Eledon Pharmaceuticals, Inc. (ELDN) FY 2022 MD&A

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2022. In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. See “Special Note Regarding Forward-Looking Statements” in this report. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the Part I, Item 1A. Risk Factors section and elsewhere in this report, as well as, in other reports and documents we file with the Securities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.

RECENT DEVELOPMENTS

Strategic Updates

In January 2023, we announced our decision to prioritize resources on our kidney transplantation programs, discontinue the islet cell transplantation program, and deprioritize the IgAN program. We also remain committed to further progressing ALS clinical development and are working with key stakeholders on potential next steps to do so. However, we are unable to continue our clinical development of tegoprubart for people with ALS without additional financing.

Legacy Operations and Acquisition of Anelixis Therapeutics, Inc.

On September 14, 2020, the Company completed the acquisition of Anelixis Therapeutics, Inc. (“Anelixis”), a privately held clinical stage biotechnology company developing a next generation anti-CD40L antibody as a potential treatment for organ transplantation, autoimmune diseases, and ALS.

Financing Activities

September 2020 Stock Purchase Agreement

On September 14, 2020, Eledon entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Investors”). Pursuant to the Purchase Agreement, Eledon agreed to sell an aggregate of approximately 199,112 shares of Series X1 non-voting Convertible Preferred Stock (“Series X1 Preferred Stock”) for an aggregate purchase price of approximately $99.1 million (collectively, the “Financing”). Eledon had commitments for an additional $9.0 million in equity financing that was contingent upon the satisfaction of certain incremental closing conditions, including stockholder approval of the issuance of the Company’s common stock upon the conversion of the Company’s X1 Preferred Stock and the effective registration of its common stock. Subject to stockholder approval, each share of Series X1 Preferred Stock was convertible into 55.5556 shares of Common Stock, as described below. The preferences, rights and limitations applicable to the Series X1 Preferred Stock are set forth in the Certificate of Designation, as filed with the SEC. The Financing was exempt from registration pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. The Investors have acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends have been affixed to the securities issued in this transaction.

On December 18, 2020, the Company held a special meeting of stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X1 Preferred Stock, par value $0.001 per share, issued in September 2020.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock for gross proceeds of $9.0 million that was contingent upon the satisfaction of certain incremental closing conditions, as described above.

2020 Common Stock Exchange Agreements

On February 13, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P. and Biotechnology Value Trading Fund OS, L.P. (the “Exchanging Stockholders”), pursuant to which the Exchanging Stockholders exchanged (the “February Exchange”) 210,888

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shares of the Company’s common stock, par value $0.001 per share, for 3,796 shares of newly designated Series X non-voting Convertible Preferred Stock (the “Series X Preferred Stock”). The Company agreed to reimburse the Exchanging Stockholders for their expenses in connection with the Exchange up to a total of $25,000, which was recorded as operating expense in the Company’s condensed consolidated statements of operations and comprehensive loss.

On February 13, 2020, in connection with the February Exchange, the Company filed a Certificate of Designation setting forth the preferences, rights and limitations of the Series X Preferred Stock with the Secretary of State of the State of Delaware. Each share of Series X Preferred Stock will be convertible into 55.5556 shares of common stock at the option of the holder at any time; subject to certain limitations, including, that the holder will be prohibited from converting Series X Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above a conversion blocker, which is initially set at 9.99% of the total common stock then issued and outstanding immediately following the conversion of such shares of Series X Preferred Stock. In the event of the Company’s liquidation, dissolution or winding up, holders of Series X Preferred Stock will participate pari passu with any distribution of proceeds to holders of common stock. Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal (on an as-if-converted-to-common stock basis) to and in the same form as dividends actually paid on the common stock or other junior securities of the Company. Shares of Series X Preferred Stock will generally have no voting rights, except as required by law and except that the consent of a majority of the holders of the outstanding Series X Preferred Stock will be required to amend the terms of the Series X Preferred Stock.

On June 1, 2020 and June 10, 2020, the Exchanging Stockholders converted a total of 3,285 shares of Series X Preferred Stock into 182,500 shares of common stock.

2020 Warrant Exercise Transactions

On January 10, 2020 and January 15, 2020, the Company entered into warrant exercise agreements (the “Exercise Agreements”) with the holders (the “Holders”) of its Series A Warrants and Series B Warrants (collectively, the “Warrants”), pursuant to which the Holders agreed to exercise in cash their Warrants to purchase an aggregate of 383,235 shares of the Company’s common stock at a reduced exercise price of $12.87 per share, plus an additional $2.25 per share for the issuance of the private placement warrants for gross proceeds (before placement agent fees and expenses) to the Company of approximately $5.8 million (the “Exercise Transaction”).

Under the Exercise Agreements, the Company also agreed to issue to the Holders new warrants to purchase up to 383,235 shares of the Company’s common stock at an exercise price of $12.96 per share, with an exercise period of five and a half years (the “Private Placement Warrants”). The Private Placement Warrants transaction subsequently closed and the Private Placement Warrants were issued on January 14, 2020 with respect to the Warrants exercised on January 10, 2020 and on or about January 17, 2020, with respect to the Warrants exercised on January 15, 2020. In addition, the Company agreed to issue to the placement agent warrants to purchase up to 19,162 shares of common stock, representing 5.0% of the aggregate number of shares of common stock issued in the Exercise Transaction. The placement agent warrants have substantially the same terms as the Private Placement Warrants issued to the Holders, except that the placement agent warrants have an exercise price equal to $18.90. A warrant inducement expense of $4.8 million was incurred which was determined using the Black-Scholes option pricing model and was calculated as the difference between the fair value of the Warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing in addition to the fair value of the Private Placement Warrants issued.

For the year ended December 31, 2020, the Holders exercised approximately 64,171 Private Placement Warrants in a cashless exchange for 28,553 shares of the Company’s common stock. Additionally, approximately 9,985 private placement warrants were exercised for 9,985 shares of the Company’s common stock for gross proceeds of $188,773.

December 2020 Exchange Agreements

On December 31, 2020, the Company entered into an exchange agreement (the “Series X Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS, L.P. , MSI BVF SPV, L.L.C. (the “BVF Exchanging Stockholders”) and Cormorant Global Healthcare Master Fund, LP (together with the BVF Exchanging Stockholders, the “Exchanging Stockholders”), pursuant to which the Exchanging Stockholders exchanged (the “Series X Exchange”) 344,666 shares of the Company’s common stock, for 6,203.98 shares of Series X Preferred Stock.

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In addition, on December 31, 2020, the Company entered into an exchange agreement (the “Warrant Exchange Agreement,” and together with the Series X Exchange Agreement, the “Exchange Agreements”) with the BVF Exchanging Stockholders, pursuant to which the BVF Exchanging Stockholders exchanged (the “Warrant Exchange,” and together with the Series X Exchange, “the Exchanges”) 509,117 shares of the Common Stock for one or more pre-funded warrants to purchase an aggregate of 509,117 shares of the Common Stock at a nominal exercise price (the “Warrants”).

The Company recorded the shares of Series X Preferred Stock and Warrants issuable as preferred stock and warrant subscriptions at December 31, 2020, since the physical settlement of the Exchanges was made on January 5, 2021, whereby the transfer agent recorded the exchange of common stock for the issuance of preferred stock and warrants.

September 2021 Exchange Agreements

On September 21, 2021, the Company issued warrants exercisable for 298,692 shares of common stock in exchange for warrants exercisable for 5,376.456 shares of Series X1 Preferred Stock previously issued as part of the Anelixis merger. These Series X1 Preferred Stock warrants were replaced by the Company for the outstanding warrants issued by Anelixis that were not settled upon completion of the merger.

January 2022 Exchange Agreement

On January 11, 2022, the Company entered into an exchange agreement (the “Series X1 Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS, L.P., MSI BVF SPV, L.L.C. (collectively, the “BVF Exchanging Stockholders”), pursuant to which the Series X1 Exchanging Stockholders exchanged (the “Series X1 Exchange”) 550,000 shares of the Company’s common stock for 9,899.99 shares of Series X1 Non-Voting Convertible Preferred Stock.

Common Stock Warrants

As of December 31, 2022, 1,145,631 warrants were exercisable into common stock (after rounding for fractional shares and subject to beneficial ownership conversion blockers). The shares of common stock underlying the registered direct and private placement warrants are registered for offer and sale under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s effective registration statements on Forms S-1.

Series X1 Preferred Stock Warrants

As of December 31, 2022, 50,207.419 warrants were exercisable into Series X1 Preferred Stock which are convertible into 2,789,301 shares of common stock (after rounding for fractional shares and subject to beneficial ownership conversion blockers).

2021 Equity Distribution Agreement

On March 31, 2021, the Company filed a registration statement on Form S-3 containing a prospectus and prospectus supplement (the "Prospectus") under which the Company may offer and sell up to $75 million in shares of our common stock, from time to time, pursuant to an open market sale agreement with Jeffries LLC and by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933 (the “ATM Program”). Pursuant to the “baby shelf rules” promulgated by the SEC, if the Company’s public float is less than $75.0 million as of specified measurement periods, the number of shares of common stock that may be offered and sold by the Company under a Form S-3 registration statement, including pursuant to the ATM Program, in any twelve-month period is limited to an aggregate amount that does not exceed one-third of the Company’s public float. As of December 31, 2022, due to the SEC’s “baby shelf rules,” we were permitted to sell up to $10.5 million of shares of common stock pursuant to the ATM Program. The Company will remain subject to the “baby shelf rules” under the Form S-3 registration statement until such time as our public float exceeds $75.0 million. During the years ended December 31, 2022 and 2021, no shares were sold under the Prospectus.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that

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affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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 materially from these estimates under different assumptions or conditions.

Goodwill

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting. Goodwill is not amortized but is evaluated for impairment as of December 31 of each year or earlier if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.

The Company performs its goodwill impairment analysis at the reporting unit level, which aligns with the Company’s reporting structure and availability of discrete financial information. The Company performs its annual impairment analysis by either comparing the reporting unit’s estimated fair value to its carrying amount or doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment. The Company may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and it does not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies. Key assumptions for these projections include revenue growth, future gross and operating margin growth, and its weighted cost of capital and terminal growth rates. The revenue and margin growth are based on increased sales of new products as the Company maintains investments in research and development. Additional assumed value creators may include increased efficiencies from capital spending. The resulting cash flows are discounted using a weighted average cost of capital. Operating mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be realized are also considered in the evaluation, including timing and probability of regulatory approvals for Company products to be commercialized. The Company’s market capitalization is also considered as a part of its analysis.

The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. In accordance with the Company’s policy, the Company completed its annual evaluation for impairment as of December 31, 2022 using the quantitative assessment, utilizing the market approach and due to sustained decrease in our market capitalization, determined that the fair value of the reporting unit was below its carrying value. As a result, the Company recognized $48.6 million of goodwill impairment, reducing the goodwill balance to zero. No impairment was recorded for the year ended December 31, 2021.

Research and Development Expenses

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed.

The Company’s contracts with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to its vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. The Company’s accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. These contracts may be terminated by the Company upon written notice and the Company is generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances the Company may be further responsible for termination fees and penalties. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through December 31, 2022.

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Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair value.

The fair value of stock options is determined using the Black-Scholes option pricing model, using assumptions that are subjective and require significant judgment and estimation by management. The fair value of stock options is determined using the Black-Scholes option pricing model, using assumptions which are subjective and require significant judgment and estimation by management. The risk-free rate assumption was based on observed yields from governmental zero-coupon bonds with an equivalent term. The expected volatility assumption was based on historical volatilities of a group of comparable industry companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical industry. The expected term of stock options represents the weighted-average period that the stock options are expected to be outstanding. Because the Company does not have historical exercise behavior, the Company determined the expected life assumption using the simplified method for stock options granted to employees, which is an average of the options ordinary vesting period and the contractual term. For stock options granted to the Company’s board of directors (the “Board”), the Company determined the expected life assumption using the simplified method as the starting point with an average period of twelve (12) months added to take into account for the extended range of time of 12 to 18 months vested stock options granted to Board members may be exercised upon termination. The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not expect to pay dividends at any time in the foreseeable future. The Company recognizes forfeitures on an actual basis and as such did not estimate forfeitures to calculate stock-based compensation.

Restricted Stock Units (“RSU”) and Performance-Based Restricted Stock Units (“PRSU”) are measured and recognized based on the quoted market price of our common stock on the date of grant.

Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the estimated fair value of the stock options on their grant date, determined using the Black-Scholes option pricing model. The awards generally vest over the period the Company expects to receive services from the nonemployees. Similar to stock options granted to employees, the fair value of stock options granted nonemployees, determined using the Black-Scholes option pricing model, involves assumptions that are subjective and require significant judgment and estimation by management. The risk-free rate assumption was based on observed yields from governmental zero-coupon bonds with an equivalent term. The expected volatility assumption was based on historical volatilities of a group of comparable industry companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical industry. The expected term of stock options represents the weighted-average period that the stock options are expected to be outstanding. Because the Company does not have historical exercise behavior on stock options granted to nonemployees, the Company determined the contractual term is the appropriate period for expected life on stock options granted to nonemployees. The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not expect to pay dividends at any time in the foreseeable future. The Company recognizes forfeitures on an actual basis and as such did not estimate forfeitures to calculate stock-based compensation.

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RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 2022 and 2021

The following table provides comparative results of operations for the years ended December 31, 2022 and 2021 (in thousands):

Research and Development Expenses

Research and development expenses increased $3.3 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was primarily due to higher clinical development expenses, primarily with external CROs of $1.2 million, an increase in personnel costs, including stock-based compensation costs of $1.1 million, due to increased headcount, and an increase in manufacturing costs of $0.9 million, related to the increased production of clinical trial materials.

General and Administrative Expenses

General and administrative expenses decreased $0.4 million for the year ended December 31, 2022, compared to December 31, 2021. The decrease was primarily due to a decrease in personnel costs of $0.6 million, associated with decreased headcount and $0.2 million from a decrease in professional and consulting fees. The decrease was partially offset by an increase in stock-based compensation of $0.2 million and general operating expenses of $0.2 million.

Goodwill Impairment

The Company performed its annual goodwill impairment assessment as of December 31, 2022 and determined that the fair value of the reporting unit was below its carrying value. As a result, the Company recognized $48.6 million of goodwill impairment. No impairment was recorded for the year ended December 31, 2021.

Other Income, Net

The increase in other income, net, was primarily due to an increase in interest income associated with higher interest rates on our cash and cash equivalents for the year ended December 31, 2022.

Income Tax Benefit

The Company recognized an income tax benefit of $2.4 million for the year ended December 31, 2021, due to the change in deferred tax liability for the acquired IPR&D related to the Anelixis acquisition in 2020.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

The Company had a net loss of $88.0 million during 2022 and an accumulated deficit of $202.9 million at December 31, 2022 as a result of incurring losses since our inception. As of December 31, 2022, we had cash and cash equivalents of approximately $56.4 million, consisting of readily available cash and cash equivalents in bank accounts. While

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we believe our cash and cash equivalents are not subject to excessive risk, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K under the caption “We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.”

To date, our operations have been financed primarily by net proceeds from the sale of preferred and common stock and warrants. In September 2020, we completed a $99.1 million financing and in December 2020, we sold 1,004,111 shares of common stock for gross proceeds of $9.0 million. On March 31, 2021, we filed a registration statement on Form S-3 containing a prospectus and prospectus supplement (the "Prospectus") under which we may offer and sell up to $75 million in shares of our common stock, from time to time, pursuant to an open market sale agreement with Jeffries LLC and by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933 (the “ATM Program”). Pursuant to the “baby shelf rules” promulgated by the SEC, if our public float is less than $75.0 million as of specified measurement periods, the number of shares of common stock that may be offered and sold by the Company under a Form S-3 registration statement, including pursuant to the ATM Program, in any twelve-month period is limited to an aggregate amount that does not exceed one-third of the Company’s public float. As of December 31, 2022, due to the SEC’s “baby shelf rules,” we were permitted to sell up to $10.5 million of shares of common stock pursuant to the ATM Program. We will remain subject to the “baby shelf rules” under the Form S-3 registration statement until such time as our public float exceeds $75.0 million. During the year ended December 31, 2022, no shares were sold under the Prospectus.

We do not have any approved products for commercial sale and have never generated revenue from product sales and have incurred significant net losses since our inception and expect to continue to incur net operating losses for the foreseeable future. We do not expect to receive any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our product candidates or enter into collaborative arrangements with third parties. We currently have no credit facility or committed sources of capital.

Material Cash Requirements

Our primary use of cash is to fund operating expenses, which consist of clinical research and development expenses, manufacturing expenses, legal and compliance expenses, compensation and related expenses, and general overhead costs. Cash used to fund operating expenses is impacted by the timing of when we pay or prepay these expenses. We expect our expenses to increase in connection with our ongoing activities, particularly as we expand our clinical program with tegoprubart, continue the research and development of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Based on our available cash and cash equivalents, of $56.4 million as of December 31, 2022, we believe that we have sufficient resources to fund our operations into the first quarter of 2024. Based on recurring losses from operations incurred since inception, the expectation of continued operating losses, and the need to raise additional capital to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within one year after the date of the financial statements contained in this Annual Report. As a result, in order to continue to operate our business beyond that time, including to advance our drug product through clinical development, to manufacture, obtain regulatory approval for and to commercialize our product candidates, to develop, acquire or in-license other potential product candidates, we will need to raise additional funds. However, there can be no assurance that we will be able to generate funds on terms acceptable to us, on a timely basis, or at all. In addition, we have based this estimate on assumptions that may prove to be incorrect, and we could utilize our available resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs for clinical studies sooner than planned or to fund additional clinical studies.

We will seek to raise additional capital through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. The ability to raise substantial additional capital will depend on many factors, including:

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the initiation, progress, timing, costs and results of our ongoing and future clinical trials of tegoprubart, including as such activities may be adversely impacted by the global events, including COVID-19 pandemic or other future public crises and the ongoing conflict in Ukraine;

•
the impact of global macroeconomic trends and uncertainties, which have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence,

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declines in economic growth, increases in unemployment rates, increases in inflation rates, rising interest rates and uncertainty about economic stability;

•
the number and scope of indications we decide to pursue for tegoprubart development;

•
the cost, timing and outcome of any regulatory review that may be required for tegoprubart;

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the costs and timing of manufacturing for tegoprubart, if approved;

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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 efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of tegoprubart;

•
the costs associated with being a public company;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

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

•
the cost associated with commercializing tegoprubart, if approved for commercial sale.

Current conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding. As a result of any of the foregoing factors, adequate additional funding may not be available to us on acceptable terms on a timely basis, or at all. The severity and duration of any such impacts cannot be predicted. Any such failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, and may cause us to delay the scope of or suspend one or more of our clinical trials, research and development programs or commercialization efforts, out-license intellectual property rights to our product candidates or sell unsecured assets, or a combination of the above. Any of these actions could materially harm our business. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Debt financing, if available, would 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 or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Please see the section of this Annual Report titled “Risk Factors” for additional risks associated with our substantial capital requirements and the challenges we may face in raising capital.

We lease our office facilities in Irvine, California and Burlington, Massachusetts under non-cancelable operating leases that expire in December 2024 and November 2024, respectively. As of December 31, 2022, we expect to make total lease payments of $0.8 million through December 2024.

We enter into contracts in the normal course of business with third-party contract organizations for preclinical and clinical studies, manufacture and supply of our preclinical and clinical materials and providing other services and products for operating purposes. Contracts for preclinical and clinicals studies and other services 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. We do not have any long-term manufacturing and supply agreements with our third-party contract manufacturers but enter into specific contracts on an as needed basis for individual batch production runs.

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Cash Flows

The following table provides a summary of our net cash flow activity for the years ended December 31, 2022 and 2021 (in thousands):

Comparison of the Years Ended December 31, 2022 and 2021

Net cash used in operating activities for the year ended December 31, 2022 consisted primarily of our net loss of $88.0 million, partially offset by non-cash items consisting of goodwill impairment of $48.6 million and stock-based compensation and amortization of operating lease assets totaling $8.5 million. Operating activities also included an increase of accounts payable and accrued expenses of $2.1 million and a decrease in prepaid expenses and other assets of $0.7 million, partially offset by a decrease in operating lease liability of $0.4 million.

Net cash used in operating activities for the year ended December 31, 2021 consisted primarily of our net loss of $34.5 million, partially offset by non-cash items consisting of stock-based compensation and amortization of operating lease assets totaling $8.1 million, partially offset by a decrease in deferred income taxes of $2.4 million. Operating activities also included a decrease in prepaid expenses and other assets of $2.1 million, a decrease in operating lease liability of $0.2 million, partially offset by an increase of accounts payable and accrued expenses of $2.1 million.

There was no cash provided by or used in investing activities for the years ended December 31, 2022 and 2021.

There was no cash provided by or used in financing activities for the year ended December 31, 2022.

Net cash used in financing activities for the year ended December 31, 2021 was comprised of $0.5 million of offering costs accrued as of December 31, 2020 in connection with the sale of shares of common stock and paid during the year ended December 31, 2021.