Atea Pharmaceuticals, Inc. (AVIR) FY 2022 MD&A

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing antiviral therapeutics to improve the lives of patients suffering from serious viral infections. We are developing our lead product candidate, bemnifosbuvir, for the treatment of COVID-19, the disease caused by infection with SARS-CoV-2 and its variants. We are also developing bemnifosbuvir in combination with ruzasvir for the treatment of HCV.

COVID-19 has caused a global health crisis resulting in millions of deaths and lingering medical issues for many survivors. While there have been many rapid advances in the prevention and treatment of COVID‑19, due to the limitations of the current vaccine and treatment options, there remains a significant unmet medical need for large numbers of high-risk individuals both in the US and globally. Our COVID-19 strategy, centered on the development of bemnifosbuvir as a monotherapy and potentially as a part of a COVID-19 therapy that combines bemnifosbuvir with another antiviral agent and focuses on these high-risk patients for whom current vaccines and treatments remain inadequate. Our goal is to deliver a safe, effective, and convenient treatment option for individuals that remain vulnerable to hospitalization and death as a result of infection with SARS-CoV-2.

Even with the availability of vaccines and therapeutics, COVID-19 is the third leading cause of mortality in the US after only heart disease and cancer. As of February 15, 2023, the CDC reported that more than 400 persons a day are dying in the US from COVID-19 or related complications. More than 75% of these persons are 65 years and older. Additionally, it has been reported as recently as February 15, 2023, persons 60 years and older account for ~70 % of current US hospitalizations associated with COVID-19.

While the US government has recently announced plans to end the declaration of a public health emergency associated with COVID-19, COVID-19 is expected to remain a serious endemic threat for an indefinite future period. The reasons contributing to the likelihood of COVID-19 remaining an endemic threat include: (1) viral transmission before symptom onset; (2) uneven global rollout of vaccinations; (3) ongoing vaccine hesitancy; (4) limited duration of immunity conferred by both natural infection and vaccination; (5) limited vaccine efficacy against certain SARS-CoV-2 variants; (6) limitations of current oral antivirals such as drug-drug interactions, safety concerns and tolerability; (7) uncertain impact of vaccines on transmission; (8) continuing evolution of the virus evading endogenous and vaccine-induced immunity; and (9) diminution of virus transmission mitigation behaviors, such as wearing masks and social distancing.

The continued emergence of SARS-CoV-2 variants that may have greater transmissibility and may cause more severe disease, combined with the diminution of virus mitigation behaviors among others in the general population, together with the consequences that are expected to associate with the end of the public health emergency leave patients for whom current therapeutics are limited particularly vulnerable to the virus and related disease. In view of these factors, we are developing bemnifosbuvir as a potential therapy to meet the needs of these vulnerable patients.

As COVID-19 continues to persist as a serious global endemic disease, we believe that the COVID-19 therapeutic market will remain a multi-billion-dollar opportunity for many years to come with the US continuing to comprise the most significant commercial market. In the US, we anticipate that the COVID-19 commercial market will soon transition from a single government payer to more traditional payer channels such as Medicare, Medicaid and private commercial insurance. We anticipate a major

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consideration for determining reimbursement by these third party payers will be a cost/value analysis that is driven in part by the economic burden of hospitalization, especially for at-risk populations.

Bemnifosbuvir

We utilized our team’s expertise and experience, gained from decades of developing innovative antiviral treatments, to design bemnifosbuvir, an investigational, proprietary, potent, and selective, nucleotide polymerase inhibitor, which may be developed as each of a monotherapy and in combination with other antiviral agents. Bemnifosbuvir (AT-527) has been derived from our internal discovery program that combines unique nucleotide scaffolds with novel double prodrugs for the purpose of inhibiting the enzymes central to viral replication. Utilizing this double prodrug moiety approach, we believe that we have been able to maximize formation of the active metabolite of bemnifosbuvir thereby creating an oral antiviral product candidate that is designed to be preventing replication of ssRNA viruses while avoiding toxicity to host cells. Additionally, in nonclinical studies we have demonstrated that bemnifosbuvir has a unique mechanism of action that includes both RdRp chain termination and inhibition of the NiRAN of the SARS-CoV-2 virus and variants. By targeting these highly conserved sites through this unique dual mechanism of action, bemnifosbuvir has the potential to create a high barrier to resistance. Additionally, in in vitro studies we have conducted, bemnifosbuvir maintained its antiviral activity across COVID-19 VOCs, including all Omicron subvariants tested.

COVID-19 Clinical Studies

In November 2022, we initiated SUNRISE-3, a global, multicenter, randomized, double-blind, placebo-controlled Phase 3 clinical trial. SUNRISE-3 is evaluating bemnifosbuvir (550 mg BID for five days) in at least 1500 high-risk non-hospitalized patients with mild or moderate COVID-19. The trial will be conducted at clinical trial sites in the US, Europe, Japan, and other regions of the world. The patient population will consist of those at the highest risk for disease progression, including patients ≥ 80 years old, patients ≥ 65 years old with one or more major risk factors, and immunocompromised patients ≥ 18 years old, all regardless of COVID-19 vaccination status.

SUNRISE-3 is designed to evaluate bemnifosbuvir as monotherapy (primary analysis) but will also explore the effect of combination therapy in a smaller sub-set of patients who receive an antiviral drug along with bemnifosbuvir (secondary analysis). The trial will include two populations derived from the type of SOC received: 1) “supportive care population” (those patients who do not qualify for an approved antiviral treatment or where antivirals are not locally available) which will assess bemnifosbuvir given as monotherapy (primary analysis) and 2) “combination antiviral population” which will assess combination therapy if the SOC includes treatment with other compatible antiviral drugs against COVID-19 (secondary analysis). Patients are being randomized 1:1 to receive either bemnifosbuvir 550 mg BID plus locally available SOC or placebo BID plus locally available SOC for five days.

The primary endpoint of the SUNRISE-3 study is all-cause hospitalization or death through Day 29 in at least 1,300 patients in the supportive care population and is powered to detect a clinically meaningful reduction in hospitalization/death versus placebo in this population. By enriching the patients enrolling in the trial with those who are at the highest risk for disease progression, we are targeting rates of hospitalization/death of ~4-6%. An interim analysis will be conducted by a DSMB after 60% patient enrollment in the arm of the study enrolling the supportive care population. Secondary endpoints in each of the supportive care patient population and the combination antiviral population include COVID-19 complications, medically attended visits, symptom rebound/relapse and viral load rebound.

In parallel to conducting our SUNRISE-3 clinical trial, we are engaging in efforts to discover a protease inhibitor product candidate that we may combine with bemnifosbuvir for the treatment of specific COVID-19 patient populations that are unable to mount immune response and require combination therapy. We have conducted in vitro studies that have demonstrated an additive antiviral effect when bemnifosbuvir was combined with antivirals from the protease inhibitor class, including nirmatrelvir. The data that we anticipate obtaining from the SUNRISE-3 clinical trial in the subset of patients who receive combination therapy will be, we believe, the first clinical data evaluating the combination of bemnifosbuvir and certain other currently authorized antiviral treatments.

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Combination Therapy

Combination therapy utilizing multiple direct acting antivirals with differing mechanisms of action is an established strategy that has been historically successful in treating many life-threatening viral diseases, including HIV, HBV and HCV. Nucleos(t)ide analogs are the backbone of many of these successful combination therapies. Advantageously, drug combinations can simultaneously target multiple points in the viral replication cycle with the effect of increasing antiviral activity and can also combat resistance that may develop over time with use of single agent drugs.

Hepatitis C Virus (HCV) Clinical Studies

For the treatment of chronic HCV infection, we are advancing the combination of bemnifosbuvir and ruzasvir, an investigational NS5A inhibitor. Approximately 58 million people globally, including ~2.4 million in the US, are living with chronic HCV infection. The WHO reports a global incidence of 1.5 million cases per year and 399,000 deaths per year. The US HCV prevalence is expected to remain constant over the coming years as rising HCV incidence offsets the number of new patients treated.

We believe that the combination of bemnifosbuvir and ruzasvir has the potential to improve upon the current standard of care by offering a differentiated short duration, pan-genotypic protease-sparing regimen for HCV-infected patients with or without cirrhosis.

During the second quarter of 2023, we plan to initiate enrollment of a Phase 2 clinical trial of bemnifosbuvir in combination with ruzasvir in treatment-naïve, HCV-infected patients either without cirrhosis or with compensated cirrhosis. This study is designed to evaluate the safety and efficacy of the pan-genotypic combination consisting of 550 mg QD of bemnifosbuvir and 180 mg QD of ruzasvir after eight weeks of treatment. Approximately 280 HCV-infected, treatment-naïve patients across all genotypes, including a lead-in cohort of approximately 60 patients are expected to be enrolled in this Phase 2 clinical trial. The primary endpoints of the study are safety and sustained virologic response (SVR) at Week 12 post-treatment. Other virologic endpoints include virologic failure, SVR at Week 24 post-treatment and resistance.

Dengue and RSV

In February 2023, after advancing AT-752 to a Phase 2 clinical trial, we have determined not to pursue further clinical development of AT-752 for the treatment and prophylaxis of dengue. This action was taken due to the long timelines anticipated for patient enrollment, expected clinical operational challenges, including the challenge of successfully administering an antiviral very shortly after infection which is not feasible with the current diagnostic tests, and estimated resource burdens, including substantial costs, associated with the further clinical development of an antiviral for each of the treatment and prophylaxis of dengue.

We have also recently have determined not to further pursue further our discovery efforts to identify a product candidate for the treatment of respiratory syncytial virus (RSV). This action was taken to facilitate enhanced focus of our management team and to deploy our other resources on those therapeutic indications where our programs are more advanced.

Financial Resources

We believe we are well capitalized to advance our current programs. We had $646.7 million in cash, cash equivalents and marketable securities at December 31, 2022. Based on our current plans, we anticipate these financial resources will allow us to advance our current and planned clinical programs to and through key inflection points and to fund our activities into 2026.

Roche License Agreement

In October 2020, we entered into the Roche License Agreement, with F. Hoffmann-La Roche Ltd and Genentech, Inc. in connection with the global development, manufacture and commercialization of the Compounds, Products, and Companion Diagnostics. Subject to the terms and conditions of the Roche License Agreement, Roche and we jointly developed bemnifosbuvir for COVID-19 on a worldwide-basis and equally shared the costs associated with such development activities.

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As partial consideration of the rights we granted to Roche under the Roche License Agreement, Roche paid us an upfront payment of $350 million in November 2020. Additionally, upon realization of a development milestone in June 2021, we received an additional $50 million from Roche.

On February 10, 2022 the Roche License Agreement terminated following the receipt of notice of termination from Roche in November 2021. Our obligations to share costs with Roche also ended at that time. As a result of the termination of the Roche License Agreement, we have regained worldwide exclusive rights from Roche to research, develop, manufacture and commercialize the Compounds, the Products and the Companion Diagnostics in all fields of use.

Financial Operations Overview

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $646.7 million. Net cash used in operating activities was $121.0 million for the year ended December 31, 2022.

We expect that our net cash used in operating activities will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we may incur additional costs as we continue to operate as a public company. We believe that our available cash and cash equivalents will be sufficient to fund our planned operations into 2026.

We do not have any products approved for sale and have not generated any product revenue since inception. We do not anticipate generating any revenue from product sales for the foreseeable future. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with third parties, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

We plan to continue to use third-party service providers, including CROs to carry out our preclinical and clinical development and CMOs to manufacture and supply the materials to be used during the development of our product candidates. Additionally, we expect to rely on CMOs for the manufacture of commercial supply of any product candidate we may successfully develop.

As we continue to advance our programs, we expect to incur significantly higher expenses over the next several years. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

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continue clinical development of bemnifosbuvir as a monotherapy for the treatment of COVID-19;

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advance the clinical development of the combination of bemnifosbuvir and ruzasvir for the treatment of HCV;

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continue discovery and IND-enabling activities in anticipation of nominating a protease inhibitor product candidate for the treatment of COVID-19;

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initiate clinical development of bemnifosbuvir in combination with a protease inhibitor for the treatment of COVID-19;

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manufacture increasing quantities of bemnifosbuvir drug substance and drug product in anticipation of potential commercialization;

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seek market approval and prepare for potential commercialization of product candidates we may successfully develop;

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acquire or in-license clinical stage drug candidates, form strategic alliances or establish collaborations with third parties;

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•
maintain, expand, protect and enforce our intellectual property portfolio;

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hire additional research, development and administrative personnel; and

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establish commercialization capabilities if we are successful in developing our product candidates.

Components of Results of Operations

Revenue

We do not have any products approved for sale and to date, we have not generated any revenue from product sales.

Our revenue has been collaboration revenue solely derived from the Roche License Agreement, which became effective in October 2020 and terminated on February 10, 2022. If our development efforts for our product candidates are successful and result in commercialization, we may generate additional revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Research and Development Expenses

Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include external costs consisting of fees paid to third parties, including CROs and CMOs, to conduct certain research and development activities on our behalf and consulting costs, as well as internal costs consisting of payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities attributable to our research and development personnel. We expense both internal and external research and development expenses as they are incurred. In circumstances where amounts have been paid in advance or in excess of costs incurred, we record a prepaid expense, which is expensed as services are performed or goods are delivered.

A significant portion of our research and development costs have been external costs, which we track by therapeutic area. We have not historically tracked our internal research and development expenses by therapeutic area as they are deployed across multiple programs.

As discussed in Note 3 to our consolidated financial statements, during the term of the Roche License Agreement which terminated in February 2022, we and Roche shared certain manufacturing and clinical development costs on a 50/50 basis. Billings to us by Roche for our percentage share of such expenses were recorded in research and development expenses. These costs represented a substantial portion of our research and development expenses and a material portion of our total expenses during the year ended December 31, 2021. During the year ended December 31, 2022, we recorded a net reduction to research and development expenses of $6.9 million related to credits received from Roche. These credits were the result, following the termination of the Roche License Agreement, of changes and adjustments [by Roche] in estimated amounts of expenses reported by Roche during the period in which we and Roche shared costs associated with the development of bemnifosbuvir.

The following table summarizes our external research and development expenses by indication and internal research and development expenses:

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We are focusing substantially all of our resources on the development of our product candidates, particularly bemnifosbuvir. We expect our research and development expenses to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates, complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for consulting, accounting and tax services, legal fees and expenses related to intellectual property and corporate matters, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities attributable to our general and administrative personnel, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will continue to increase as a result of increased personnel costs, expanded infrastructure, increased compliance, consulting, legal and accounting services costs, and costs associated with support of increasing research and development activities, including more advanced clinical development of our product candidates and the initiation of activities in preparation for potential commercialization of any product candidates that we may successfully develop. Increasing costs associated with operating as a public company are also expected to result in the incurrence of additional general and administrative expenses.

Interest Income and Other, Net

Interest income and other, net, consists primarily of interest income earned on our cash, cash equivalents and marketable securities.

Income Taxes

Income taxes consists primarily of federal and state current income taxes.

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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 periods indicated:

Revenue

Collaboration revenue for the year ended December 31, 2021 was derived from the Roche License Agreement that was executed in October 2020 and terminated in February 2022. As discussed in Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, following receipt in November 2021 of the notice from Roche terminating the agreement, we recognized all remaining deferred revenue in 2021. We had no collaboration revenue for the year ended December 31, 2022.

Research and Development Expenses

Research and development expenses decreased by $85.3 million from $167.2 million for the year ended December 31, 2021 to $81.9 million for the year ended December 31, 2022. The decrease in research and development expenses was primarily due to a $93.7 million decrease in external expenses. This decrease principally resulted from the discontinuation in February 2022 of our obligation to share costs incurred by Roche in connection with Roche’s development of bemnifosbuvir. This cost sharing obligation ended simultaneous with the termination of the Roche License Agreement. Associated with the Roche License Agreement, we recorded a net credit of $6.9 million for the year ended December 31, 2022 compared to expense of $76.6 million for the year ended December 31, 2021. In addition, we recorded a $25.0 million charge related to the one time upfront payment for the Merck license agreement during the year ended December 31, 2021. Partially offsetting the decrease was an increase of $8.4 million in internal costs primarily due to an increase in personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense of $3.2 million for our research and product development employees and consulting fees, and $1.0 million in other research and development expenses.

General and Administrative Expenses

General and administrative expenses increased by $2.9 million from $45.8 million for the year ended December 31, 2021 to $48.7 million for the year ended December 31, 2022. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase of $4.2 million in payroll and personnel-related expenses, including salaries, benefits and stock-based compensation expense of $3.3 million; partially offset by a decrease in professional fees of $1.2 million; and an increase in other general and administrative expenses of $0.6 million.

Interest Income and Other, Net

Interest income and other, net, increased by $10.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to investing in higher yield marketable securities and higher interest rates.

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Income Taxes

We recorded a net benefit for income taxes of $3.6 million for the year ended December 31, 2022 compared to a provision for income taxes of $17.4 million for the year ended December 31, 2021. The net benefit recorded for the year ended December 31, 2022 was primarily the result of changes in estimates between our original provision for 2021 income taxes and the actual amounts reflected in the income tax returns as filed. For the year ended December 31, 2021, we recorded income tax expense related to pre-tax income earned primarily due to amounts received from the Roche License Agreement.

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the periods indicated:

Revenue

Collaboration revenue for the years ended December 31, 2021 and 2020 was derived from the Roche License Agreement that was executed in October 2020. See Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of the accounting treatment of the Roche License Agreement, including recognition of all remaining deferred revenue following receipt of the termination notice from Roche.

Research and Development Expenses

Research and development expenses increased by $129.2 million from $38.0 million for the year ended December 31, 2020 to $167.2 million for the year ended December 31, 2021. The increase in research and development expenses was primarily due to a $104.1 million increase in external expenses incurred related to CRO and CMO services in connection with the advancement of product candidates for the treatment of COVID-19, HCV and dengue, including $76.6 million related to our share of costs incurred by Roche and a $25.0 million charge related to the upfront payment for the license agreement with Merck. In addition, there was an increase of $25.0 million in internal spend primarily due to an increase in personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense of $14.6 million for our research and product development employees and consulting fees, and $2.4 million in other research and development expenses. Research and development expenses include a reduction of $7.3 million representing a reimbursement of Roche’s share of certain expenses incurred that are subject to ASC 808 as discussed in Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

General and Administrative Expenses

General and administrative expenses increased by $24.1 million from $21.6 million for the year ended December 31, 2020 to $45.8 million for the year ended December 31, 2021. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase of $20.6 million in payroll and personnel-related expenses, including salaries, benefits and stock-based

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compensation expense of $17.6 million; an increase in professional fees of $2.6 million; and an increase in other general and administrative expenses of $0.9 million.

Interest Income and Other, Net

Interest income and other, net, increased by $0.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to higher balances of cash equivalents.

Income Taxes

Income taxes were $17.4 million and $0 million for the years ended December 31, 2021 and 2020, respectively. The effective tax rate for the years ended December 31, 2021 and 2020 was 12.5% and 0%, respectively. The increase in income tax expense was primarily due to revenue recognized in 2021 from our former collaboration with Roche.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $646.7 million. We believe that our available cash, cash equivalents and marketable securities will be sufficient to fund our planned operations into 2026.

We entered into an open market sales agreement ("Sales Agreement"), with Jeffries, LLC ("Jeffries") in 2021 pursuant to which we may from time to time offer and sell shares of our common stock for an aggregate offering price of up to $200.0 million, through or to Jeffries, acting as sales agent or principal. We have agreed to pay Jeffries a commission of 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Jeffries with customary indemnification and contribution rights. As of December 31, 2022, no shares have been issued under the Sales Agreement.

Future Funding Requirements

To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when, or if, this will occur. We expect to continue to incur increased expenditures for the foreseeable future, and we expect our expenses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional general and administrative costs as we continue to operate as a public company and expand our organization to support more advanced clinical development of our product candidates and the initiation of activities in preparation for potential commercialization of our product candidates.

We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through public or private equity or debt financings, collaborative arrangements with third parties, or through other sources of financing. We anticipate that we may need to raise substantial additional capital, the requirements for which will depend on many factors, including:

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the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;

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the number and scope of clinical programs we decide to pursue;

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the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;

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the scope and costs of development and commercial manufacturing activities;

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the cost and timing associated with commercializing our product candidates, if they receive marketing approval;

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the extent to which we acquire or in-license other product candidates and technologies;

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

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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following regulatory approval;

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our implementation of operational, financial and management systems; and

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the costs associated with being a public company.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of one or more of our product candidates. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.

Market volatility, inflation, interest rate fluctuations and concerns related to the COVID-19 pandemic and geopolitical events, including civil or political unrest (such as the ongoing conflict between Ukraine and Russia), may have a significant impact on the availability of funding sources and the terms on which any funding may be available.

See Part I, Item 1A,“Risk Factors” for additional risks associated with our substantial capital requirements.

Summary Statement of Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below:

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $121.0 million. Cash used in operating activities was primarily due to net loss of $115.9 million, accretion of premium and discounts on marketable securities of $5.5 million, increase in prepaid expenses and other assets of $7.7

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million and a decrease in accounts payable and accrued expenses of $39.6 million, partially offset by stock-based compensation of $46.7 million.

Net cash used in operating activities for the year ended December 31, 2021 was $87.0 million. Cash used in operating activities was primarily due to net income of $121.2 million increased by stock-based compensation of $39.6 million, an increase in accounts payable and accrued expenses of $54.2 million, an increase in prepaid expenses and other assets of $0.6 million all offset by a decrease in deferred revenue of $301.4 million.

Net cash provided by operating activities for the year ended December 31, 2020 was $296.7 million. Cash provided by operating activities was primarily due to an increase in deferred revenue of $301.4 million related to the Roche License Agreement, an increase in accounts payable and accrued expenses of $11.9 million and stock based compensation of $7.5 million, partly offset by the use of funds in our operations to develop our product candidates, resulting in a net loss of $10.9 million. Additional uses of cash during the period included an increase in prepaid expenses and other current assets $7.3 million and unbilled accounts receivable of $5.8 million. The net increase in deferred revenue of $301.4 was the result of the $350.0 million upfront payment offset by revenue recognized of $48.6 million.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was $455.4 million and consisted of purchases of fixed assets of $1.9 million and purchases of marketable securities of $545.4 million, partially offset by sales and maturities of marketable securities of $91.9 million.

Net cash used in investing activities for each of the years ended December 31, 2021 and 2020 was less than $0.1 million and consisted of purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $0.4 million and consisted of proceeds from the exercise of stock options and proceeds from issuance of common stock under our Employee Stock Purchase Plan.

Net cash provided by financing activities for the year ended December 31, 2021 was $1.4 million and consisted of proceeds from issuance of common stock as a result of the exercise of stock options.

Net cash provided by financing activities for the year ended December 31, 2020 was $531.8 million, which consisted primarily of $106.6 million of net proceeds from the sale of Series D convertible preferred stock, $107.5 million of net proceeds from the sale of Series D-1 convertible preferred stock and $317.6 million of net proceeds from our IPO.

Contractual Obligations and Commitments

We lease our office space in Boston, Massachusetts under a non-cancelable operating sublease . The term of the sublease commenced on January 1, 2022 and will expire on December 31, 2026.

The following table summarizes our contractual obligations as of December 31, 2022:

We enter into contracts in the normal course of business with CROs for preclinical and clinical studies and testing, CMOs for manufacture and supply of our clinical trial materials and other third parties for other services and products used for operating purposes. These contracts do not contain any minimum purchase commitments and generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

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In December 2021, we entered into a license agreement with Merck for the development, manufacture and commercialization of ruzasvir. Ruzasvir is the NS5A inhibitor we are developing in combination with bemnifosbuvir for the treatment of HCV.

Pursuant to the terms of the Merck License Agreement, we obtained from Merck an exclusive (subject to certain reserved rights to conduct internal research), sublicensable, and worldwide license under certain Merck patents and know-how to research, develop, manufacture, have manufactured, use, import, export, sell, offer for sale, and otherwise commercialize ruzasvir, or products containing ruzasvir for all therapeutic or prophylactic uses in humans.

In consideration for the rights we acquired under the Merck License Agreement, we paid Merck a non-refundable upfront payment in the amount of $25 million. We are obligated to pay Merck milestone payments of $135 million in the aggregate upon its achievement of certain development and regulatory milestones and up to $300 million in the aggregate upon its achievement of certain sales-based milestones. Additionally, we will pay Merck tiered royalties based on annual net sales of Products ranging from high single digits to mid-teens percentages. Our royalty payment obligations will continue until the later of (i) the expiration of the last to expire valid claim of a licensed Merck patent claiming such Product (or a Compound contained in such Product) and (ii) a period of years after the first commercial sale of such Product in such country. We may terminate the Merck License Agreement for convenience upon prior written notice. The first potential milestone would be payable upon the commencement of a Phase 3 clinical trial. The table above does not include the potential milestones or royalties that we may be obligated to pay under the Merck License Agreement.

The table above also does not include potential milestone and success fees that we may be required to pay under agreements we have entered into with certain consultants. We have an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5.0 million. This success payment is contingent upon the occurrence of future events and the timing and likelihood of such payment is neither probable nor estimable.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with US generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

Our critical accounting policies are those policies that require the most significant judgements and estimates in the preparation of the financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, accrued research and development expenses and stock based compensation.

Revenue Recognition

As of December 31, 2022, all of our revenue to date had been collaboration revenue generated under the Roche License Agreement.

We analyze our collaboration arrangements to assess whether they are within the scope of Accounting Standards Codification ASC Topic 808, Collaborative Arrangements (“ASC 808”), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. If we conclude that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, we recognize our allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred. If we conclude that some or all aspects of the arrangement represent a

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transaction with a customer, we account for those aspects of the arrangement within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”).

To determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of ASC 606, we perform the following steps: (i) identify the contract(s) with the 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) each performance obligation is satisfied. ASC 606 requires significant judgment and estimates and results in changes to, but not limited to: (i) the determination of the transaction price, including estimates of variable consideration, (ii) the allocation of the transaction price, including the determination of estimated selling price, and (iii) the pattern of recognition, including the application of proportional performance as a measure of progress on service-related promises and application of point-in-time recognition for supply-related promises.

The transaction price is generally comprised of an upfront payment due at contract inception and variable consideration in the form of payments for our services and materials and milestone payments due upon the achievement of specified events. Other payments we could be entitled to include tiered royalties earned when customers recognize net sales of licensed products. We consider the existence of any significant financing component within our arrangements and have determined that a significant financing component does not exist in our arrangements as substantive business purposes exist to support the payment structure other than to provide a significant benefit of financing. We measure the transaction price based on the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods and/or services to the customer. We utilize either the expected value method or the most likely amount method to estimate the amount of variable consideration, depending on which method is expected to better predict the amount of consideration to which we will be entitled. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. With respect to arrangements that include payments for a development or regulatory milestone payment, we evaluate whether the associated event is considered probable of achievement and estimate the amount to be included in the transaction price using the most likely amount method. Milestone payments that are not within our control or the licensee, such as those dependent upon receipt of regulatory approval, are not considered to be probable of achievement until the triggering event occurs. At the end of each reporting period, we re-evaluate the probability of achievement of each milestone and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment. For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, wherein the license is deemed to be the sole or predominant item to which the payments relate, we recognize revenue upon the later of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied). Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception.

We generally allocate the transaction price to each performance obligation based on a relative standalone selling price basis. We develop assumptions that require judgment to determine the standalone selling price for each performance obligation in consideration of applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated research and development costs. However, in certain instances, we allocate variable consideration entirely to one or more performance obligation if the terms of the variable consideration relate to the satisfaction of the respective performance obligation and the amount allocated is consistent with the amount we would expect to receive for the satisfaction of the respective performance obligation.

We recognize revenue based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good or service to the customer. For performance obligations that are satisfied at a point in time, we recognize revenue when control of the goods and/or services is transferred to the customer. For performance obligations that are satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress

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which depicts the performance in transferring control of the associated goods and/or services to the customer. We generally use input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. With respect to arrangements containing a license to our intellectual property that is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from amounts allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. Significant management judgment is required in determining the level of effort and costs required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.

Until receipt in November 2021 of the notice from Roche that Roche was terminating the Roche License Agreement effective February 2022, we recognized collaboration revenue over the expected performance period based on its measure of progress towards the completion of certain activities referred to as its Combined Performance Obligation. We concluded that the notice of termination represents a contract modification for accounting purposes. We further concluded that upon receipt of the notice of termination, the Combined Performance Obligation has been completely satisfied. As a result, we recognized all remaining deferred revenue as collaboration revenue within the consolidated statements of operations and comprehensive income for the year ended December 31, 2021 (see Note 3, Collaboration Revenue, for a detailed discussion).

Contract costs

We recognize as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered. We have elected a practical expedient wherein we recognize the incremental costs of obtaining a contract as an expense when incurred if, at inception, the expected amortization period of the asset that we otherwise would have recognized is one year or less. In connection with the Roche License Agreement, we incurred an incremental cost of $7.0 million, which was included in general and administrative costs in the statement of operations and comprehensive loss for the year ended December 31, 2021 included elsewhere in this Annual Report on Form 10-K.

Accrued Research and Development

We have entered into various agreements with CMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. 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.

Stock-Based Compensation

We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and stock awards. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. In determining fair value of the stock options granted, we use the Black–Scholes model, which requires the input of subjective assumptions. These assumptions include: estimating the fair

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market value of the common stock, estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term (expected volatility), risk-free interest rate and expected dividends. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during the years ended December 31, 2022, 2021 and 2020, respectively. Estimating the fair value of our common stock prior to the completion of our initial public offering involved significant judgement and the use of estimates.

Estimating the Fair Value of Common Stock

Prior to our IPO, we were required to estimate the fair value of the common stock underlying our share-based awards when performing the fair value calculations using the Black-Scholes option pricing model. Prior to our IPO, the fair value of the common stock underlying our stock options has been determined on each grant date by our board of directors, with input from management, considering the most recently available third-party valuation of our common shares. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the estimated fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant.

In the absence of a public trading market for our common stock prior to our IPO, on each grant date, we developed an estimate of the fair value of our common stock based on valuations from an independent third-party valuation firm using information known to us on the date of grant, a review of any recent events and their potential impact on the estimated fair value per share of the common stock.

The third-party valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“Practice Aid”).

The assumptions used to determine the estimated fair value of our common stock are 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;

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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; and

•
general US market conditions and the lack of marketability of our common stock.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

•
Option Pricing Method. Under the option pricing method, or OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options.

•
Probability-Weighted Expected Return Method. The probability-weighted expected return method, or PWERM, is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

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Based on our early stage of development and other relevant factors, we determined that OPM method as well as a hybrid approach of the OPM and the PWERM methods were the most appropriate methods for allocating our enterprise value to determine the estimated fair value of our common stock. In determining the estimated fair value of our common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

Subsequent to the completion of our IPO, the fair value of our common stock is based on the daily closing quoted market price of our common stock.

We also account for any modifications to share based payments in accordance with ASC Topic 718, Compensation – Stock Compensation ("ASC 718").

Cash and Cash Equivalents

We consider all highly-liquid investments with an original maturity, or a remaining maturity at the time of purchase, of three months or less to be cash equivalents. Our cash equivalents include money market funds and commercial paper, which are highly liquid and have strong credit ratings. These investments are subject to minimal credit and market risks. Cash and cash equivalents are stated at cost, which approximates market value.

Marketable Securities

Our investment strategy is focused on capital preservation. We invest in instruments that meet the credit quality standards outlined in our investment policy. Marketable securities consist of investments with maturities greater than three months. Marketable securities include US treasury obligations, US agency obligations, corporate debt, commercial paper and asset-backed securities. We classify all of our marketable securities as available-for-sale. Accordingly, these investments are recorded at fair value. Unrealized gains and losses are recorded as a component of other comprehensive income within stockholders’ equity. Amortization and accretion of discounts and premiums are recorded as interest income.

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability between market participants at measurement dates. ASC 820, Fair Value Measurement, establishes a three-level valuation hierarchy for instruments measured at fair value. The hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Concentration of Credit Risk and Off-balance Sheet Risk

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the US government. We do not believe that we are subject to any significant concentrations of credit risk from these financial instruments. We have no financial instruments with off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

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Indemnification Agreements

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

We have also agreed to indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not specified in the agreements; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

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