered cash discounts as an incentive for prompt payment. Product revenue and accounts receivable is reduced for the estimated amount of cash discount at the time of sale and the discount is typically taken by the customer

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within one month.

Payor rebates

We participate in state government Medicaid programs and other qualifying Federal and state government programs requiring discounts and rebates to participating state and local government entities. All discounts and rebates provided through these programs are included in our Medicaid rebate accrual. Our rebate accrual calculations require us to estimate the magnitude of our revenue that will be subject to these rebates. Our rebate accruals are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue. The estimated amount of unpaid or unbilled rebates is presented as a liability.

Rebates and discounts are offered to managed healthcare organizations in the U.S. managing prescription drug programs and Medicare Advantage prescription drug plans covering the Medicare Part D drug benefit. The estimated amount of unpaid or unbilled rebates and discounts is presented as a liability.

Other incentives, returns, discounts and adjustments

Other GTN adjustments include incentives which we offer and includes voluntary patient assistance programs, such as our co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with the product that has been recognized as revenue for each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets.

Estimated product returns for established products are determined using quantitative and qualitative information including, but not limited to, expected experience with returns, projected demand, levels of inventory in the distribution channel, product dating and expiration period, and whether products have been discontinued, among others. The Company has received an immaterial amount of returns to date and believe that returns of product in future periods will be minimal.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary.

The estimate of accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs and other third-party service providers. Examples of estimated accrued research and development expenses include fees paid to:

•
vendors in connection with preclinical development activities;

•
CROs and investigative sites in connection with preclinical studies and clinical trials; and

•
CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the

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performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Income Taxes

We account for income taxes using the asset and liability approach. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for tax attribute carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. Realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2023, we continued to maintain a full valuation allowance against all of our U.S. federal and state deferred tax assets based on management’s evaluation of all available evidence, including our history of incurring significant losses from operations. Our evaluation of all available evidence also includes consideration of revenue generated from the sale of ALBRIOZA and RELYVRIO in 2023. Given the early stage of our product launch, we are uncertain about the timing and amount of future sales that would result in sustained profitability that provides sufficient positive objective evidence of the recoverability of our deferred tax assets. We may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to, among other things, our level of profitability, revenue growth, clinical program progression and expectations regarding future profitability. We may become subject to income tax audits and adjustments by local tax authorities. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. We develop our assessment of uncertain tax positions, and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax expense.

Inventory Valuation

We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of our inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We classify inventory as long-term when consumption or sale of the inventory is expected beyond twelve months. We perform an assessment of the recoverability of capitalized inventory during each reporting period, and we write down any excess and obsolete inventories to their estimated net realizable value in the period in which impairment is first identified. Such impairment charges, should they occur, are recorded within cost of sales. The determination of whether inventory costs will be realizable requires estimates by management such as the future demand of our products, estimated future sales, the remaining shelf life of goods on hand, and our current and future strategic plans.

If actual demand for our product declines, or if actual market conditions are less favorable than those projected by management, additional write-downs of inventory may be required which would be recorded as cost of sales in the consolidated statements of operations. Additionally, our product is subject to strict quality control and monitoring that we perform throughout the manufacturing process. In the event that certain batches or units of product do not meet quality specifications, we will record a charge to cost of sales, to write down any unmarketable inventory to its estimated net realizable value.

Although we believe that the assumptions we use in estimating inventory write-downs are reasonable, no assurance can be given that significant future changes in these assumptions or changes in future events and market conditions could result in different estimates.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial information and the notes thereto appearing elsewhere in this Annual Report.

This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Our mission is to one day end the suffering caused by neurodegenerative diseases. We are committed to supporting and creating more moments for the neurodegenerative disease community through the discovery and development of innovative new treatments. Our first product, RELYVRIO® (sodium phenylbutyrate and taurursodiol), previously known as AMX0035 in the U.S., is approved in the U.S. for the treatment of ALS in adults. AMX0035 is also approved with conditions by Health Canada and marketed as ALBRIOZA for the treatment of ALS in Canada.

Unlike most other cells in the body that regularly die and are replaced as part of healthy function, mature neurons are normally resistant to cell death and generally cannot regenerate. We believe AMX0035 is the first drug candidate to show both a functional and survival benefit in a large-scale clinical trial of patients with amyotrophic lateral sclerosis, or ALS. The results of our Phase 2 clinical trial of AMX0035, known as the CENTAUR trial, were published in the New England Journal of Medicine, in two publications in Muscle & Nerve, and in the Journal of Neurology, Neurosurgery, and Psychiatry.

AMX0035 is a dual UPR-Bax apoptosis inhibitor composed of PB and TURSO (also known as TUDCA). Through the resolution of the UPR and by inhibiting translocation of the Bax to the outer mitochondrial membrane, we have shown in multiple models that AMX0035 can keep neurons alive under a variety of different conditions and stresses, including in in vitro models of neurodegeneration, endoplasmic reticulum, or ER, stress, mitochondrial dysfunction, oxidative stress and disease-specific models of a variety of other conditions, as well as in vivo models of ALS, Alzheimer’s disease, or AD, and multiple sclerosis, or MS. We believe AMX0035 has the potential to be a foundational therapy, meaning that it could be used alone or in conjunction with other therapies to change the treatment paradigm across a broad range of neurodegenerative diseases. We are pursuing ALS as our first indication as it is a disease of rapid and profound neurodegeneration, and we are focused on the development and potential commercialization of AMX0035 for ALS globally.

We have received marketing authorization with conditions by Health Canada for ALBRIOZA for the treatment of ALS. We announced commercial availability of the product in July 2022. We have submitted to and received from the national reimbursement authorities, known as the Canadian Agency for Drugs and Technologies in Health, or CADTH, and l’Institut national d’excellence en santé et en services sociaux, or INESSS, recommendations regarding reimbursement for ALBRIOZA by the Canadian provincial governments, and are negotiating with both public and private payers to obtain reimbursement coverage.

We received approval by the FDA for RELYVRIO in September 2022, and commercial product was first available in October 2022. This decision represented Amylyx’ first regulatory approval of AMX0035 in the U.S. and its second worldwide.

We are also actively pursuing regulatory approval of AMX0035 for the treatment of ALS in Europe. Our MAA remains under review by the Committee for Medicinal Products for Human Use, or CHMP, of the EMA. We submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in Europe in the first quarter of 2022, which was validated in the same quarter. We completed the Scientific Advisory Group meeting. Certain major objections remain, and the CHMP has adopted another round of questions as part of the regulatory process. We are now in possession of those questions. In order to respond in accordance with the updated timelines, we now expect an opinion from CHMP mid-year and a decision in the third quarter of 2023 at the earliest.

In November 2021, we initiated a Phase 3 clinical trial of AMX0035 for the treatment of ALS, known as PHOENIX trial, at clinical trial sites in the U.S. and Europe. On February 2, 2023, we announced completion of enrollment in PHOENIX, which enrolled 664 participants. We anticipate topline results from the PHOENIX trial in mid-2024. This trial is designed to provide further data evaluating the safety and efficacy of AMX0035 over 48 weeks for the treatment of ALS to further support our global regulatory efforts. European participants completing the 48-week trial have the option to enroll in

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an open label extension (OLE) phase. During this phase, all participants receive AMX0035, and continued safety and efficacy measures will be assessed.

We were incorporated under the laws of the State of Delaware on January 10, 2014. Between 2020 and 2022 we created wholly owned subsidiaries, Amylyx Pharmaceuticals Canada, Inc., or Amylyx Canada, in Calgary, Canada, Amylyx Pharmaceuticals EMEA B.V., or Amylyx EMEA, in Amsterdam, Netherlands, Amylyx Pharmaceuticals Distribution Ltd., or Amylyx Ireland, in Dublin, Ireland, Amylyx Pharmaceuticals Germany GmbH, or Amylyx Germany, in Munich, Germany and Amylyx Pharmaceuticals France SAS, or Amylyx France, in Paris, France. Since inception, we have devoted substantially all of its efforts to research and development and pre-commercialization activities, including recruiting management and technical staff, raising capital, producing materials for preclinical studies and clinical trials, and building infrastructure to support such activities. Other than RELYVRIO in the U.S. and ALBRIOZA in Canada, we do not have any products approved for sale and as of December 31, 2022. As of December 31, 2022, we have funded our operations primarily through the public offering of our common stock, private sales of preferred stock, and convertible notes. We have also generated grant revenues through five grants from ALS Association, ALS Finding a Cure Foundation, Cure Alzheimer’s Fund, Alzheimer’s Drug Discovery Foundation and Alzheimer’s Association, or Grantors.

We have incurred operating losses since inception, including a net loss of $198.4 million and $87.9 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $354.2 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our approved products. We may continue to incur significant losses and our financial results will be highly dependent upon our successful commercialization of RELYVRIO in the U.S. We will continue to incur significant expenses as we advance AMX0035 and any future product candidates through preclinical and clinical development, hire additional clinical, scientific, management and administrative personnel, seek regulatory approval and pursue commercialization of any approved product candidates. To date, we have primarily developed AMX0035 internally, with assistance from our network of contract research organizations, or CROs, and other advisors. This has resulted in increased research and development spending but has enabled us to manage AMX0035 efficiently through the development and manufacturing process.

We also expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we may need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate sufficient revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies, royalty financings, or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that our current operating plan will be achieved or that additional funding, if required, will be available on terms acceptable to us, or at all.

As of December 31, 2022, we had cash, cash equivalents and short-term investments of $346.9 million. On October 11, 2022, we completed the sale of 7,697,812 shares of our common stock in an underwritten public offering, or our 2022 follow-on offering, pursuant to which we received net proceeds of approximately $230.6 million, including exercise in full of the underwriters' option to purchase additional shares, and after deducting underwriting discounts and commissions and other offering costs. We believe that the revenue we have begun to generate with commercial sales of AMX0035 in the U.S. and Canada and our existing cash, cash equivalents, and short-term investments, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources—Funding Requirements” below.

Impact of COVID-19 and Other Macroeconomic Factors

The development of AMX0035 and any future product candidates could be disrupted and materially adversely affected in the future by the continuing COVID-19 pandemic or any future pandemic or calamity. The spread of COVID-19 and identification of new variants and subvariants of the virus has impacted the global economy and our operations, including requiring us to make certain alterations to our preclinical and clinical trial activities, such as scheduling certain work off-site and performing off-site assessments. The COVID-19 pandemic could also continue to affect our employees or the employees of research sites and service providers on whom we rely as well as those of companies with which we do business, including our suppliers, thereby disrupting our business operations. Moreover, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, liquidity and financial condition will depend on future

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developments, which are highly uncertain and cannot be accurately predicted, including new information that may develop concerning COVID-19, the emergence of new variants and subvariants and the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We continue to monitor COVID-19 levels local to our research operations and adapt our employee working practices to ensure essential staffing levels in our operations remain in place, including maintaining key personnel in our laboratories.

In addition, economic uncertainty in various global markets, including the U.S. and Europe, caused by political instability and conflict, such as the ongoing conflict in Ukraine, and economic challenges caused by the COVID-19 pandemic, have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability and supply chain interruptions, which have caused record inflation globally. Our business, financial condition and results of operations could be materially and adversely affected by further negative impact on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen.

Although, to date, our business has not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the extent to which our operations will be impacted in the short and long term, or the ways in which such instability could impact our business and results of operations. The extent and duration of these market disruptions, whether as a result of the military conflict between Russia and Ukraine and effects of the Russian sanctions, geopolitical tensions, record inflation or otherwise, are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this report.

For additional information on the various risks posed by the COVID-19 pandemic and global economic uncertainty, please read the section entitled “Risk Factors” in this Annual Report.

Components of Our Results of Operations

Product revenue, net

In June 2022, AMX0035 received marketing authorization with conditions as ALBRIOZA by Health Canada for the treatment of ALS, and we began commercially selling ALBRIOZA within Canada in July 2022. In September 2022, AMX0035 received regulatory approval as RELYVRIO by the FDA for the treatment of ALS, and we launched RELYVRIO in the U.S. in October 2022. All product revenue net, recognized during the period relates to units of ALBRIOZA and RELYVRIO sold in Canada and the U.S., respectively.

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Operating Expenses

Cost of Sales

Cost of sales consists primarily of costs associated with the manufacturing of RELYVRIO, ALBRIOZA and certain period costs, which include:

•
Direct materials costs;

•
Packaging services;

•
Transportation costs;

•
Manufacturing overhead costs; and

•
Royalties related to grants provided to us for the purpose of furthering the research and development of AMX0035 as a therapeutic benefit for ALS and AD. For additional information refer to Note 18 to our consolidated financial statements appearing at the end of this Annual Report.

As a result of global macroeconomic conditions, we may experience some disruption and volatility in our global supply chain network, and we may in the future experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of AMX0035. We expense research and development costs as incurred. These expenses include:

•
expenses incurred under agreements with CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

•
manufacturing scale-up expenses and the cost of acquiring and manufacturing drug product for our preclinical studies and clinical trials, including manufacturing registration and validation batches, as well as pre-commercial manufacturing activities;

•
expenses to acquire technologies to be used in research and development;

•
employee-related expenses, including salaries, payroll taxes, related benefits and stock-based compensation expense for employees engaged in research and development functions; and

•
costs related to compliance with quality and regulatory requirements.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

Certain of our indirect research and development expenses are not tracked on an indication-by-indication basis for AMX0035. We do not allocate employee costs and facilities, including depreciation or other indirect costs, to specific indications because these costs are deployed across multiple indications and, as such, are not separately classified. We use internal resources to oversee the research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple indications and, therefore, we do not track their costs by indication.

Research and development activities are central to our business model. Product candidates such as AMX0035 in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. We expect that our research and development expenses will continue to increase substantially in connection with our planned clinical development activities in the near term and in the future and to fund commercialization activities in the U.S., Canada and any other jurisdictions in which AMX0035 is approved. At this time, we cannot accurately estimate or

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know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of AMX0035 and any future product candidates. Our clinical development costs may vary significantly based on factors such as:

•
per patient trial costs;

•
the number of trials required for approval;

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the number of sites included in the trials;

•
the countries in which the trials are conducted;

•
the length of time required to enroll eligible patients;

•
the number of patients that participate in the trials;

•
the number of doses that patients receive;

•
the drop-out or discontinuation rates of patients;

•
potential additional safety monitoring requested by regulatory agencies;

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

•
the cost and timing of manufacturing our current or future product candidates;

•
the phase of development of our current or future product candidates;

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•
the efficacy and safety profile from clinical trials and preclinical studies of our current or future product candidates; and

•
the number of product candidates we are developing.

The successful development and commercialization of AMX0035 and any future product candidates is highly uncertain, due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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the timing and progress of preclinical and clinical development activities;

•
the number and scope of preclinical and clinical trials for separate indications we decide to pursue;

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raising necessary additional funds;

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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

•
our ability to maintain our current development activities and to establish new ones;

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our ability to establish new licensing or collaboration arrangements;

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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to Health Canada, the FDA or the EMA, or any other comparable foreign regulatory authority;

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the receipt and related terms of regulatory approvals from applicable regulatory authorities, including our marketing authorization with conditions from Health Canada for ALBRIOZA and the post-marketing requirements from the FDA for RELYVRIO;

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the availability of drug substance and drug product for use in production of AMX0035;

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establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing;

•
our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the U.S. and internationally;

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our ability to protect our rights in our intellectual property portfolio;

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the commercialization in Canada and the U.S. of AMX0035 (known as ALBRIOZA in Canada and RELYVRIO in the U.S.) and in other potential jurisdictions, if and when approved;

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obtaining and maintaining third-party insurance coverage and adequate reimbursement;

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the acceptance of AMX0035, if approved, by patients, the medical community and third-party payors;

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competition with other product; and

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a continued acceptable safety profile of our therapies in pre-approval market access programs or in commercial access following approval.

A change in the outcome of any of these variables with respect to the development of AMX0035 or any future product candidates could have a significant impact on the cost and timing associated with the development of our product candidates. We may never succeed in obtaining or maintaining regulatory approval for AMX0035 or any future product candidates.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, sales, marketing, as well as administrative functions. Selling, general and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; sales and marketing expenses; information technology; facility-related and other operating costs. We anticipate that our selling, general and administrative expenses will continue to increase in the future as we further increase our headcount to support our continued research activities and development of AMX0035 and as we continue to increase headcount and incur other significant costs related to our pre-commercialization activities as we prepare for potential near term regulatory approvals. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We have received marketing authorization with conditions for ALBRIOZA for the treatment of ALS in Canada and marketing authorization for RELYVRIO for the treatment of ALS in adults in the U.S. and are pursuing regulatory approval of AMX0035 for the treatment of ALS in Europe. As we implement our commercialization plans in Canada and the U.S. and prepare for a potential approval in Europe, we have been incurring a substantial increase, and anticipate further increases in, payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of AMX0035.

Other Income (Expense), Net

Interest Income

Interest income consists primarily of the amortization of premiums and accretion of discounts on our short-term investments, and interest income earned on our cash, cash equivalents and short-term investments.

Other Expense, Net

Other expense, net consists primarily of realized and unrealized losses on foreign exchange transactions.

Change in Fair Value of Convertible Notes

Change in fair value of convertible notes is comprised of adjustments to the fair value of our 2021 Notes. As permitted under ASC Topic 825, Financial Instruments (ASC 825), we elected the fair value option to account for our 2021 Notes, and as a result, we measured our 2021 Notes at fair value at each financial reporting period and immediately before conversion in July 2021. All changes to the fair value of our 2021 Notes for the year ended December 31, 2021 resulted in a loss. Our 2021 Notes converted into shares of Series C-2 redeemable convertible preferred stock concurrently with the issuance of our Series C-1 redeemable convertible preferred stock. Immediately prior to the conversion, we determined the fair value of our 2021 Notes based on the fair value of the Series C-1 redeemable convertible preferred stock and the conversion price at which these notes converted, which was at 85% of the fair value of the Series C-1 redeemable convertible preferred stock.

Income Taxes

The provision for income taxes primarily consists of provisions for foreign taxes payable.

As of December 31, 2022 and 2021, we had federal net operating loss carryforwards of approximately $203.2 million and $115.7 million, respectively, and state net operating loss carryforwards of approximately $164.1 million and $102.9 million, respectively, which are available to reduce future taxable income. Of the $203.2 million federal net operating loss carryforwards, $1.3 million begin to expire in 2034 and the remaining $201.9 million net operating losses carryforward indefinitely. Of the $164.1 million state net operating loss carryforwards, $113.0 million of Massachusetts net operating loss carryforwards begin to expire in 2034. As of December 31, 2022 and 2021, we also had federal tax credits of $4.6 million and $2.7 million, respectively, and state tax credits of $1.2 million. The tax credit carryforwards will expire at various dates beginning in 2034.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

* NM - not meaningful

Product revenue, net

We began commercially selling ALBRIOZA within Canada in July 2022 and RELYVRIO within the U.S. in October 2022. For the year ended December 31, 2022, we recorded approximately $22.2 million of product revenue, net. For further discussion regarding our revenue recognition policy, see Note 2, Summary of Significant Accounting Policies, in the Notes to the consolidated financial statements included this Annual Report.

Cost of sales

Cost of sales of $3.0 million for the year ended December 31, 2022, consisted of costs to procure, manufacture and distribute our marketed product, RELYVRIO and ALBRIOZA. In addition, included in cost of sales are costs to manufacture our marketed product which has been provided to patients at no cost to them while insurance reimbursement is established. We expect these costs to continue into 2024, and to a lesser degree, indefinitely. Drug product given to patients at no cost to them is not included in product revenue, net. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, certain of the costs of units recognized as revenue during the year ended December 31, 2022, or approximately $3.4 million, were expensed prior to obtaining regulatory approvals and, therefore, are not included in cost of sales during this period. We expect cost of sales to increase and gross margin to decrease as we deplete these inventories. We expect to use the remaining pre-commercialization inventory for product sales in 2024.

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Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

Research and development expenses were $93.5 million for the year ended December 31, 2022, compared to $44.0 million for the year ended December 31, 2021. During these periods, most of our research and development expenses were related to the development of and clinical trials of AMX0035. The increase of $49.4 million was primarily due to a $35.0 million increase in spending on AMX0035 for the ALS indication, a $19.5 million increase in payroll and personnel-related costs, and a $5.1 million decrease in all other costs. The increases in spending on AMX0035 were primarily related to costs associated with our global Phase 3 PHOENIX trial of AMX0035 in ALS that was initiated in November 2021, including its open label extension phase, and consulting and manufacturing development expenses in anticipation of potential commercialization, which includes inventory raw material purchases made in anticipation of the lead time necessary to have it available to meet our clinical trial and potential commercialization needs. The increase in payroll and personnel-related costs was primarily due to an increase in the number of employees supporting research and development efforts. The decreases in other costs were primarily due to a decrease in costs associated with research and development spend for AMX0035 in other indications, as we focused our efforts on ALS leading up to our approvals. We expect to increase research and development for AMX0035 in other indications in future periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $127.1 million for the year ended December 31, 2022 compared to $38.9 million for the year ended December 31, 2021. The increase of $88.2 million was primarily due to increases of $55.4 million in payroll and personnel-related costs, including stock-based compensation, $15.9 million in consulting and professional services and $17.1 million in insurance and other expenses. The increase in payroll and personnel-related costs was primarily due to hiring additional personnel in commercial and general and administrative functions to support our growth, as well as commercialization and launch preparation initiatives. The increases in consulting and professional services and insurance and other expenses were primarily due to an increase in spending for commercial readiness activities and operations as a public company.

Other Income (Expense), Net

Interest Income

Interest income for the year ended December 31, 2022 was $4.3 million compared to less than $0.1 million for the year ended December 31, 2021. The increase was primarily attributable to higher investment balances driven by our proceeds received from our IPO and our 2022 follow-on offering, resulting in higher interest earned.

Change in Fair Value of Convertible Notes

The change in fair value of convertible notes was zero for the year ended December 31, 2022, due to conversion to preferred stock in July 2021, compared to $5.2 million for the year ended December 31, 2021. The $5.2 million recorded for the year ended December 31, 2021 represented a loss in fair value related to our 2021 Notes.

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Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant operating losses and generated revenues through five grants from the Grantors. In the second half of 2022 we commenced generating revenue from the sale of our approved drug product RELYVRIO, known as ALBRIOZA in Canada. To date, we have financed our operations primarily through revenue from the sale of our approved products, the sale and issuance of common stock, convertible preferred stock, convertible notes and grant agreements with the Grantors. As of December 31, 2022, we had cash, cash equivalents and short-term investments of $346.9 million.

From inception through December 31, 2022, we have raised $663.6 million in aggregate proceeds, net of issuance costs, primarily from the issuance of convertible preferred stock, convertible notes and grant agreements. In July 2021, we issued and sold shares of Series C-1 preferred stock for an aggregate purchase price of approximately $135.0 million. The 2021 Notes automatically converted into shares of Series C-2 preferred stock pursuant to their original terms in July 2021 in connection with our sale of Series C-1 preferred stock. In January 11, 2022, we completed the IPO of our common stock pursuant to which we received aggregate net proceeds of $196.4 million after deducting underwriting discounts and commissions and other offering costs. On October 11, 2022, we completed the sale of 7,697,812 shares of our common stock in an underwritten public offering, pursuant to which we received net proceeds of approximately $230.6 million, including exercise in full of the underwriters' option to purchase additional shares, and after deducting underwriting discounts and commissions and other offering costs. Based on our current operational plans and assumptions, We believe that the revenue we have begun to generate with commercial sales of AMX0035 in the U.S. and Canada and our existing cash, cash equivalents, and short-term investments, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report.

Capital Resources

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of AMX0035 and any future product candidates, implement our commercialization plans for ALBRIOZA in Canada and RELYVRIO in the U.S., and prepare for the commercial launch of AMX0035 in other jurisdictions, if approved. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our expenses will also increase as we:

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continue our research and development efforts, including our ongoing global Phase 3 PHOENIX trial of AMX0035 for the treatment of ALS;

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continue to commercialize AMX0035 (also known as ALBRIOZA in Canada and RELYVRIO in the U.S.) for the treatment of ALS in Canada and the U.S., and pursue launch of AMX0035 in Europe, if approved;

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pursue INDs of AMX0035 for additional indications;

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conduct preclinical studies and clinical trials for AMX0035 for additional indications and for potential future product candidates;

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seek to identify and develop, acquire or in-license additional product candidates;

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experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges;

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develop the necessary processes, controls and manufacturing data to obtain additional marketing approval for AMX0035 or approval for any future product candidates and to support manufacturing on a commercial scale;

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seek additional regulatory approvals for AMX0035 or approvals for any future product candidates that successfully complete clinical trials, if any;

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hire and retain additional personnel, such as preclinical, clinical, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, finance, general and administrative, commercial and scientific personnel;

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develop, maintain, expand and protect our intellectual property portfolio; and

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continue to transition our organization to being a public company.

We are now a publicly traded company and will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and the Nasdaq Global Select Market, require public companies to implement specified corporate governance practices that are currently not applicable to private companies. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting for the current year ending December 31, 2022. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and demands significant effort. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

Based on our current operational plans and assumptions, we believe that the revenue we have begun to generate with commercial sales of AMX0035 in the U.S. and Canada and our existing cash, cash equivalents, and short-term investments, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development activities and the regulatory review process, we expect to incur significant commercialization expenses related to product manufacturing, pre-commercial activities and commercialization.

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Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

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the scope, progress, results and costs of drug discovery, laboratory testing, preclinical and clinical development for AMX0035 and any future product candidates;

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the costs, timing and outcome of commercialization activities, including manufacturing, marketing, sales and distribution for ALBRIOZA in Canada, RELYVRIO in the U.S. and for AMX0035, if approved, in other territories or for any future product candidates for which we receive regulatory approval;

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the costs, timing and outcome of regulatory review of AMX0035 and any future product candidates;

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our ability to establish and maintain collaborations, marketing, distribution and license agreements on favorable terms, if at all;

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our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development activities;

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timing delays with respect to preclinical and clinical development of AMX0035 and any future product candidates, including as result of the ongoing COVID-19 pandemic or other pandemics or disruptions;

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the costs of expanding our facilities to accommodate our expected growth in personnel, and the costs of such additional personnel;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the extent to which we acquire technologies or other assets;

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the sales price and availability of adequate third-party coverage and reimbursement for AMX0035 and any future product candidates, if and when approved; and

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the costs of operating as a public company.

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, current ownership interests will be diluted. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Cash Flows

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our sources and uses of cash for the years ended December 31, 2022 and 2021:

Operating Activities

During the year ended December 31, 2022, operating activities used $179.9 million of cash, primarily resulting from our net loss of $198.4 million and net amortization of premiums and discounts on investments of $2.1 million, offset by $21.7 million of non-cash stock-based compensation expense, $0.5 million of depreciation expense and a $1.6 million increase in net cash used in our operating assets and liabilities.

Net cash used in our operating assets and liabilities primarily consisted of a $26.1 million increase in accrued expenses and deferred rent due to increased spending for external research and development to support our growth, a $1.9 million increase in accounts payable and a $0.5 million decrease in interest receivable from short-term investments. This was offset by a $15.3 million increase in accounts receivable, a $9.8 million increase in inventories, a $0.5 million increase in other assets and a $5.2 million increase in prepaid expenses and other current assets.

During the year ended December 31, 2021, operating activities used $74.8 million of cash, primarily resulting from our net loss of $87.9 million, offset by a $5.2 million change in fair value of convertible notes, $3.1 million of non-cash stock-based compensation expense, $0.1 million of depreciation expense, $0.1 million net amortization of premiums and discounts on investments, and a $4.6 million increase in net cash used in our operating assets and liabilities.

Net cash used in our operating assets and liabilities primarily consisted of a $8.4 million increase in accrued expenses and deferred rent due to increased spending for external research and development to support our growth, a $0.7 million increase in accounts payable and a $0.1 million decrease in other assets, offset by a $0.1 million increase in interest receivable from short-term investment and $4.5 million increase in prepaid expenses and other current assets due to increase in sign-on bonuses as a result of an increase in headcount and increase in other receivables related to milestones achieved under the grant agreements for which we were owed by the grantors.

Investing Activities

During the year ended December 31, 2022, net cash used in investing activities was $239.0 million, resulting from $2.5 million in purchases of property and equipment and $415.9 million in purchases of short-term investments, offset by $179.4 million of investments matured during the period.

During the year ended December 31, 2021, net cash used in investing activities was $46.4 million, resulting from $0.4 million in purchases of property and equipment and $49.1 million in purchases of short-term investments, offset by $3.0 million of investments matured during the period.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $431.8 million. This amount consisted of $200.9 million of proceeds from our IPO, net of underwriter’s discounts and commissions, $231.6

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million of proceeds from our 2022 follow-on offering, net of underwriter’s discounts and commissions, and $2.2 million of proceeds from exercises of stock options, offset by $2.8 million in payments of deferred offering costs.

During the year ended December 31, 2021, net cash provided by financing was $158.5 million. This amount consisted of $134.8 million of net proceeds from the sale of our Series C-1 redeemable convertible preferred stock, $14.3 million of net proceeds from the issuance of convertible notes to related parties, $11.9 million of net proceeds from the issuance of the convertible notes and $0.3 million of proceeds from exercises of stock options, offset by a $2.5 million payment of deferred offering costs, $0.3 million repayment of PPP loan, and less than $0.1 million of issuance costs related to the conversion of the convertible notes, which was related to the 2021 Notes.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Our accounting policy for revenue recognition has a substantial impact on reported results and relies on certain estimates. Revenue is recognized following a five-step model under ASC Topic 606 - Revenue from Contracts with Customers, or Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. Revenue is also reduced by variable consideration related to certain gross-to-net, or GTN, adjustments discussed below. These GTN adjustments involve significant estimates and judgment after considering historical experience, payer channel mix (e.g., Medicare or Medicaid), current contract prices under applicable programs, unbilled claims and processing time lags and inventory levels in the distribution channel. Estimates are assessed each period and adjusted as required to revise information or actual experience.

We enter into arrangements with wholesalers, specialty pharmacies and specialty distributors, or Customers, to distribute ALBRIOZA, RELYVRIO and future approved products. In accordance with Topic 606, we recognize revenue on product sales when the Customer obtains control of our product, which occurs at a point in time (upon delivery). Product revenues are recorded net of applicable GTN adjustments, including discounts and allowances. Payment from Customers is typically due within 30 calendar days of the invoice date.

The following categories of GTN adjustments involve significant estimates, judgments and information obtained from external sources.

Provider Chargebacks and Discounts

We participate in programs with government entities such as the U.S. Department of Veterans Affairs, and other parties, including covered entities under the 340B Drug Pricing Program, whereby pricing on products is extended below wholesaler list price to participating entities. These entities purchase products through wholesalers at the lower program price and the wholesalers then charge us the difference between their acquisition cost and the lower program price. Product revenue and accounts receivable is reduced for the estimated amount of unprocessed charge-back claims attributable to a sale.

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Customers are offered cash discounts as an incentive for prompt payment. Product revenue and accounts receivable is reduced for the estimated amount of cash discount at the time of sale and the discount is typically taken by the customer within one month.

Payor rebates

We participate in state government Medicaid programs and other qualifying Federal and state government programs requiring discounts and rebates to participating state and local government entities. All discounts and rebates provided through these programs are included in our Medicaid rebate accrual. Our rebate accruals are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue. The estimated amount of unpaid or unbilled rebates is presented as a liability.

Rebates and discounts are offered to managed healthcare organizations in the U.S. managing prescription drug programs and Medicare Advantage prescription drug plans covering the Medicare Part D drug benefit. The estimated amount of unpaid or unbilled rebates and discounts is presented as a liability.

Other incentives, returns, discounts and adjustments

Other GTN adjustments include incentives which we offer and includes voluntary patient assistance programs, such as our co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with the product that has been recognized as revenue for each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets.

Estimated product returns for established products are determined using quantitative and qualitative information including, but not limited to, expected experience with returns, projected demand, levels of inventory in the distribution channel, product dating and expiration period, and whether products have been discontinued, among others. The Company has received an immaterial amount of returns to date and believe that returns of product in future periods will be minimal.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary.

The estimate of accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs and other third-party service providers. Examples of estimated accrued research and development expenses include fees paid to:

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vendors in connection with preclinical development activities;

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CROs and investigative sites in connection with preclinical studies and clinical trials; and

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CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will

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exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Income Taxes

We account for income taxes using the asset and liability approach. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for tax attribute carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. Realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2022, we continued to maintain a full valuation allowance against all of our deferred tax assets based on management’s evaluation of all available evidence, including our history of incurring significant losses from operations. Our evaluation of all available evidence also includes consideration of regulatory approvals of ALBRIOZA and RELYVRIO, including revenue generated from the sale these products in 2022. Given the early stage of our product launch, we are uncertain about the timing and amount of future sales. We may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to, among other things, our level of profitability, revenue growth, clinical program progression and expectations regarding future profitability. We may become subject to income tax audits and adjustments by local tax authorities. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. We develop our assessment of uncertain tax positions, and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax expense.

Emerging Growth Company and Smaller Reporting Company Status

The Jumpstart Our Business Startups Act of 2012, or JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, and our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of our initial public offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large, accelerated filer under the rules of the Securities and Exchange Commission.

We are also a “smaller reporting company”, and we will continue to be a smaller reporting company until the first quarter of the fiscal year following the determination that the market value of our stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue are more than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being required to provide only the two most recent fiscal years of audited financial statements.

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Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial information and the notes thereto appearing elsewhere in this Annual Report.

This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Our mission is to develop therapies that change the treatment paradigm for amyotrophic lateral sclerosis, or ALS, and a broad range of other neurodegenerative diseases by keeping neurons alive. Unlike most other cells in the body that regularly die and are replaced as part of healthy function, mature neurons are normally resistant to cell death and generally cannot regenerate. We are pursuing commercialization of our product candidate, AMX0035, which we believe is the first drug candidate to show both a functional and survival benefit in a large-scale clinical trial of patients with ALS. We submitted a New Drug Submission, or NDS, in Canada in the second quarter of 2021 for AMX0035 for the treatment of ALS, which was accepted for review in the third quarter of 2021, a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, in the fourth quarter of 2021, which was accepted for priority review in the same quarter and a Marketing Authorization Application, or MAA, in Europe in the first quarter of 2022, which was validated in the same quarter. The Prescription Drug User Fee Act date, the target date by which the FDA intends to complete its review and take action on the NDA for AMX0035 for the treatment of ALS, is June 29, 2022. On March 30, 2022, the FDA held a virtual meeting of its Peripheral and Central Nervous System Drugs Advisory Committee, or the Advisory Committee. At that meeting, on the question whether the data from our randomized, controlled Phase 2 CENTAUR trial and open-label extension, or OLE, trial established a conclusion that AMX0035 is effective in the treatment of patients with ALS, the Advisory Committee voted 4 (yes) and 6 (no). Although the FDA considers the recommendations of its advisory committees, the recommendation by the Advisory Committee is non-binding. The final decision regarding approval of a pending NDA is made by the FDA, and we remain committed to pursuing its approval given the pressing need for new treatments for ALS. The Prescription Drug User Fee Act date, the target date by which the FDA intends to complete its review and take action on the NDA for AMX0035 for the treatment of ALS, is June 29, 2022. We believe AMX0035 has the potential to be a foundational therapy, meaning that it could be used alone or in conjunction with other therapies to change the treatment paradigm across a broad range of neurodegenerative diseases.

AMX0035 is a dual UPR-Bax apoptosis inhibitor composed of sodium phenylbutyrate, or PB, and TURSO (also known as tauroursodeoxycholic acid, or TUDCA). Through the resolution of the unfolded protein response, or UPR, and by inhibiting translocation of the Bcl-2 Associated X-protein, or Bax, to the outer mitochondrial membrane, we have shown in multiple models that AMX0035 can keep neurons alive under a variety of different conditions and stresses, including in in vitro models of neurodegeneration, endoplasmic reticulum stress, mitochondrial dysfunction, oxidative stress and disease-specific models of a variety of other conditions, as well as in vivo models of Alzheimer’s Disease, or AD, and multiple sclerosis. We are pursuing ALS as our first indication as it is a disease of rapid and profound neurodegeneration, and we are focused on the development and potential commercialization of AMX0035 for ALS globally.

In November 2021, we initiated a global Phase 3 clinical trial of AMX0035 for the treatment of ALS, known as the PHOENIX trial, at clinical trial sites in the United States and Europe. Enrollment in this trial has completed in the United States and remains ongoing in Europe. This trial is designed to provide further data supporting the safety and efficacy of AMX0035 for the treatment of ALS and to further support our global regulatory efforts. Based on dialogue with the FDA prior to our NDA submission, including at a pre-NDA meeting recommended by the FDA and subsequent discussions, we believed that data from the PHOENIX trial would not be required for the FDA to make a determination on the approval of AMX0035 for the treatment of ALS, although we had no assurance that the FDA would not require further data before making a determination. Based on the Advisory Committee meeting held on March 30, 2022, and the FDA’s feedback at that meeting, it remains uncertain whether additional clinical data will be required to make a determination on the approval of AMX0035 for the treatment of ALS. On March 18, 2022, we also announced the launch of a United States expanded access program that the FDA has authorized for people with ALS who meet eligibility criteria for participation.

We were incorporated under the laws of the State of Delaware on January 10, 2014. In October 2020 and August 2021, we created wholly owned subsidiaries, Amylyx Pharmaceuticals Canada, Inc., or Amylyx Canada, in Calgary, Canada and Amylyx Pharmaceuticals EMEA B.V, or Amylyx EMEA, in Amsterdam, Netherlands. Since inception, we have devoted

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substantially all of our efforts to research and development activities, including recruiting management and technical staff, raising capital, producing materials for non-clinical and clinical studies, and building infrastructure to support such activities. Our expenses have primarily been for research and development and related general and administrative costs. We have generated revenues through five grants from ALS Association, ALS Finding a Cure Foundation, Cure Alzheimer’s Fund, Alzheimer’s Drug Discovery Foundation and Alzheimer’s Association, or the Grantors.

Since inception, we have financed our operations primarily through the sale and issuance of redeemable convertible preferred stock, convertible notes, PPP loan, and grant agreements with the Grantors and, to a lesser extent, a government loan. From August 2016 to November 2017, we issued and sold Series A preferred stock for an aggregate purchase price of approximately $7.7 million. In July 2017, we received $2.3 million from the issuance of convertible promissory notes, or the 2017 Notes. In November 2018, we received $13.0 million from the issuance of convertible promissory notes, or the 2018 Notes. In December 2019, we received $0.6 million from the issuance of convertible promissory notes, or the 2019 Notes. In January, February, and April 2020, we received $15.4 million in aggregate from the issuance of convertible promissory notes, or the 2020 Notes. The 2017 Notes, 2018 Notes, 2019 Notes and 2020 Notes, or the Old Notes, were to mature on December 31, 2021. We also received $0.3 million of net proceeds in April 2020 pursuant to the PPP Loan, which we repaid in full in October 2021. In June 2020, we issued and sold shares of Series B preferred stock for an aggregate purchase price of approximately $30.0 million. The Old Notes automatically converted into shares of Series B preferred stock pursuant to their original terms in June 2020 in connection with our Series B financing. From December 2020 to February 2021, we received $27.3 million from the issuance of convertible promissory notes, or the 2021 Notes, of which $1.2 million was received in December 2020 and $26.1 million was received in January and February 2021. In July 2021, we issued and sold shares of Series C-1 preferred stock, or the Series C-1 preferred stock, for an aggregate purchase price of approximately $135.0 million. The 2021 Notes automatically converted into shares of Series C-2 preferred stock pursuant to their original terms in July 2021 in connection with our sale of Series C-1 preferred stock. Grant revenue was $0.3 million for the year ended December 31, 2021, compared to $0.7 million for the year ended December 31, 2020. On January 11, 2022, we completed the initial public offering, or IPO, of our common stock pursuant to which we received aggregate net proceeds of $196.9 million after deducting underwriting discounts and commissions and other offering costs.

We have incurred operating losses since inception, including a net loss of $87.9 million and $42.3 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $155.8 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we advance AMX0035 and any future product candidates through preclinical and clinical development, hire additional clinical, scientific, management and administrative personnel, seek regulatory approval and pursue commercialization of any approved product candidates. To date, we have primarily developed AMX0035 internally, with assistance from our network of contract research organizations, or CROs, and other advisors. This has resulted in increased research and development spending but has enabled us to manage AMX0035 efficiently through the development and manufacturing process.

We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies, royalty financings, or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.

As of December 31, 2021, we had cash, cash equivalents and short-term investments of $96.1 million. We believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from our IPO, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources—Funding Requirements” below.

Impact of COVID-19

The development of AMX0035 and any future product candidates could be disrupted and materially adversely affected in the future by a pandemic, epidemic or outbreak of an infectious disease, such as the ongoing and evolving

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COVID-19 pandemic. The spread of COVID-19 and identification of new variants of the virus has impacted the global economy and our operations, including requiring us to make certain alterations to our preclinical and clinical trial activities, such as scheduling certain work off-site and performing off-site assessments. In addition, we had to amend our CENTAUR trial protocol to allow for remote visits by patients, instead of patients making site visits and in certain cases we were forced to delay enrollment at certain sites in our Phase 2 clinical trial for AMX0035 in AD.

In spite of current rate and success of vaccination efforts, if the disruption due to the ongoing COVID-19 pandemic continues, our ongoing global Phase 3 PHOENIX clinical trial for AMX0035 for the treatment of ALS could be delayed due to government orders and site policies on account of the pandemic. Additionally, some patients may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols, which would delay our ability to conduct preclinical studies and clinical trials or release clinical trial results, as well as delay our ability to obtain regulatory approval for and commercialize AMX0035. Furthermore, COVID-19 could continue to affect our employees or the employees of research sites and service providers on whom we rely as well as those of companies with which we do business, including our suppliers, thereby disrupting our business operations. Existing or renewed quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing sites and offices. We have implemented and continue to follow work-at-home policies and may experience limitations in employee resources. Our continued reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business.

PPP Loan

In April 2020, the Company obtained a PPP Loan from First Republic Bank in the aggregate amount of $0.3 million, which was established under the CARES Act. Under the terms of the CARES Act and the PPP, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company uses those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan is unsecured, guaranteed by the Small Business Administration (“SBA”), and has a two-year term, maturing in April 2022. Interest accrues on the PPP Loan beginning with the initial disbursement. The application for the forgiveness of the PPP Loan can be made during an 8-week period beginning from the date of initial disbursement. Unless forgiven in whole or in part in accordance with the PPP regulation, the terms of the PPP Loan provide for the Company to make monthly payments of the principal and interest on the outstanding principal balance of the PPP Loan equal to the balance of the PPP Loan amortized over the term of the PPP Loan beginning seven (7) months from the initial disbursement until maturity. Notwithstanding the forgiveness of the PPP Loan, on October 7, 2021, we repaid the PPP Loan in full.

Components of Our Results of Operations

Revenue

Our revenue to date has been comprised of grant revenue, which are amounts earned from performing contracted research and development services. These grants generally require us to meet certain research milestones in order for funds to be provided. To date, we have not generated any revenue from product sales. If our development efforts for AMX0035 or any future product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from such collaboration or license agreements, or a combination of product sales and payments from such agreements.

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Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of AMX0035. We expense research and development costs as incurred. These expenses include:

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expenses incurred under agreements with CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical studies, including manufacturing registration and validation batches, as well as clinical trial materials;

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expenses to acquire technologies to be used in research and development;

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employee-related expenses, including salaries, payroll taxes, related benefits and stock-based compensation expense for employees engaged in research and development functions; and

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costs related to compliance with quality and regulatory requirements.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

Certain of our indirect research and development expenses are not tracked on an indication-by-indication basis for AMX0035. We do not allocate employee costs and facilities, including depreciation or other indirect costs, to specific indications because these costs are deployed across multiple indications and, as such, are not separately classified. We use internal resources to oversee the research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple indications and, therefore, we do not track their costs by indication.

Research and development activities are central to our business model. Product candidates such as AMX0035 in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of AMX0035 and any future product candidates. Our clinical development costs may vary significantly based on factors such as:

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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potential additional safety monitoring requested by regulatory agencies;

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

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the cost and timing of manufacturing our current or future product candidates;

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the phase of development of our current or future product candidates;

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the efficacy and safety profile of our current or future product candidates; and

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the number of product candidates we are developing.

The successful development and commercialization of AMX0035 and any future product candidates is highly uncertain, due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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the timing and progress of nonclinical and clinical development activities;

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the number and scope of nonclinical and clinical trials for separate indications we decide to pursue;

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raising necessary additional funds;

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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

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our ability to maintain our current development activities and to establish new ones;

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our ability to establish new licensing or collaboration arrangements;

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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to Health Canada, the U.S. Food and Drug Administration, or the FDA, the European Medicines Association, or the EMA, or any other comparable foreign regulatory authority;

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the receipt and related terms of regulatory approvals from applicable regulatory authorities;

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the availability of drug substance and drug product for use in production of AMX0035;

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establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if AMX0035 is approved;

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our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally;

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our ability to protect our rights in our intellectual property portfolio;

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the commercialization of AMX0035, if and when approved;

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obtaining and maintaining third-party insurance coverage and adequate reimbursement;

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the acceptance of AMX0035, if approved, by patients, the medical community and third-party payors;

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competition with other product; and

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a continued acceptable safety profile of our therapies following approval.

A change in the outcome of any of these variables with respect to the development of AMX0035 or any future product candidates. We may never succeed in obtaining regulatory approval for AMX0035 or any future product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, sales, marketing, as well as administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses; rent expense and other operating costs. We anticipate that our general and administrative expenses will continue to increase in the future as we further increase our headcount to support our continued research activities and development of AMX0035 and as we continue to increase headcount and incur other significant costs related to our pre-commercialization activities as we prepare for potential near term regulatory approvals. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, we are pursuing regulatory approval of AMX0035 for the treatment of ALS, initially in Canada, the United States and Europe. As we prepare for a potential approval in each territory, we have incurred increased, and anticipate further increases in, payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of AMX0035.

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Other Income (Expense), Net

Interest Expense

Interest expense consists of coupon interests and amortization of derivative discounts associated with our Old Notes. Also, included in interest expense is a contingent beneficial conversion feature recorded upon conversion of our 2017 Notes into shares of Series B redeemable convertible preferred stock and the immediate charge to interest expense for the remaining unamortized debt discount associated with our 2017 Notes upon conversion.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents, and money market funds.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of (i) extinguishment gain from the conversion of our 2019 Notes and 2020 Notes into Series B redeemable convertible preferred stock in June 2020, (ii) the amortization of premiums and accretion of discounts on our short-term investments, (iii) income from our short-term investments and (iv) unrealized gain on foreign exchange transactions.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability is comprised of adjustments to the fair value of embedded derivatives associated with certain redemption features of our Old Notes.

The Old Notes contain redemption features which we determined were embedded derivatives. For the respective Old Notes, we bundled these features together and accounted for the feature as a single, compound embedded derivative at each issuance. The embedded derivative was recorded as a liability and measured at fair value at inception of the Old Notes. The fair value was remeasured at the end of each reporting period and immediately prior to the conversion of the Old Notes. Changes in the estimated fair value during the period were recorded as a component of other income (expense). Subsequent to June 2020, when the Old Notes converted into shares of our Series B redeemable convertible preferred stock, we no longer have an outstanding embedded derivative liability. Prior to such conversion, the embedded derivative liability was recorded at fair value utilizing an income approach that identified the cash flows using a “with-and-without” valuation methodology. The inputs used to determine the estimated fair value of the derivative instrument were based primarily on the probability of an underlying event triggering the embedded derivative occurring and the timing of such event.

Change in Fair Value of Convertible Notes

Change in fair value of convertible notes is comprised of adjustments to the fair value of our 2021 Notes. As permitted under ASC Topic 825, Financial Instruments (ASC 825), we elected the fair value option to account for our 2021 Notes, and as a result, we measured our 2021 Notes at fair value at each financial reporting period and immediately before conversion in July 2021. All changes to the fair value of our 2021 Notes for the year ended December 31, 2021 resulted in a loss. Our 2021 Notes converted into shares of Series C-2 redeemable convertible preferred stock concurrently with the issuance of our Series C-1 redeemable convertible preferred stock. Immediately prior to the conversion, we determined the fair value of our 2021 Notes based on the fair value of the Series C-1 redeemable convertible preferred stock and the conversion price at which these notes converted, which was at 85% of the fair value of the Series C-1 redeemable convertible preferred stock.

Income Taxes

The provision for income taxes primarily consists of state minimum taxes in the United States, which do not fluctuate when there is a pre-tax loss. Since our inception, we have incurred significant net losses and anticipate that we will continue to incur significant losses for the foreseeable future. Therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our Net Operating Losses, or NOLs, or research and development tax credits.

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As of December 31, 2021 and 2020, we had federal net operating loss carryforwards of approximately $115.7 million and $46.8 million, respectively, and state net operating loss carryforwards of approximately $102.9 million and $44.9 million, respectively, which are available to reduce future taxable income. Of the $115.7 million federal net operating loss carryforwards, $1.3 million begin to expire in 2034 and the remaining $114.5 million net operating losses carryforward indefinitely. Of the $102.9 million state net operating loss carryforwards, $101.1 million of Massachusetts net operating loss carryforwards begin to expire in 2034. As of December 31, 2021 and 2020, we also had federal tax credits of $2.7 million and $1.6 million, respectively, and state tax credits of $1.2 million and $0.7 million, respectively. The tax credit carryforwards will expire at various dates beginning in 2029.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

* NM - not meaningful

Grant Revenue

Grant revenue was $0.3 million for the year ended December 31, 2021, compared to $0.7 million for the year ended December 31, 2020. The decrease of $0.4 million was primarily due to less contracted research and development services being performed during the year ended December 31, 2021 than during the year ended December 31, 2020. We performed less contracted research and development services in 2021 as compared to 2020 based on the terms of the grant agreements with our Grantors. Our grant agreements provide estimated timelines over which contracted research and development services would be provided to the Grantors. As less research and development services were scheduled to be provided in 2021, this resulted in the recognition of less revenue during the year ended December 31, 2021 as compared to 2020.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020:

Research and development expenses were $44.0 million for the year ended December 31, 2021, compared to $24.6 million for the year ended December 31, 2020. During these years, all our research and development expenses were related to the development of and clinical trials of AMX0035. The increase of $19.4 million was primarily due to a $13.3 million increase in spending on AMX0035 for the ALS indication, a $5.6 million increase in payroll and personnel-related costs, and a $0.5 million increase in all other costs. The increases in spending on AMX0035 were primarily related to costs associated with our Phase 3 Phoenix trial of AMX0035 in ALS that commenced in 2021 and consulting and manufacturing development expenses in anticipation of potential commercialization. The increase in payroll and personnel-related costs was primarily due to an increase in the number of employees supporting research and development efforts. Increase in the other costs is primarily due to an increase in consulting costs in support of research and development activities in 2021.

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General and Administrative Expenses

General and administrative expenses were $38.9 million for the year ended December 31, 2021 compared to $15.1 million for the year ended December 31, 2020. The increase of $23.9 million was primarily due to a $10.1 million increase in payroll and personnel-related costs, $7.9 million in professional services, $2.9 million in consulting expenses and $1.2 million in computer and software related expenses. The increase in payroll and personnel-related costs was primarily due to hiring additional personnel in general and administrative functions to support our growth initiatives. The increase in professional services and consulting expenses was primarily due to an increase in spending for commercial readiness activities. The increase in computer and software related expenses is primarily due to increased IT hardware, software, services and support to meet the needs of the growing organization.

Other Income (Expense), Net

Interest Income

Interest income for the years ended December 31, 2021 and 2020 were less than $0.1 million for both years.

Interest Expense

Interest expense was zero for the year ended December 31, 2021 compared to $2.3 million for the year ended December 31, 2020. Interest expense for the year ended December 31, 2020 was comprised of interest expense recorded as a result of the amortization of derivative discount associated with our 2020 Notes, the recognition of a contingent beneficial conversion feature associated with our 2017 Notes upon the conversion of these notes into Series B redeemable convertible preferred stock in June 2020, and immediate charge to interest expense for the unamortized derivative discount associated with our 2017 Notes upon conversion of these notes. The conversion of the notes in June 2020 resulted in our recognition of no interest expense on these notes during the year ended December 31, 2021.

Change in Fair Value of Derivative Liability

The change in fair value of derivative liability was zero for the year ended December 31, 2021, compared to a loss of $1.3 million for the year ended December 31, 2020. The change of $1.3 million was primarily due to the issuance of the 2020 Notes, which included embedded derivatives, and a change in the probability related to the settlement scenarios associated with our 2019 Notes and 2020 Notes including the timing of the conversion of these notes. The 2019 and 2020 notes were converted in 2020.

Change in Fair Value of Convertible Notes

The change in fair value of convertible notes was $5.2 million for the year ended December 31, 2021, compared to zero for the year ended December 31, 2020. The $5.2 million recorded for the year ended December 31, 2021 represented a loss related to our 2021 Notes, which were measured quarterly at fair value. The change in fair value was primarily due to interest expense for our 2021 Notes at the stated interest rate and the conversion of our 2021 Notes into shares of Series C-2 redeemable convertible preferred stock at 15% discount to the fair value of the Series C-1 redeemable convertible preferred stock issued in July 2021.

Other Expense (Income), Net

Other expense, net was $0.1 million for the year ended December 31, 2021, compared to other income of $0.3 million for the year ended December 31, 2020. The $0.1 million expense in 2021 was related to realized and unrealized transaction gains and losses. The $0.3 million of other income in 2020 was related to the extinguishment gain from the conversion of our 2019 Notes and 2020 Notes into 1,058,033 shares of our Series B redeemable convertible preferred stock and represented the difference between the fair value of the Series B redeemable convertible preferred stock of $18.0 million and the carrying value of the 2019 and 2020 Notes including derivative liability of $18.3 million.

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Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant operating losses and generated revenues through five grants from the Grantors. We have not yet commercialized any products. To date, we have financed our operations primarily through the sale and issuance of convertible preferred stock, convertible notes, grant agreements with the Grantors and, to a lesser extent, a government loan. As of December 31, 2021, we had cash, cash equivalents and short-term investments of $96.1 million.

From inception through December 31, 2021, we have raised $234.4 million in aggregate proceeds, net of issuance costs, primarily from the issuance of convertible preferred stock, convertible notes and grant agreements. In July 2021, we issued and sold shares of Series C-1 preferred stock for an aggregate purchase price of approximately $135.0 million. The 2021 Notes automatically converted into shares of Series C-2 preferred stock pursuant to their original terms in July 2021 in connection with our sale of Series C-1 preferred stock. In January 11, 2022, we completed the IPO of our common stock pursuant to which we received aggregate net proceeds of $196.9 million after deducting underwriting discounts and commissions and other offering costs. Based on our current operational plans and assumptions, we believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from our initial public offering, will be sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months after the date of the filing of this Annual Report.

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of AMX0035 and any future product candidates, and prepare for the commercial launch of AMX0035, if approved. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our expenses will also increase as we:

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continue our research and development efforts, including our ongoing global Phase 3 PHOENIX trial of AMX0035 for the treatment of ALS;

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pursue commercialization of AMX0035 for the treatment of ALS, initially in Canada, the United States and Europe;

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submit investigational new drug applications, or INDs, of AMX0035 for the treatment of Wolfram syndrome and potentially for other indications;

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conduct preclinical studies and clinical trials for potential future product candidates;

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seek to identify and develop, acquire or in-license additional product candidates;

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experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges;

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develop the necessary processes, controls and manufacturing data to obtain marketing approval for AMX0035 or any future product candidates and to support manufacturing on a commercial scale;

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seek regulatory approvals for AMX0035 or any future product candidates that successfully complete clinical trials, if any;

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hire and retain additional personnel, such as non-clinical, clinical, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, finance, general and administrative, commercial and scientific personnel;

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develop, maintain, expand and protect our intellectual property portfolio; and

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continue to transition our organization to being a public company.

We are now a publicly traded company and will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and the Nasdaq Global Select Market, require public companies to implement specified corporate governance practices that are currently not applicable to us as a private company. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will first be required to furnish a report by our management on our internal control over financial reporting for the year ending December 31, 2022. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

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To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents and short-term investments, combined with the net proceeds from our initial public offering, will be sufficient to fund operations for at least twelve months after the date of filing of this Annual Report. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development activities and the regulatory review process, we expect to incur significant commercialization expenses related to product manufacturing, pre-commercial activities and commercialization.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

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the scope, progress, results and costs of drug discovery, laboratory testing, preclinical and clinical development for AMX0035 and any future product candidates;

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the costs, timing and outcome of potential future commercialization activities, including manufacturing, marketing, sales and distribution for AMX0035 or any future product candidates for which we receive marketing approval;

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the costs, timing and outcome of regulatory review of AMX0035 and any future product candidates;

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our ability to establish and maintain collaborations and license agreements on favorable terms, if at all;

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our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development activities;

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timing delays with respect to preclinical and clinical development of AMX0035 and any future product candidates, including as result of the ongoing COVID-19 pandemic or other pandemics or disruptions;

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the costs of expanding our facilities to accommodate our expected growth in personnel;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the extent to which we acquire technologies or other assets;

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the sales price and availability of adequate third-party coverage and reimbursement for AMX0035 and any future product candidates, if and when approved; and

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the costs of operating as a public company.

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, current ownership interests will be diluted. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Cash Flows

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our sources and uses of cash for the years ended December 31, 2021 and 2020:

* NM – not meaningful

Operating Activities

During the year ended December 31, 2021, operating activities used $74.8 million of cash, primarily resulting from our net loss of $87.9 million, offset by $5.2 million of change in fair value of convertible notes, $3.1 million of non-cash stock-based compensation expense, $0.1 million of depreciation expense, $0.1 million net amortization of premiums and discounts on investments, and $4.6 million increase in net cash used in our operating assets and liabilities.

Net cash used in our operating assets and liabilities primarily consisted of a $8.4 million increase in accrued expenses and deferred rent due to increased spending for external research and development to support our growth, a $0.7 million increase in accounts payable and a $0.1 million decrease in other assets, offset by a $0.1 million increase in interest receivable from short-term investment and $4.5 million increase in prepaid expenses and other current assets due to increase in sign-on bonuses as a result of an increase in headcount and increase in other receivables related to milestones achieved under the grant agreements for which we were owed by the grantors.

During the year ended December 31, 2020, operating activities used $36.7 million of cash, primarily resulting from our net loss of $42.3 million and $0.3 million of extinguishment gain from the conversion of our 2019 Notes and 2020 Notes into Series B redeemable convertible preferred stock, partially offset by $1.7 million of non-cash interest expense, $2.6 million of net cash provided by changes in our operating assets and liabilities, $1.3 million of change in fair value of derivative liability, and $0.2 million of non-cash stock compensation expense.

The increase in non-cash interest expense was primarily due to the amortization of the derivative discount associated with the 2020 Notes and the recognition of a contingent beneficial conversion feature associated with our 2017 Notes upon the conversion of these Notes into Series B redeemable convertible preferred stock. Net cash provided by changes in our operating assets and liabilities primarily consisted of a $1.4 million increase in accounts payable, a $1.4 million increase in accrued expenses and other current liabilities and a $0.6 million increase in accrued interest on our Notes, partially offset by a $0.7 million increase in prepaid expenses and other current assets. The increases in accounts payable, accrued expenses and other current liabilities were primarily due to timing of invoicing and cash disbursement to our vendors in connection with our increased level of operating activities in 2020. The increase in prepaid expenses and other current assets was primarily due to subscription to a health data analytics software program used in the research and development of AMX0035 and future product candidates in 2020 and increase in sign-on bonus payments to our employees in our research and development department as a result of an increase in headcount.

Investing Activities

During the year ended December 31, 2021, net cash used in investing activities was $46.4 million, resulting from $0.4 million of purchases of property and equipment and $49.1 million of purchases of short-term investments, offset by $3.0 million investment matured.

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During the year ended December 31, 2020, net cash used in investing activities was $0.2 million, driven by purchases of property and equipment.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $158.5 million. This amount consisted of $134.8 million of net proceeds from the sale of our Series C-1 redeemable convertible preferred stock, $14.3 million of net proceeds from the issuance of convertible notes to related parties, $11.9 million of net proceeds from the issuance of the convertible notes and $0.3 million of proceeds from exercises of stock options, offset by a $2.5 million payment of deferred offering costs, $0.3 million repayment of PPP loan, and less than $0.1 million of issuance costs related to the conversion of the convertible notes, which was related to the 2021 Notes.

During the year ended December 31, 2020, net cash provided by financing was $46.8 million, consisting of $30.0 million of net proceeds from the sale of Series B redeemable convertible preferred stock, $10.6 million of net proceeds from the issuance of the 2020 Notes, net of issuance costs, $1.2 million of proceeds received in advance of the issuance of the 2021 Notes, $4.8 million of net proceeds from the issuance of the 2020 Notes to related parties, and $0.3 million of net proceeds received from the PPP Loan.

In April 2020, we received the PPP Loan from First Republic Bank. Under the terms of the CARES Act and the PPP Loan, all or portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following our receipt of the proceeds of the PPP Loan, we use those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan was forgiven in March 2021 and notwithstanding the forgiveness of the PPP Loan, we repaid it in full on October 7, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary.

The estimate of accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs and other third-party service providers. Examples of estimated accrued research and development expenses include fees paid to:

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vendors in connection with preclinical development activities;

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•
CROs and investigative sites in connection with preclinical studies and clinical trials; and

•
CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Valuation of Derivative Liability

In connection with our issuance of the 2017 Notes, 2018 Notes, 2019 Notes, and 2020 Notes, we recognized derivative liabilities associated with the redemption features as they met the requirements for separate accounting as derivatives. The derivative instruments were recorded at fair value at inception and were subject to re-measurement to fair value the end of each reporting period and immediately prior to conversion, with any changes in fair value recognized in the statements of operations. The primary inputs for the valuation approach included the probability of achieving various settlement scenarios that provide the lenders the rights or the obligations to receive cash at maturity or a variable number of shares upon the completion of qualified financing, and stock or asset sale. The fair value of the derivative instruments associated with each note was estimated using a two-step approach to valuation, employing a probability-weighted scenario valuation method and then comparing the instrument’s value with-and-without the derivative features in order to estimate their combined fair value, using unobservable inputs. In order to estimate the fair value of the 2017, 2018, 2019, and 2020 Notes, we estimated the future payoff in each scenario, discounted them to a present value and then probability weighted them based upon our best estimate of likelihood of each event occurring. In June 2020, in connection with our issuance of the Series B redeemable convertible preferred stock, our 2017, 2018, 2019 and 2020 Notes converted into shares of Series B redeemable convertible preferred stock.

Fair Value Option

As permitted under ASC Topic 825, Financial Instruments (ASC 825), we elected the fair value option to account for our 2021 Notes, which converted into Series C-2 redeemable convertible preferred stock in July 2021. In accordance with ASC 825, we recorded the 2021 Notes at fair value with changes in fair value recorded in the consolidated statement of operations for the year ended December 31, 2021. As a result of applying the fair value option, direct costs and fees related to the 2021 Notes were expensed as incurred and were not deferred. We concluded it was appropriate to apply the fair value option to the 2021 Notes because they are liabilities that are not, in whole or in part, classified as a component of the stockholders’ deficit. In addition, the 2021 Notes met other applicable criteria for electing fair value option under ASC 825.

In determining the fair value of the 2021 Notes under the fair value option, we used a scenario-based analysis to incorporate estimates and assumptions concerning our prospects and market indications into a model to estimate the value of the 2021 Notes. The most significant estimates and assumptions used as inputs are those concerning timing, probability of possible scenarios for conversion or settlement of the 2021 Notes and discount rates. The fair value of the 2021 Notes upon settlement in July 2021 was determined based on the fair value of the Series C-1 redeemable convertible preferred stock issued. This method was selected as we concluded that the contemporaneous financing transaction was an arm’s length transaction.

Stock-Based Compensation

We account for stock-based compensation under the provisions of ASC 718-10, Compensation—Stock Compensation, which requires all share-based payments to employees, non-employees and directors, including grants of

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stock options and restricted stock, to be recognized in the consolidated statements of operations based on their fair values on the date of grant over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. Generally, we issue stock option awards with only service-based vesting conditions and record the expense for these awards using the straight-line method. We classify stock-based compensation expense in the same manner in which the awards recipient’s payroll or service provider’s costs are classified.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. We estimate the expected stock price volatility based on the historical volatility of publicly traded peer companies. The expected term of our stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. There is no expected dividend yield since we have never paid cash dividends on common stock and do not expect to pay any cash dividends in the foreseeable future.

Common Stock Valuations

As there was no public market for our common stock until the closing of our initial public offering, the estimated fair value of common stock was determined by our Board of Directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our Board of Directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. Historically, these independent third-party valuations of our equity instruments were performed contemporaneously with identified value inflection points. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation or the Practice Aid. The Practice Aid identifies various available methods for allocating the enterprise value across classes of series of capital stock in determining the fair value of our common stock at each valuation date.

The assumptions used to determine the estimated fair value of our common stock were based on numerous objective and subjective factors, combined with management judgment, including:

•
external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry;

•
our stage of development and business strategy;

•
the rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

•
the prices at which we sold shares of our redeemable convertible preferred stock;

•
our financial condition and operating results, including our levels of available capital resources;

•
the progress of our research and development efforts;

•
equity market conditions affecting comparable public companies;

•
economic outlook including economic growth, inflation and unemployment, interest rate environment, and global economic trends; and

•
the lack of marketability of our common stock

In accordance with the Practice Aid, we determined the hybrid method of the option pricing method, or OPM, and the Probability-Weighted Expected Return Method, or PWERM, was the most appropriate method for determining the fair value of our common stock based on our stage of development and other relevant factors. The OPM uses option theory to value the various classes of a company’s securities in light of their respective claims to the enterprise value. Total shareholders’ equity value is allocated to the various share classes based upon their respective claims on a series of call options with strike prices at various value levels depending upon the rights and preferences of each class. A Black-Scholes closed form option pricing model is employed in this analysis, with an option term assumption that is consistent with the expected time to a liquidity event and a volatility assumption based on the estimated stock price volatility of a peer group of comparable public companies over a similar term.

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The PWERM values each class of equity based on an analysis of the range of potential future enterprise values of the company and the manner in which those values would accrue to the owners of the different classes of equity. This method involves estimating the overall value of the subject company under various liquidity event scenarios and allocating the value to the various share classes based on their respective claim on the proceeds as of the date of each event. These different scenarios typically include an initial public offering, an acquisition, or a liquidation of the business, each resulting in a different value. For each scenario, the future value of each share class is calculated and discounted to a present value. The results of each scenario are then probability weighted in order to arrive at an estimate of fair value for each share class as of a current date.

The hybrid method is a hybrid between the PWERM and OPM, estimating the probability-weighted value across multiple scenarios, but using the OPM to estimate the allocation of value within one or more of the scenarios. In our hybrid method, two types of future event scenarios were considered: an initial public offering, or IPO, and a non-IPO scenario accounting for all other potential future exits. Under both scenarios, the enterprise value was determined at each valuation date using a combination of the cost approach; the income approach, specifically a discounted cash flow analysis; and the market approach, specifically a backsolve to the last round of financing. The relative probabilities between the future exit scenarios were determined by our board of directors based on an analysis of performance and market conditions at the time, including then current IPO valuations of similarly situated companies and expectations as to the timing and likely prospects of future event scenarios.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Upon the closing of our initial public offering, our board of directors will determine the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Emerging Growth Company and Smaller Reporting Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, and our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of our initial public offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large, accelerated filer under the rules of the Securities and Exchange Commission.

We are also a “smaller reporting company”, meaning that the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of our initial public offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after our initial public offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

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Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

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