Dianthus Therapeutics, Inc. /DE/ (DNTH) FY 2021 MD&A

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:

127

Table of Contents

Research and Development Expenses

Expenses related to our conditioning program decreased primarily due to a decrease in manufacturing costs as we completed our process development activities to support the submission of our investigational new drug application and future clinical trials, partially offset by an increase in clinical trial costs related to our Phase 1/2 dose escalation trial which was initiated in December 2021. The increase in expenses related to our mobilization program was primarily due to an increase in process development activities to support future manufacturing. Expenses related to our cell therapy program decreased primarily due to the discontinuance of enrollment in our
MGTA-456
Phase 2 trial in inherited metabolic diseases in June 2020.

The increase in personnel related costs was due primarily to an increase in headcount in our research and development function and an increase in stock-based compensation. Personnel related costs for the years ended December 31, 2021 and 2020 included stock-based compensation expense of $3.7 million and $3.1 million, respectively. The increase in facility related and other was primarily due to higher operating costs related to our Cambridge, Massachusetts facility.

General and Administrative Expenses

The decrease in personnel related costs was due primarily to a decrease in headcount in our general and administrative function. The decrease in professional and consultant costs was primarily due to lower patent and recruitment costs. The increase in facility related and other was primarily due to higher operating costs related to our Cambridge, Massachusetts facility and higher director and officers’ insurance costs.

Interest and Other Income, Net

Interest income and other income, net for the year ended December 31, 2021 consisted primarily of sublease income of $3.5 million and interest income $0.1 million. Interest income and other income, net for the year ended December 31, 2020 consisted primarily of sublease income of $2.9 million and interest income of $1.0 million. The increase in sublease income of $0.6 million was due to higher sublessor operating expenses. The decrease in interest income was due to lower interest rates and lower invested balances.

128

Table of Contents

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. In June 2018, we completed the initial public offering, or IPO, of our common stock resulting in net proceeds of $89.9 million after deducting underwriting discounts and commissions and other offering expenses. In May 2019, we completed a
follow-on
public offering resulting in net proceeds of $60.3 million after deducting underwriting discounts and commissions and other offering expenses. In June 2020, we issued and sold 8,625,000 shares of our common stock, including the underwriters’ exercise in full of their option to purchase additional shares of common stock, in a
follow-on
public offering at a public offering price of $8.00 per share, resulting in net proceeds of $64.6 million after deducting underwriting discounts and commission and other offering expenses. In May 2021, we issued and sold 9,599,998 shares of our common stock in a private placement at a purchase price of $9.00 per share, resulting in net proceeds of $86.1 million, after deducting offering expenses.

On August 8, 2019, we filed a shelf registration statement on Form
S-3,
or Shelf, with the Securities and Exchange Commission, or SEC, which covers the offering, issuance and sale by us of up to an aggregate of $350.0 million of our common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into a sales agreement with Cowen and Company, LLC, as sales agent, to provide for the issuance and sale by the Company of up to $100.0 million of our common stock from time to time in

“at-the-market”

offerings under the Shelf, which we refer to as the ATM Program. The Shelf was declared effective by the SEC on August 19, 2019. As of December 31, 2021, no sales have been made pursuant to the ATM Program.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating Activities

During the year ended December 31, 2021, operating activities used $59.5 million of cash, primarily resulting from our net loss of $71.1 million and net cash used by changes in our operating assets and liabilities of $1.5 million, partially offset by
non-cash
charges of $13.1 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2021 consisted of an increase of $1.1 million in prepaid expenses and other current assets and a decrease of $0.6 million in accounts payable and accrued expenses and other current liabilities.

During the year ended December 31, 2020, operating activities used $64.0 million of cash, primarily resulting from our net loss of $74.9 million and net cash used by changes in our operating assets and liabilities of $1.2 million, partially offset by
non-cash
charges of $12.1 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2020 consisted of a decrease of $2.7 million in accounts

129

Table of Contents

payable and accrued expenses and other current liabilities, partially offset by a decrease of $1.4 million in prepaid expenses and other current assets.

Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses in both periods were generally due to the timing of vendor invoicing and payments.

Investing Activities

During the year ended December 31, 2021, net cash provided by investing activities was $43.4 million, primarily attributable to net maturities of marketable securities of $44.7 million.

During the year ended December 31, 2020, net cash used by investing activities was $10.6 million, primarily attributable to net purchases of marketable securities of $10.2 million.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $89.6 million, consisting of proceeds from the May 2021 private placement, net of offering costs, of $86.1 million and proceeds from the exercise of stock options of $3.4 million.

During the year ended December 31, 2020, net cash provided by financing activities was $67.7 million, consisting of proceeds from our
follow-on
public offering, net of underwriting discounts and commissions and offering costs, of $64.6 million and proceeds from the exercise of stock options of $3.1 million.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $176.9 million. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2023. 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. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, 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 those listed above.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, including sales under our ATM Program, debt financings, collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or

130

Table of Contents

grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund our continuing operations, if at all.

Contractual Obligations and Commitments

Our cash flows are dependent on a number of factors in addition to our operational expenditures, including our contractual and other obligations. As a result, our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.

Lease Obligations

We have a sublease for up to approximately 69,000 square feet of office and laboratory space in Cambridge, Massachusetts, which expires in February 2028. We are obligated to make remaining rent payments of $45.1 million through February 2028, of which $6.4 million are due in 2022.

Research and Development and Manufacturing Agreements

We enter into contracts in the normal course of business with CROs, CDMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation and in some cases, wind-down costs. The exact amount of such obligations is dependent on the timing of termination and the terms of the related agreement and are not known.

License and Collaboration Agreements

In March 2018, we entered into a collaboration agreement with Heidelberg Pharma Research GmbH, or HDPR, whereby the parties agreed to combine our stem cell platform with proprietary antibodies across up to four exclusive targets with HDPR’s proprietary Antibody Targeted Amanitin Conjugates platform. Upon the exercise of certain license rights, we may be obligated to pay HDPR development, regulatory and commercial milestone payments of up to $83.5 million per target as well as royalties on net sales of products licensed under the agreement.

We have a license agreement with the President and Fellows of Harvard College, entered into in November 2016, for an exclusive, worldwide, royalty-bearing license for certain technologies related to conditioning and mobilization. We are obligated to pay milestone payments of up to $7.4 million for the first two licensed products upon the achievement of certain development and regulatory milestones and to pay royalties on a

product-by-product

and

country-by-country

basis on net sales of products licensed under the agreement. To date, we have paid $0.3 million related to the achievement of certain of these milestones. As of December 31, 2021, we were unable to estimate the timing or likelihood of achieving the remaining milestones or generating future product sales.

Recently Issued and Adopted 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 included in this Annual Report on Form
10-K.