Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40523

Elevation Oncology, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-1771427

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

888 Seventh Ave.

12th Floor

New York, New York 10106

(Address of Principal Executive Offices)

(716) 371-1125

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common stock, par value $0.0001 per share	ELEV	The Nasdaq Stock Market LLC

As of May 10, 2023, there were 24,337,846 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS

		Page

Part I	Financial Information	5

Item 1.	Condensed Consolidated Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022	5

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

Item 4.	Controls and Procedures	34

Part II	Other Information	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

Item 3.	Defaults Upon Senior Securities	94

Item 4.	Mine Safety Disclosures	94

Item 5.	Other Information	94

Item 6.	Exhibits	94

Exhibit Index		95

Signatures		96

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” “predict,” “potential” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors” and elsewhere in this filing. Moreover, we operate in a competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. The forward-looking statements in this Quarterly Report include, among other things, statements about:

●

our ability to develop, obtain regulatory approval and commercialize EO-3021 and our other product candidates;

●

the timing of our preclinical studies and clinical trials for EO-3021 and our other product candidates;

●

our ability to establish and maintain collaborations, including with CSPC Pharmaceutical Group Limited (collectively with its affiliates, “CSPC”), our licensor and partner for EO-3021;

●

estimates of our addressable market and market growth;

●

our expectations regarding demand for, and market acceptance of, EO-3021 and our other product candidates;

●

our ability to compete effectively with existing competitors and new market entrants;

●

the potential effects of extensive government regulations relating to our industry;

●

our ability to obtain, maintain, and protect and enforce intellectual property and proprietary rights;

●

our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties;

●

our ability to maintain secure, efficient and uninterrupted operation of our information technology systems from security breaches, cyberattacks, loss or leakage of data and other disruptions;

●

our ability to expand our pipeline of product candidates;

●

our ability to attract and retain key management and technical personnel;

●

general economic, market and geopolitical conditions, including rising interest rates, market volatility and inflation, and the impact of geopolitical tensions with China and the war in Ukraine;

●

the effects of the continued presence of COVID-19 on any of the above or any other aspect of our business operations; and

●

our expectations regarding expenses, future revenue, capital requirements, and our needs for additional financing.

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The forward-looking statements made in this filing relate only to events or information as of the date on which the statements are made in this Quarterly Report. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations, except as required by law. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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PART I —FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

ELEVATION ONCOLOGY, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	March 31,		December 31,
	2023		2022
		(unaudited)		(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	55,902	$	45,917
Marketable securities, available for sale		18,027		44,363
Prepaid expenses and other current assets		1,906		2,697
Total current assets		75,835		92,977
Property and equipment, net		88		98
Other non-current assets		975		1,086
Total assets	$	76,898	$	94,161
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,043	$	6,362
Accrued expenses		9,491		9,330
Total current liabilities		13,534		15,692
Non-current liabilities:
Long-term debt, net of discount		29,600		29,435
Restricted stock repurchase liability		—		2
Total liabilities		43,134		45,129

Commitments and contingencies (see Note 12)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; no shares issued or outstanding as of March 31, 2023 and December 31, 2022, respectively		—		—
Common stock, $0.0001 par value; 500,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 23,819,751 and 23,345,115 shares issued as of March 31, 2023 and December 31, 2022, respectively; 23,786,337 and 23,312,529 shares outstanding as of March 31, 2023 and December 31, 2022, respectively		2		2
Additional paid-in capital		201,185		199,492
Accumulated other comprehensive loss		(51)		(161)
Treasury stock, 33,414 and 28,641 shares as of March 31, 2023 and December 31, 2022, respectively; at cost		(47)		(35)
Accumulated deficit		(167,325)		(150,266)
Total stockholders’ equity		33,764		49,032
Total liabilities and stockholders’ equity	$	76,898	$	94,161

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELEVATION ONCOLOGY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)


	Three months ended March 31,
	2023		2022
Operating expenses:
Research and development	$	7,292	$	13,575
General and administrative		4,346		3,793
Restructuring charges		5,107		—
Total operating expenses		16,745		17,368
Loss from operations		(16,745)		(17,368)
Other income (expense), net		(309)		93
Loss before income taxes		(17,054)		(17,275)
Income tax expense		5		—
Net loss	$	(17,059)	$	(17,275)
Net loss per share, basic and diluted	$	(0.72)	$	(0.74)
Weighted average common shares outstanding, basic and diluted		23,618,559		23,216,206

Comprehensive loss:
Net loss	$	(17,059)	$	(17,275)
Other comprehensive gain (loss):
Unrealized gain (loss) on marketable securities		110		(204)
Total other comprehensive gain (loss)		110		(204)
Total comprehensive loss	$	(16,949)	$	(17,479)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELEVATION ONCOLOGY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		(loss)		Deficit		Equity
Balance at December 31, 2021	23,205,915	$	2	$	195,881	$	—	$	—	$	(55,186)	$	140,697
Vesting of restricted common stock	3,946		—		2		—		—		—		2
Issuance of common stock upon stock option exercises	44,105		—		19		—		—		—		19
Stock-based compensation	—		—		627		—		—		—		627
Unrealized loss on marketable securities	—		—		—		—		(204)		—		(204)
Net loss	—		—		—		—		—		(17,275)		(17,275)
Balance at March 31, 2022	23,253,966	$	2	$	196,529	$	—	$	(204)	$	(72,461)	$	123,866


								Accumulated
				Additional				Other				Total
	Common Stock			Paid-in		Treasury		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Stock		(loss)		Deficit		Equity
Balance at December 31, 2022	23,312,529	$	2	$	199,492	$	(35)	$	(161)	$	(150,266)	$	49,032
Vesting of restricted common stock	3,946		—		1		—		—		—		1
Issuance of common stock upon stock option exercises	462,073		—		228		—		—		—		228
Stock-based compensation	—		—		1,464		—		—		—		1,464
Common stock repurchase	7,789		—		—		(12)		—		—		(12)
Unrealized gain on marketable securities	—		—		—		—		110		—		110
Net loss	—		—		—		—		—		(17,059)		(17,059)
Balance at March 31, 2023	23,786,337	$	2	$	201,185	$	(47)	$	(51)	$	(167,325)	$	33,764

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELEVATION ONCOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three months ended March 31,
	2023		2022
Operating activities
Net loss	$	(17,059)	$	(17,275)
Reconciliation of net loss to net cash used in operating activities:
Stock-based compensation		1,464		627
Non-cash interest expense		165		—
Accretion of premium and interest on marketable securities		(153)		13
Depreciation expense		10		4
Changes in operating assets and liabilities:
Prepaid expenses and other assets		901		960
Accounts payable		(2,320)		(4,765)
Accrued expenses		161		6,412
Net cash used in operating activities		(16,831)		(14,024)
Investing activities
Purchase of marketable securities		—		(79,271)
Proceeds from sales and maturities of marketable securities		26,600		—
Net cash provided by (used in) investing activities		26,600		(79,271)
Financing activities
Proceeds from issuance of common stock upon stock option exercises		228		19
Common stock repurchase		(12)		—
Net cash provided by financing activities		216		19
Increase (decrease) in cash and cash equivalents		9,985		(93,276)
Cash and cash equivalents, beginning of period		45,917		146,284
Cash and cash equivalents, end of period	$	55,902	$	53,008
Supplemental disclosure of cash flow information
Interest paid	$	532	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELEVATION ONCOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

(unaudited)

1. Nature of Business

Elevation Oncology, Inc. (the “Company” or “Elevation”), which was formerly known as 14ner, Inc., was incorporated under the laws of the State of Delaware on April 29, 2019 (“Inception”). The Company is an innovative oncology company focused on the discovery and development of selective cancer therapies to treat patients across a range of solid tumors with significant unmet medical needs. The Company is rethinking drug development by seeking innovative, selective cancer therapies that can be matched to a patient’s unique tumor characteristics. The Company obtained exclusive worldwide rights outside Greater China (the People’s Republic of China, Hong Kong, Macau and Taiwan) to develop and commercialize EO-3021, a clinical stage antibody drug conjugate targeting Claudin 18.2, pursuant to a license agreement executed with CSPC Megalith Biopharmaceutical Co., Ltd., a subsidiary of CSPC Pharmaceutical Group Limited, during the year ended December 31, 2022 (see Note 11). During the quarter ended March 31, 2023, the Company announced that it paused further investment in the clinical development of seribantumab, an anti-HER3 monoclonal antibody for solid tumors driven by neuregulin-1, or NRG1 fusions, a type of genomic alteration and oncogenic driver in solid tumors. As a result, further enrollment in the Phase 2 CRESTONE study of seribantumab was paused. Long-term follow-up of all patients who have been treated with seribantumab to date remains ongoing. The Company intends to pursue further clinical development of seribantumab only in collaboration with a partner. The Company is exploring opportunities through new or existing partnerships and business development opportunities to expand its novel oncology pipeline.

Risks and uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities.

There can be no assurance that the Company’s research and development of its product candidates will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

The Company continues to monitor the COVID-19 pandemic. The extent of the impact of COVID-19 on the Company’s operational and financial performance will continue to depend on certain developments, including the duration and spread of the outbreak, new variants, the vaccination and booster rate, impact on the Company’s clinical studies, employee or industry events, and effect on the Company’s suppliers and manufacturers, all of which are uncertain and cannot be predicted. COVID-19 has not had a significant impact on the operations or financial results of the Company to date.

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Going Concern

The Company has incurred recurring net losses since inception and has funded its operations to date through the proceeds from the sale of convertible preferred stock, proceeds from its IPO, and borrowings under loan agreements. The Company incurred net losses of approximately $17.1 million and $17.3 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the Company had an accumulated deficit of $167.3 million and cash, cash equivalents, and marketable securities totaling $73.9 million. Based on current operating plans, the Company does not expect that this amount will meet its anticipated capital requirements over the next 12 months, when giving effect to financial covenant compliance under the Company’s debt facility.

The Company is subject to risks, expenses, and uncertainties frequently encountered by companies in its industry. The Company intends to continue its research and development of its product candidates, which will require significant additional funding. If the Company is unable to obtain additional funding in the future and/or its research, development, and commercialization efforts require higher than anticipated capital, there may be a negative impact on the financial viability of the Company. The Company plans to fund its operations through public and private placements of equity and/or debt, payments from potential strategic research and development arrangements, licensing and/or collaboration arrangements with pharmaceutical companies or other institutions, or funding from other third parties. Such financing and funding may not be available at all, or on terms that are favorable to the Company. Failure to raise additional capital could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As a result of these factors, together with the anticipated increase in spending that will be necessary to continue to research, develop, and commercialize the Company’s product candidates, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

2. Basis of Presentation and Significant Accounting Policies

Principles of Consolidation

The condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiary, Elevation Oncology Securities Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of presentation of unaudited interim consolidated financial statements

The condensed consolidated interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. The December 31, 2022 condensed consolidated balance sheet was derived from the December 31, 2022 audited consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2023.

The accompanying condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”).

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Significant accounting policies

Use of estimates

The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company bases its estimates and assumptions on known trends and events and various other factors that management believes 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. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accruals for research and development expenses, the valuation of common stock and the assumptions used in the valuation of share-based compensation awards. Changes in estimates are recorded in the period in which they become known. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and, given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

Deferred Financing Costs

The incremental cost, including the fair value of warrants, directly associated with obtaining debt financing is capitalized as deferred financing costs upon the issuance of the debt and amortized over the term of the related debt agreement using the effective-interest method with such amortized amounts included as a component of interest expense in the condensed consolidated statements of operations. Unamortized deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt obligation.

Concentrations of credit risk and significant suppliers

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. The Company’s money market funds are invested in highly rated funds. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company has not experienced any losses on its deposit of cash and cash equivalents and does not believe that it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including preclinical and clinical testing. These programs could be adversely affected by a significant interruption in the supply of such drug substance and drug products. During the three months ended March 31, 2023 and 2022, the Company had two vendors that accounted for approximately 57% and 77% of its research and development expense, respectively. As of March 31, 2023 and December 31, 2022, the Company had two vendors that accounted for approximately 76% and 87% of the total accounts payable, respectively.

Fair value measurements

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

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•

Level 3—Non-observable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, prepaid expenses and other current assets and accounts payable, approximate fair value due to the short-term nature of these items.

Marketable Securities, Available for Sale

All marketable securities have been classified as “available-for-sale” and are carried at fair value, based upon quoted market prices. The Company considers its available-for-sale portfolio as available for use in current operations. Accordingly, the Company may classify certain investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date.

Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders’ equity (deficit) until realized. Interest income, realized gains and losses, and declines in value judged to be other than temporary, if any, on available-for-sale securities are included in other income, net. The cost of securities sold is based on the specific-identification method. The amortized cost of securities is adjusted for accretion of premiums and amortization of discounts to maturity. In accordance with the Company’s investment policy, management invests in money market funds, corporate bonds, commercial paper, asset-backed securities and government securities. The Company has not realized any losses on its marketable securities to date.

Comprehensive Income (Loss)

The Company’s only element of other comprehensive income (loss) is unrealized gains and losses on available-for-sale marketable securities.

Patent costs

The legal and professional costs incurred by the Company to maintain its patent rights are expensed and included as part of general and administrative expenses. As of March 31, 2023 and 2022, the Company has determined that these expenses have not met the criteria to be capitalized. Intellectual property related expenses for each of the three months ended March 31, 2023 and 2022 were $0.1 million, respectively.

3. Fair Value Measurements of Financial Assets

The Company’s financial assets subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows:


	As of March 31, 2023
	Level 1		Level 2		Level 3		Total

	(in thousands)
Cash and Cash Equivalents:
Money market funds	$	9,786	$	—	$	—	$	9,786
	$	9,786	$	—	$	—	$	9,786
Marketable Securities
Corporate debt securities	$	—	$	9,555	$	—	$	9,555
Commercial paper		—		6,486		—		6,486
U.S. Government debt securities		—		1,986		—		1,986
Total	$	—	$	18,027	$	—	$	18,027

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	As of December 31, 2022
	Level 1		Level 2		Level 3		Total

	(in thousands)
Cash and Cash Equivalents:
Money market funds	$	3,298	$	—	$	—	$	3,298
	$	3,298	$	—	$	—	$	3,298

Marketable Securities
Corporate debt securities	$	—	$	15,460	$	—	$	15,460
Commercial paper		—		14,999		—		14,999
U.S. Government debt securities		—		13,904		—		13,904
Total	$	—	$	44,363	$	—	$	44,363

During the three months ended March 31, 2023 and 2022, the Company had no transfers between Level 1, Level 2 or Level 3 financial assets.

4. Marketable Securities

The following table summarizes the Company’s marketable securities as of March 31, 2023 and December 31, 2022.


	As of March 31, 2023
	Amortized		Unrealized		Unrealized		Fair
	Cost		gains		losses		value

	(in thousands)
Marketable Securities:
Corporate debt securities	$	9,606	$	—	$	(51)	$	9,555
Commercial paper		6,486		—		—		6,486
U.S. Government debt securities		1,986		—		—		1,986
Total	$	18,078	$	—	$	(51)	$	18,027


	As of December 31, 2022
	Amortized		Unrealized		Unrealized		Fair
	Cost		gains		losses		value

	(in thousands)
Marketable Securities:
Corporate debt securities	$	15,627	$	—	$	(167)	$	15,460
Commercial paper		14,999		—		—		14,999
U.S. Government debt securities		13,898		6		—		13,904
Total	$	44,524	$	6	$	(167)	$	44,363

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5. Accrued Expenses

Accrued expenses consist of the following:


	March 31,		December 31,
	2023		2022

	(in thousands)
Accrued preclinical and clinical trial costs	$	4,724	$	6,174
Accrued restructuring charges		3,401		—
Accrued compensation		701		2,498
Accrued consulting		171		75
Accrued professional services		108		218
Accrued other		386		365
Total accrued expenses	$	9,491	$	9,330

6. Restructuring Charges

On January 6, 2023, the Company announced a pipeline prioritization and realignment of resources to advance its EO-3021 product candidate. The Company paused further investment in the clinical development of its seribantumab product candidate and realigned its resources to focus on advancing EO-3021 and other pipeline programs. The Company intends to pursue further development of seribantumab only in collaboration with a partner. Concurrently with this announcement, the Board of Directors of the Company (the “Board”) approved a reduction of the Company’s workforce across all areas of the Company. The workforce reduction was substantially completed in January 2023 and was fully completed in April 2023. These actions reflect the Company’s determination to refocus its strategic priorities around EO-3021 and other pipeline programs.

Additionally, on January 5, 2023, the Company and the former President and Chief Executive Officer (“the former CEO”) of the Company, entered into a Separation Agreement (the “Separation Agreement”) following the mutual agreement between the Board and the former CEO regarding his departure from his positions with the Company. Pursuant to the Separation Agreement, the former CEO ceased his role as the Company’s President and CEO and resigned as a director of the Board, effective January 5, 2023.

The reprioritization and realignment of resources included total restructuring charges of approximately $5.1 million, which included $1.6 million of one-time termination and contractual termination benefits for severance, healthcare and related benefits. The one-time termination benefits were recorded in January 2023 under the provisions of Accounting Standards Codification (“ASC”) 420, Exit or Disposal Cost Obligation, as this is the period the termination plan was both approved and communicated to the impacted employees. The contractual termination benefits were recorded in January 2023 under the provisions of ASC 712, Compensation-Nonretirement Postemployment Benefits, which is the period in which the contractual postemployment benefits became probable of recognition. In addition, the Company recorded a one-time stock-based compensation charge of $0.5 million.

The following table summarizes the components of the Company’s restructuring activity recorded in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet at March 31, 2023.


	Expense incurred during the three months ended March 31, 2023		Amounts paid during the three months ended March 31, 2023		Amounts unpaid at March 31, 2023

	(in thousands)
Employee severance, benefits and related costs	$	1,610	$	(1,474)	$	136
Obligations under manufacturing and development contracts		3,497		(136)		3,361
	$	5,107	$	(1,610)	$	3,497

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7. Debt

K2 HealthVentures Loan and Security Agreement

In July 2022, the Company entered into a loan and security agreement (the “Loan Agreement”) with K2 HealthVentures LLC (together with its affiliates, “K2HV”, and together with any other lender from time to time party thereto, the “Lenders”), as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides up to $50.0 million principal in term loans (the “Term Loan”) consisting of a first tranche of $30.0 million funded at closing and a subsequent second tranche of up to $20.0 million upon the Company’s request before March 1, 2025, subject to review by the Lenders of certain information from the Company and discretionary approval by the Lenders.

In connection with entering into the Loan Agreement, the Company also issued to K2HV a warrant to purchase shares of common stock (see Note 8), which was an incremental cost to the Loan Agreement; thus, the allocated fair value of the warrant was recorded as part of the issuance cost.

The Term Loan will mature on August 1, 2026, with interest only payments for 30 months, and thereafter interest and principal payments for the remaining 18 months. It bears a variable interest rate equal to the greater of (i) 7.95% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate, as determined by the Lenders, if The Wall Street Journal ceases to quote such rate) and (B) 3.20%. Upon the final payment under the Loan Agreement, the Lenders are entitled to an end of term charge equal to 6.45% of the aggregate original principal amount of the term loans made pursuant to the Loan Agreement. The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan. The effective interest is 11.19% for the first tranche. This could change given it is a variable interest rate facility.

The Company may prepay, at its option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium as follows: 3% of the loan amounts prepaid if such prepayment occurs in the first year after funding; 2% if such prepayment occurs in the second year after funding; 1% if such prepayment occurs in the third year after funding; and 0% thereafter.

The Lenders may elect at any time following the closing and prior to the full repayment of the term loans to convert any portion of the principal amount of the term loans then outstanding, up to an aggregate of $3.25 million in principal amount, into shares of the Company’s common stock, $0.0001 par value per share, at a conversion price of $2.6493, subject to customary 19.99% Nasdaq beneficial ownership limitations. The Company also granted registration rights to the Lenders with respect to shares received upon such conversion.

Further, the Lenders may elect to invest up to $5.0 million in future equity financings of the Company, provided such investment is limited to no more than 10% of the total amount raised in such equity financing.

The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, dispose of assets, make changes to the Company’s business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. The Loan Agreement also contains covenants requiring that the Company maintain cash, cash equivalents and marketable securities balance of at least $25.0 million so long as the Company’s total market capitalization is less than $250.0 million.

As security for its obligations under the Loan Agreement, the Company granted the Lenders a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions.

The Company capitalized $0.9 million of debt issuance costs which consist of incremental costs incurred for the Lenders and third-party legal firms as well as the fair value of the warrant issued in conjunction with the origination of the term loan. The book value of debt approximates its fair value given the variable interest rate. Long-term debt and the unamortized discount balances are as follows:

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	March 31, 2023		December 31, 2022

	(in thousands)
Outstanding principal amount	$	30,000	$	30,000
Add: accreted liability of final payment fee		313		198
Less: unamortized debt discount, long term		(713)		(763)
Long-term debt, net of discount	$	29,600	$	29,435

The Company's total interest expense was $1.0 million for the three months ended March 31, 2023. The following summarizes the components of total interest expense:


	For the Three Months Ended March 31, 2023
	(in thousands)
Interest paid or accrued	$	816
Non-Cash amortization of Debt discount (Including Warrants)		50
Non-Cash accrued Back-end fee		115
	$	981

Scheduled future principal payments on total outstanding debt, as of March 31, 2023 are as follows:


Year Ending December 31,
(in thousands)
2023 (remainder of the year)	$	—
2024		—
2025		17,713
2026		12,287
	$	30,000

The Company was in compliance with all covenants and requirements of its financing arrangements as of March 31, 2023.

8. Warrant

In connection with the Term Loan and Loan Agreement (see Note 7), the Company issued warrants to purchase 339,725 shares of the Company’s common stock with an exercise price of $1.3246 (the “Warrant”). K2HV may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise.

The Company also granted registration rights to the Lenders with respect to shares issuable upon exercise of the Warrant.

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All of the 339,725 shares are outstanding as of March 31, 2023.


	Shares	Initial Recognition Date	Exercise Price		Expiration Date
Warrant	339,725	July 27, 2022	$	1.3246	July 27, 2032

The warrant’s allocated fair value upon issuance was estimated to be approximately $0.4 million, and was measured using a Black-Scholes option-pricing model with the following assumptions:




Stock price	$1.41
Strike price	$1.32
Volatility (annual)	75.30%
Risk-free rate	2.74%
Estimated time to expiration (years)	10
Dividend yield	—%

9. Equity

Preferred stock

The Company has authorized preferred stock amounting to 10,000,000 shares as of March 31, 2023 and December 31, 2022, respectively.

Common stock

The Company has authorized common stock amounting to 500,000,000 shares of $0.0001 par value as of March 31, 2023 and December 31, 2022, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any. No dividends have been declared or paid by the Company since its inception.

At-the-Market Offering

In July 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may offer and sell, from time to time, shares of common stock having aggregate gross proceeds of up to $50.0 million (the “ATM Shares”). The Company will pay Cowen a commission of up to 3% of the gross proceeds of any sales of the ATM Shares pursuant to the Sales Agreement. As of March 31, 2023, the Company has not sold any shares under the Sales Agreement.

10. Stock-Based Compensation

Stock-based compensation expense as reflected in the Company’s condensed consolidated statements of operations and comprehensive loss was as follows:


	Three months ended March 31,
	2023		2022

	(in thousands)
Research and development	$	449	$	83
General and administrative		1,015		544
Stock-based compensation expense included in operating expenses	$	1,464	$	627

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2021 Equity Incentive Plan

The Company has two equity incentive plans: the 2019 Equity Incentive Plan (“2019 Plan”), and the 2021 Equity Incentive Plan (“2021 Plan”). New awards can only be granted under the 2021 Plan, under which the Company is able to issue equity awards to employees, board members, consultants, and advisors. The 2021 Plan became effective on June 24, 2021, the date the prospectus related to the Company's IPO was deemed effective by the SEC. The 2021 Plan authorizes the award of stock options, restricted stock awards (“RSAs”), stock appreciation rights (“SARs”), restricted stock units (“RSUs”), cash awards, performance awards and stock bonus awards. The Company initially reserved 1,483,445 shares of its common stock, plus any reserved shares not issued or subject to outstanding grants under the 2019 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of 2022 through 2031 by the number of shares equal to the lesser of 5% of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a number as may be determined by the Company’s board of directors in any particular year. As such, 1,165,626 shares were added to the Plan in January 2023. As of March 31, 2023, 1,407,388 shares remained available for future issuance under the 2021 Plan.

2021 Employee Stock Purchase Plan

The Company has adopted the Employee Stock Purchase Plan (“ESPP”) which became effective June 24, 2021, the date the prospectus related to the Company's IPO was deemed effective by the SEC, to enable eligible employees to purchase shares of its common stock with accumulated payroll deductions at a discount beginning on a date to be determined by the board of directors or compensation committee. The ESPP is intended to qualify under Section 423 of the Code. The Company initially reserved 228,222 shares of its common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1st of 2022 through 2031 by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 (rounded to the nearest whole share) or a number of shares as may be determined by the Company’s board of directors in any particular year. As such, 233,125 shares were added to the Plan in January 2023. As of March 31, 2023, no offering periods have commenced, and 693,406 shares remained available for future issuance under the ESPP.

The aggregate number of shares issued over the term of the ESPP, subject to stock splits, recapitalizations or similar events, may not exceed 4,564,440 shares of the Company’s common stock.

Stock options

The following is a summary of the Company’s stock option activity for the three months ended March 31, 2023:


		Weighted-		Weighted- average	Aggregate
		average		remaining contractual	intrinsic value
	Options	exercise price		term (in years)	(in thousands)
Outstanding at December 31, 2022	4,408,274	$	3.44	8.52	$	350
Granted	2,101,316		1.06
Exercised	(462,073)		0.49
Cancelled	(893,071)		2.64
Outstanding at March 31, 2023	5,154,446		2.87	7.63	$	2,819
Vested at March 31, 2023	2,569,967		2.42	4.17	$	1,092
Vested and expected to vest at March 31, 2023	5,154,446	$	2.87	7.63	$	2,819

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The following is a summary of the Company’s stock option activity for the three months ended March 31, 2022:


		Weighted-		Weighted- average	Aggregate
		average		remaining contractual	intrinsic value
	Options	exercise price		term (in years)	(in thousands)
Outstanding at December 31, 2021	3,021,799	$	3.71	8.94	$	10,903
Granted	1,314,200		3.46
Exercised	(44,105)		0.43
Cancelled	(145,787)		4.10
Outstanding at March 31, 2022	4,146,107		2.55	9.31	$	2,529
Vested at March 31, 2022	760,028		1.37	8.23	$	1,188
Vested and expected to vest at March 31, 2022	4,146,107	$	2.55	9.31	$	2,529

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2023 and 2022 was $0.62 and $2.31 per share, respectively. The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following assumptions:


	Three months ended March 31,
	2023		2022
Risk-free interest rate	3.67 - 4.24	%	1.62 - 2.41	%
Volatility	73-74	%	75-76	%
Dividend yield	0.00	%	0.00	%
Expected term (years)	2-6		6

The fair value of options that vested during the three months ended March 31, 2023 and 2022 was $4.0 million and $0.7 million, respectively. The Company recorded stock-based compensation expense associated with stock option awards of $1.3 million and $0.4 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $5.4 million of total unrecognized compensation cost related to unvested stock-based awards, which the Company expects to recognize over a remaining weighted-average period of 2.5 years.

Restricted Common Stock

The terms of the 2019 Plan permitted certain option holders to exercise options before their options were vested, subject to certain limitations. Upon early exercise, the awards become subject to a restricted stock agreement and are subject to the same vesting provisions in the original stock option awards. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment, at the lesser of the price paid by the purchaser or the fair value of the shares at the time of repurchase. Such shares are not deemed to be issued for accounting purposes until they vest and are therefore excluded from shares outstanding until the repurchase right lapses and the shares are no longer subject to the repurchase feature. The liability is reclassified as common stock and additional paid-in capital as the shares vest and the repurchase right lapses. Accordingly, the Company has recorded the unvested portion of the exercise proceeds of less than $0.01 million as a liability from the early exercise in the accompanying condensed consolidated balance sheets as of each of March 31, 2023 and December 31, 2022. The Company recorded stock-based compensation expense associated with restricted common stock of $0.2 and less than $0.1 million during each of the three and three months ended March 31 2023 and 2022, respectively.

Restricted Stock Units

The Company issues RSUs to employees that generally vest over a four-year period with 25% of awards vesting after one year and then quarterly thereafter. Any unvested shares will be forfeited upon termination of services. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over the vesting period.

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The following table summarizes activity related to RSUs:


		Weighted- average
		grant date
	Number of shares	fair value
Unvested at December 31, 2022	125,622	$	16.00
Granted	96,025		0.98
Vested	(12,562)	$	16.00
Unvested at March 31, 2023	209,085	$	9.10

The Company recorded stock-based compensation expense of $0.2 for the three months ended March 31, 2023 and 2022, related to RSUs, respectively. As of March 31, 2023, the total unrecognized expense related to all RSUs was $2.1 million, which the Company expects to recognize over a weighted-average period of 2.5 years.

In connection with the vesting of RSUs, the Company adopted a net settlement method whereby shares of common stock are withheld to satisfy tax withholding and remittance obligations. During the three months ended March 31, 2023, the Company withheld 33,414 shares, which are held in Treasury Stock, for less than $0.1 million.

11. Asset Purchase and License Agreements

CSPC License Agreement

In July 2022, the Company entered into a license agreement (the “CSPC License Agreement”) with CSPC Megalith Biopharmaceutical Co., Ltd., a subsidiary of CSPC Pharmaceutical Group Limited (the “Licensor”), with an effective date of July 27, 2022 (the “Effective Date”), pursuant to which the Licensor granted to the Company a worldwide exclusive right and license (outside of the People’s Republic of China, Hong Kong, Taiwan, and Macau) under certain patents identified in the CSPC License Agreement (the “Licensed Patents”) and know-how (collectively, the “Licensed IP”) to develop and commercialize products (“Licensed Products”) containing EO-3021 (SYSA1801) (the “Licensed Compound”) in the treatment of cancer (the “Field”).

Subject to certain conditions set forth in the CSPC License Agreement, the Company may grant sublicenses (including the right to grant further sublicenses) to its rights under the CSPC License Agreement to any of its affiliates or any third party. Either party to the CSPC License Agreement may assign its rights under the CSPC License Agreement (i) in connection with the sale or transfer of all or substantially all of its assets to a third party, (ii) in the event of a merger or consolidation with a third party or (iii) to an affiliate; in each case contingent upon the assignee assuming in writing all of the obligations of its assignor under the CSPC License Agreement.

Under the terms of CSPC License Agreement, the Company paid to the Licensor a one-time upfront license fee of $27.0 million, and is required to pay to the Licensor milestone payments of up to $148.0 million following the achievement of certain development and regulatory milestones and additional milestone payments of up to approximately $1.0 billion following the achievement of certain commercial milestones.

During the Term (as defined below), the Company is also required to pay to the Licensor (i) royalties ranging from mid-single digits through low double digits on net sales of each Licensed Product and (ii) a percentage of non-royalty sublicense income received by the Company of up to an aggregate of $50.0 million.

Under the terms of the CSPC License Agreement, the development of the Licensed Compound and the first Licensed Product will be governed by a clinical development plan, including anticipated timeline goals in connection with the clinical trials for the first Licensed Product (the “Development Plan”). The Development Plan may be amended by a joint steering committee established by the Company and the Licensor.

The Company will purchase Licensed Products for any clinical or commercial supply from the Licensor under the terms of a supply agreement. Until the Company has completed the first Phase 2 clinical trial for the first Licensed Product in the United States, the Licensor shall supply the Licensed Compound to the Company for clinical purposes as the Company requests, but only to the extent necessary for the Company to conduct such clinical trial, at no cost to the Company.

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The CSPC License Agreement will expire automatically upon the expiration of the last royalty term of the last Licensed Product (the “Term”), with each royalty term expiring on a country-by-country basis upon the later of: (i) the expiration or abandonment of the last-to-expire Licensed Patent covering a Licensed Product; (ii) 10 years after the date of first commercial sale in the applicable country; and (iii) expiration of regulatory exclusivity for the Licensed Product in the applicable country. Following the expiration of the Term, the License will become non-exclusive and fully-paid.

The CSPC License Agreement may be terminated by the Company for any reason upon 180 days prior written notice to the Licensor. The Licensor may terminate the CSPC License Agreement if the Company or any sublicensee commences an action challenging the Licensed Patents or following the occurrence of certain change of control transactions. Either party may terminate the CSPC License Agreement (i) for an uncured material breach of the CSPC License Agreement by the other party or (ii) if, at any time, the other party undergoes certain bankruptcy, insolvency or dissolution proceedings.

Merrimack License Agreement

In May 2019, the Company entered into an asset purchase agreement with Merrimack Pharmaceuticals, Inc. (the “previous sponsor”), pursuant to which it acquired all rights and interest to patents, know-how, and inventory for assets related to seribantumab, a fully humanized immunoglobulin G2 monoclonal antibody against HER3.

Pursuant to the asset purchase agreement, the Company made an upfront, non-refundable payment of $3.5 million at closing. If the Company succeeds in finding a partner to develop and commercialize seribantumab, the Company may be obligated to pay the previous sponsor up to $54.5 million in development, regulatory and sales milestone payments.

Under the terms of the asset purchase agreement, the Company assumed the rights and obligations of the following collaboration and license agreements previously held by the previous sponsor:

●

Dyax—The Company assumed all rights and obligations provided for under the amended and restated collaboration agreement executed between Dyax Corp. (“Dyax”) and the previous sponsor (the “Dyax Agreement”). Pursuant to the Dyax Agreement, Dyax utilized its proprietary phage technology to identify antibodies that would bind to targets of interest to the previous sponsor. Additionally, Dyax granted to the previous sponsor a world-wide, non-exclusive, royalty free right to use and make any and all of the antibodies identified by Dyax for certain research purposes. Seribantumab was identified as a result of the research activities performed under the Dyax Agreement.

Pursuant to the terms of the Dyax Agreement, the Company may be obligated to pay Dyax milestone payments of up to approximately $9.3 million if certain development and regulatory milestones are achieved. In addition, Dyax is entitled to mid-single digit royalties based on net sales of seribantumab. The Company’s obligation to pay royalties to Dyax continues on a product-by-product and country-by-country basis until the later of a specified number of years after the first commercial sale in such country and the expiration of the patent rights covering seribantumab in such country.

The Dyax Agreement will remain in effect, unless earlier terminated, for so long as the Company continues to develop or commercialize seribantumab. Either party may terminate the agreement in the event of an uncured material breach by the other party. The Company also has the right to terminate the agreement in its entirety or on a product-by-product basis at any time upon 90 days’ prior written notice.

●

Ligand Pharmaceuticals—The Company assumed all rights and obligations provided for under the amended commercial license agreement executed between Selexis SA (“Selexis”) and the previous sponsor (the “Selexis Agreement”). Pursuant to the Selexis Agreement, the Company received non-exclusive rights to technology for use in the manufacture of seribantumab and may be required to make milestone payments of up to approximately €900, per licensed product, if certain development and regulatory milestones are achieved. Additionally, Selexis may have the right to obtain a royalty of the greater of €0.2 million annually and less than one percent on net sales of seribantumab. The obligation to pay royalties with respect to each product sold in a country continues until the expiration of the patent rights covering the product in such country. Either party may terminate the

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agreement in the event of an uncured material breach by the other party. The Company also has the right to terminate the agreement at any time upon 60 days’ prior written notice. In November 2021, the Selexis agreement was assigned to Ligand Pharmaceuticals Incorporated.

●

National Institute of Health—The Company assumed all rights and obligations provided for under the amended commercial license agreement executed between the U.S. Public Health Service, a division of the U.S. Department of Health and Human Services (the “NIH”) and the previous sponsor (the “NIH Agreement”). Pursuant to the NIH Agreement, the Company received non-exclusive rights in the United States to patents related to certain antibodies associated with seribantumab. If certain development and regulatory milestones are achieved, the Company may be obligated to pay NIH additional milestone payments of up to approximately $0.4 million per licensed product.

The Company evaluated the asset purchase agreement with the previous sponsor under ASC Topic 805, Business Combinations, and concluded that the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. Accordingly, the upfront payment of $3.5 million was expensed as research and development expenses in the statement of operations for the year ended December 31, 2019. Additionally, the Company concluded that all consideration to be paid under the asset purchase agreement is contingent in nature and will be recognized when the respective contingency is resolved. The Company assessed the contingent events which would result in the payment of a milestone as of March 31, 2023 and December 31, 2022, and concluded no such payments were required.

Other Research Arrangements

In June 2021, the Company entered into a collaboration agreement with Caris (the “Caris Agreement”). Under the terms of the Caris Agreement, Caris will identify targets for the collaboration and provide those targets to the Company at regular intervals for review and approval. Once a target is selected by the collaboration’s joint steering committee, the collaboration will retain access to the selected targets.

The financial terms surrounding development and commercialization of each product candidate identified for the collaboration and included in the Caris Agreement vary based on the level of participation elected by each party in the development and commercialization efforts following identification of a target. There are no upfront or milestone payments or royalties due to either party under the collaboration. With respect to proceeds from any potential commercial transaction related to a product resulting from the collaboration, Caris will be entitled to a tiered initial percentage ranging from the mid-single digits to low teens based on the product candidate’s potential peak sales revenue with the remaining proceeds allocated based on each party’s pro rata share of expenses incurred in development of the product. In the case of an out-licensing transaction of an asset instead of a sale, Caris and the Company will split all consideration received in the transaction in a similar manner. The Caris Agreement provides flexibility for Caris and the Company to jointly develop and commercialize, or for either the Company or Caris to incur development and commercialization expenses. The ultimate percentage of proceeds payable to the Company and Caris will depend on the level of development and commercialization participation elected by each party.

The Company will own the intellectual property rights to the therapeutics developed under the collaboration, and Caris will own the intellectual property rights to the diagnostics developed under the collaboration.

Either party may terminate the Caris Agreement for uncured material breach by the other party or in the case of the other party’s insolvency. The term of the Caris Agreement is three years, automatically renewing for one-year terms. Either party may terminate the agreement at the end of a term by written notice to the other, subject to the continuation of exclusivity with respect to any target selected by the Joint Steering Committee, so long as commercially reasonable efforts are used to discover, identify, develop and/or commercialize a therapeutic related to such target.

12. Commitments and Contingencies

The Company, from time to time, may be involved in legal proceedings, regulatory actions, claims and litigation arising in the ordinary course of business. The Company was not a defendant in any lawsuits as of March 31, 2023.

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13. Net Loss Per Share

The following table summarizes the computation of basic and diluted net loss per share of the Company (in thousands, except share and per share data):


	Three months ended
	March 31,
	2023		2022
Net loss	$	(17,059)	$	(17,275)
Weighted average common stock outstanding, basic and diluted		23,618,559		23,216,206
Net loss per share, basic and diluted	$	(0.72)	$	(0.74)

The Company’s potentially dilutive securities, which include options to purchase common stock and unvested restricted stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the three months ended March 31, 2023 and 2022 because including them would have had an anti-dilutive effect:


	March 31,
	2023	2022
Outstanding stock options	5,154,446	4,146,107
Unvested restricted stock	—	15,776
Unvested RSUs	209,085	200,996
Warrant	339,725	—
	5,703,255	4,362,879

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”). This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are an innovative oncology company focused on the discovery and development of selective cancer therapies to treat patients across a range of solid tumors with significant unmet medical needs. We are rethinking drug development by seeking innovative, selective cancer therapies that can be matched to a patient’s unique tumor characteristics.

Our lead product candidate, EO-3021 (also known as SYSA1801 or CPO102), is an antibody-drug conjugate (“ADC”) designed to target Claudin 18.2, a clinically validated molecular target, which can selectively deliver a cytotoxic payload directly to cancer cells expressing Claudin 18.2. We currently retain worldwide development and commercialization rights for EO-3021 outside Greater China (the People’s Republic of China, Hong Kong, Macau and Taiwan). Our licensor and partner, CSPC Pharmaceutical Group Limited (collectively with its affiliates, “CSPC”), is actively recruiting patients in its ongoing Phase 1 clinical trial of SYSA1801 (EO-3021) in China.

We are working to rapidly advance EO-3021 into the clinic in the United States and other territories outside Greater China across a range of solid tumor indications. We expect to initiate a Phase 1 clinical trial of EO-3021 in the United States in the second half of 2023. An Investigational New Drug application (“IND”) for EO-3021 has been cleared with the U.S. Food and Drug Administration (the “FDA”). EO-3021 was granted orphan drug designation by the FDA for the treatment of gastric cancer (including cancer of gastroesophageal junction) in November 2020 and for the treatment of pancreatic cancer in May 2021.

Claudin 18.2 is expressed across several solid tumor types, including many gastrointestinal cancers such as gastric, gastroesophageal junction and pancreatic cancer. Claudin 18.2 is also expressed in ovarian cancer, non-small cell lung cancer (“NSCLC”) and other solid tumors. EO-3021 is an anti-Claudin 18.2 ADC that binds to Claudin 18.2 on the cell surface and is internalized, upon which the linker is cleaved in the lysosome to release the monomethyl auristatin E (“MMAE”) payload, a potent anti-mitotic agent. This results in microtubule disruption, inhibiting cell division and promoting cancer cell death via apoptosis. MMAE has been clinically validated as an effective anti-tumor payload and is the cytotoxic component of several FDA-approved ADCs.

In July 2022, we entered into a license agreement with CSPC (the “CSPC License Agreement”) to develop and commercialize EO-3021 outside Greater China. Pursuant to the terms of the CSPC License Agreement, we paid to CSPC a one-time, upfront payment of $27.0 million. CSPC will also be eligible to receive up to $148.0 million in potential development and regulatory milestone payments and up to $1.0 billion in potential commercial milestone payments plus royalties on net sales.

In April 2023, we presented preclinical proof-of-concept data and a clinical case study for EO-3021 at the American Association for Cancer Research Annual Meeting 2023 (“AACR 2023”). The clinical case study was from the ongoing Phase 1 clinical trial being conducted in China by CSPC and involved a patient with metastatic gastric cancer who achieved a confirmed partial response on treatment with EO-3021.

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Key findings from the preclinical study included:

●

EO-3021 is an ADC comprised of a fully human immunoglobulin G1 (IgG1) mAb that targets Claudin 18.2 and is site-specifically conjugated to the MMAE payload via a cleavable linker with a drug-to-antibody ratio (DAR) of 2.

●

EO-3021 retains antibody-dependent cell-mediated cytotoxicity (ADCC) and complement dependent cytotoxicity (CDC).

●

EO-3021 reduction in cell viability requires Claudin 18.2 expression in vitro with no effects seen on Claudin 18.2-negative cells.

●

EO-3021 demonstrated anti-tumor activity in in vivo xenograft models of pancreatic and gastric cancers expressing varying levels of Claudin 18.2.

o

A single dose of EO-3021 demonstrated tumor regression across low, medium, and high Claudin 18.2-expressing models, with a lower minimal efficacious dose in models with medium and high levels of Claudin 18.2 relative to models with low levels of Claudin 18.2.

o

EO-3021 outperformed standard of care chemotherapy in gastric and pancreatic cancer in vivo models.

Key findings from the clinical case study included:

●

Patient was treated with dose level 2, or 1.0 mg/kg EO-3021, intravenously, every three weeks for 12 cycles.

●

The best overall response, as evaluated per RECIST v1.1, was a confirmed partial response (66.7% maximal tumor reduction).

●

Duration of response was approximately 11 months.

In July 2022, we entered into a loan and security agreement (the “Loan Agreement”) with K2 HealthVentures LLC (together with its affiliates, “K2HV”, and together with any other lender from time to time party thereto, the “Lenders”), as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides up to $50.0 million principal in term loans (the “Term Loan”) consisting of a first tranche of $30.0 million funded at closing and a subsequent second tranche of up to $20.0 million upon our request, subject to review by the Lenders of certain information from us and discretionary approval by the Lenders.

In January 2023, we announced that we paused further investment in the clinical development of seribantumab, an anti-HER3 monoclonal antibody for solid tumors driven by neuregulin-1, or NRG1 fusions, a type of genomic alteration and oncogenic driver in solid tumors. As a result, further enrollment in the Phase 2 CRESTONE study of seribantumab was paused. Long-term follow-up of all patients who have been treated with seribantumab to date remains ongoing. We intend to pursue further clinical development of seribantumab only in collaboration with a partner. We presented additional interim clinical data from our Phase 2 CRESTONE clinical trial investigating the safety and efficacy of seribantumab in advanced solid tumors harboring an NRG1 fusion at AACR 2023.

We are exploring opportunities through new or existing partnerships and business development opportunities to expand our novel oncology pipeline. This includes leveraging our value-driving partnerships with Caris Life Sciences (“Caris”) and others.

We were incorporated in April 2019. We have devoted substantial resources to in-licensing and developing EO-3021, developing seribantumab, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations through private placements of convertible preferred stock, our IPO and a debt facility.

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Since inception, we have incurred significant operating losses annually and on an aggregate basis. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $17.1 million and $17.3 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $167.3 million. These losses have resulted primarily from costs incurred in connection with research and development activities, acquisition, patent investment, and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

We had cash, cash equivalents and marketable securities of $73.9 million as of March 31, 2023. Based on current operating plans, we do not expect that this amount will meet our anticipated capital requirements over the next 12 months, when giving effect to financial covenant compliance under our debt facility. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We will need to raise additional capital in the future to continue developing the drugs in our pipeline and to commercialize any approved drug. We may seek to obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.

Impact of COVID-19

The ongoing COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as those of our partners, and is contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

COVID-19 precautions may directly or indirectly impact the timeline for our clinical trials and those of our partners. We are continuing to proactively monitor and assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of any resurgence of the COVID-19 pandemic new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

Components of our Results of Operations

Operating Expenses

Research and Development Expenses

Our operating expenses have consisted solely of research and development costs and general and administrative costs. Research and development expenses consist primarily of costs related to our research activities, including the development of our product candidates, and costs incurred for the in-licensing of EO-3021. Our research and development expenses include:

●

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

●

external research and development expenses incurred in connection with the preclinical and clinical development of seribantumab, as well as the preclinical development of EO-3021, including expenses incurred under agreements with contract research organizations and consultants;

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●

costs incurred with contract manufacturing organizations that manufacture drug products for use in our preclinical studies and clinical trials of seribantumab;

●

fees paid to consultants for services directly related to our product development and regulatory efforts; and

●

costs related to compliance with regulatory requirements related to conducting our clinical activity.

Research and development costs consist of salaries and benefits, including associated stock-based compensation, and fees paid to other entities that conduct certain research and development activities on our behalf. Research and development costs are expensed as incurred. We estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and contract research organizations, and clinical manufacturing organizations that conduct and manage preclinical studies and clinical trials on our behalf based on actual time and expenses incurred by them. Further, we accrue expenses related to clinical trials based on the level of patient activity according to the related agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly.

To date, our research and development expenses have primarily been incurred to advance seribantumab and in-license EO-3021. We expect that significant additional spending will be required to advance EO-3021 and other product candidates through clinical development. These expenses will primarily consist of expenses for the administration of clinical studies as well as manufacturing costs for clinical material supply. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates.

The following table provides a breakout of our research and development expenses by major categories of expense:


	Three months ended
	March 31,
	2023		2022

Seribantumab	$	3,317	$	10,903
EO-3021		627		—
Unallocated and other research and development expenses		720		676
Unallocated personnel costs (including stock-based compensation)		2,628		1,996
Total research and development expenses	$	7,292	$	13,575

The successful development and commercialization of EO-3021 or our other product candidates is highly uncertain. The success of EO-3021 or any other product candidate will depend on several factors, including the following:

●

successful completion of preclinical studies and timely and successful enrollment of patients in, and completion of, clinical trials with favorable results;

●

demonstration of safety, efficacy and acceptable risk-benefit profiles of our product candidates to the satisfaction of the FDA and other regulatory agencies;

●

acceptance of an IND and a BLA by the FDA or other similar clinical trial applications by foreign regulatory authorities for clinical trials for our product candidates;

●

our ability, or that of our collaborators, to develop and obtain clearance or approval of companion or complementary diagnostics, on a timely basis, or at all;

●

receipt and related terms of marketing approvals from applicable regulatory authorities for our product candidates, including the completion of any required post-marketing studies or trials;

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●

raising additional funds necessary to complete the clinical development of and commercialization of our product candidates;

●

successfully identifying and developing, acquiring or in-licensing additional product candidates to expand our pipeline;

●

obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates, and protecting and enforcing our rights in our intellectual property portfolio;

●

making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our product candidates;

●

establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if approved, whether alone or in collaboration with third parties;

●

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

●

effectively competing with other therapies available on the market or in development;

●

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

●

maintaining a continued acceptable safety profile of any products following regulatory approval.

Many of these factors are beyond our control, and it is possible that none of our product candidates will ever obtain regulatory approval even if we expend substantial time and resources seeking such approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services, and insurance costs.

We anticipate that our general and administrative expenses will increase in the future as we support our continued research activities and development of our product candidates. We also expect to incur increased expenses, including costs of accounting, audit, legal, investor and public relations, directors and officers insurance, and regulatory and tax related services associated with maintaining compliance with exchange listings and SEC requirements. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to building a sales and marketing team to support product sales, and marketing and distribution activities, to the extent that such activities are not supported by one or more third-party collaborators.

Restructuring charges

The restructuring charges in the first quarter of 2023, predominantly relates to costs incurred in respect of the reprioritization and realignment of resources, totaling restructuring charges of approximately $5.1 million, which included $1.6 million of one-time termination and contractual termination benefits for severance, healthcare and related benefits..

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Results of Operations

Three months ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:


	Three months ended
	March 31,
	2023		2022		Change

	(in thousands)
Operating expenses:
Research and development	$	7,292	$	13,575	$	(6,283)
General and administrative		4,346		3,793		553
Restructuring charges		5,107		—		5,107
Total operating expenses		16,745		17,368		(623)
Loss from operations		(16,745)		(17,368)		623
Other income (expense), net		(309)		93		(402)
Loss before income taxes		(17,054)		(17,275)		221
Income tax expense		5		—		5
Net loss	$	(17,059)	$	(17,275)	$	216

Research and Development Expenses

Research and development expenses were $7.3 million for the three months ended March 31, 2023, compared to $13.6 million for the three months ended March 31, 2022. The decrease of $6.3 million was primarily due to a $7.2 million decrease in costs related to manufacturing clinical supply of seribantumab for use in the CRESTONE clinical trial, trial, due to the pipeline prioritization and realignment of resources to advance our EO-3021 product candidate, partially offset by a $0.5 million increase in employee related costs, including stock-based compensation, and a $0.4 million increase in preclinical trial, regulatory, consulting, and other expenses.

General and Administrative Expenses

General and administrative expenses were $4.3 million for the three months ended March 31, 2023, compared to $3.8 million for the three months ended March 31, 2022. The increase of $0.6 million was primarily due to an increase of $0.7 million in personnel costs, including stock-based compensation, an increase of $0.1 million of professional fees and other consulting costs, partially offset by a decrease of $0.2 million in administrative costs, including Directors and Officers insurance.

Restructuring charges

Restructuring charges were $5.1 million for the three months ended March 31, 2023, and consisted primarily of charges related to the pipeline prioritization and realignment of resources to advance our EO-3021 product candidate, including $1.6 million of one-time termination and contractual termination benefits for severance, healthcare and related benefits.

Other Income (Expense), Net

Other income (expense), net, was $0.3 million expense incurred for the three months ended March 31, 2023, compared to less than $0.01 million for the three months ended March 31, 2022.

Interest Income

Interest income of $0.8 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, was associated with the balance of marketable securities and increase in interest rates.

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Interest Expense

Interest expense was $1.0 million for the three months ended March 31, 2023 and consisted primarily of cash and non-cash interest related to the K2HV Loan Agreement, which was entered into in July 2022.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales or any other sources and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years, if ever.

Through March 31, 2023, we have funded our operations with proceeds from the sale of convertible preferred stock, proceeds from our IPO, and borrowings under loan agreements. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $73.9 million. Based on current operating plans, we do not expect that this amount will meet our anticipated capital requirements over the next 12 months, when giving effect to financial covenant compliance under our debt facility.

Cash Flows

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


	Three months ended
	March 31,
	2023		2022

	(in thousands)
Statement of cash flows data:
Cash used in operating activities	$	(16,831)	$	(14,024)
Cash provided by (used in) investing activities		26,600		(79,271)
Cash provided by financing activities		216		19
Net increase (decrease) in cash and cash equivalents	$	9,985	$	(93,276)

Operating Activities

During the three months ended March 31, 2023, cash used in operating activities was $16.8 million, which consisted primarily of our net loss of $17.1 million, and $1.3 million of cash provided in changes in our operating assets and liabilities, partially offset by $1.5 million of stock-based compensation expense. Net cash provided by changes in our operating assets and liabilities consisted primarily of a decrease of $2.3 million in accounts payable, partially offset by an increase of $0.9 million in prepaid expenses and other assets and an increase of $0.1 million in accrued expenses.

During the three months ended March 31, 2022, cash used in operating activities was $14.0 million, which consisted primarily of our net loss of $17.3 million, partially offset by $2.6 million of cash used in changes in our operating assets and liabilities, and $0.7 million of stock-based compensation expense. Net cash provided in changes in our operating assets and liabilities consisted primarily of an increase of $6.4 million in accrued expenses and an increase of $1.0 million in prepaid expenses and other assets, partially offset a decrease of $4.8 million in accounts payable, by due to the timing of payments related to research and development costs.

Investing Activities

During the three months ended March 31, 2023, net cash provided in investing activities consisted of $26.6 million of cash from proceeds from sales and maturities of marketable securities.

During the three months ended March 31, 2022, net cash used in investing activities was $79.3 million, due to investment in marketable securities.

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Financing Activities

During the three months ended March 31, 2023, cash provided by financing activities was $0.2 million, from the proceeds from stock option exercises.

During the three months ended March 31, 2022, cash provided by financing activities was less than $0.1 million, due to proceeds from stock option exercises.

Future 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 EO-3021 and seek to develop, acquire or in-license additional product candidates. The timing and amount of our operating expenditures will depend largely on:

●

the timing and progress of preclinical and clinical development activities;

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successful enrollment in and completion of clinical trials;

●

the timing and outcome of regulatory review of our product candidates;

●

the cost to develop companion or complementary diagnostics as needed for each of our product candidates;

●

our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and, if any of our product candidates are approved, commercial manufacturing;

●

addition and retention of key research and development personnel;

●

our efforts to enhance operational, financial and information management systems, and hire additional personnel, including personnel to support development of our product candidates;

●

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we obtain marketing approval;

●

the legal patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims; and

●

the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder.

Our future capital requirements will depend on many factors, including:

●

the progress, timing and results of preclinical studies and clinical trials for EO-3021 and our other product candidates;

●

disruptions or delays in enrollment of our clinical trials, including due to the COVID-19 pandemic;

●

the extent to which we develop, in-license or acquire other pipeline product candidates or technologies;

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●

the number and development requirements of other future product candidates that we may pursue, and other indications for our current product candidates that we may pursue;

●

the costs, timing and outcome of obtaining regulatory approvals of EO-3021 and our other product candidates and any companion or complementary diagnostics we may pursue;

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the scope and costs of making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our product candidates;

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the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or future product candidates;

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the costs associated with commercializing any approved product candidates, including establishing sales, marketing and distribution capabilities;

●

the costs associated with completing any post-marketing studies or trials required by the FDA or other regulatory authorities;

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the revenue, if any, received from any product candidates that receive marketing approval;

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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 that we may become subject to, including any litigation costs and the outcome of such litigation;

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the costs associated with potential product liability claims, including the costs associated with obtaining insurance against such claims and with defending against such claims; and

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to the extent we pursue strategic collaborations, including collaborations to commercialize seribantumab or to develop any future product candidates, our ability to establish and maintain collaborations on favorable terms, if at all, as well as the timing and amount of any milestone or royalty payments we are required to make or are eligible to receive under such collaborations, if any.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for EO-3021 or our other product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on favorable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital or debt when needed or on favorable terms, we could be forced to delay, reduce or eliminate our research and development programs, our commercialization plans or other operations.

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Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and provide for termination upon notice.

In May 2019, we entered into the Asset Purchase Agreement with the previous sponsor, pursuant to which we acquired all rights and interest to patents, know-how, and inventory for assets related to seribantumab. If we are successful in finding a partner to develop and commercialize seribantumab, we may be obligated to pay the previous sponsor up to $54.5 million in development, regulatory and sales milestone payments pursuant to the terms of the asset purchase agreement. Additionally, in conjunction with the asset purchase agreement with the previous sponsor, we assumed the rights and obligations under certain collaboration and license agreements which may require the payment of milestones and/or royalties on future sales of seribantumab. We are currently unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See “Business — Asset purchase, licensing and collaboration agreements” for additional information about these license agreements, including with respect to potential payments thereunder.

In July 2022, we entered into the Loan Agreement with K2HV, as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides up to $50.0 million principal in the Term Loan consisting of a first tranche of $30.0 million funded at closing and a subsequent second tranche of up to $20.0 million upon our request, subject to review by the Lenders of certain information from us and discretionary approval by the Lenders.

The Term Loan will mature on August 1, 2026, with interest-only payments for 30 months, and bears a variable interest rate equal to the greater of (i) 7.95% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate, as determined by the Lenders, if The Wall Street Journal ceases to quote such rate) and (B) 3.20%. Upon the final payment under the Loan Agreement, the Lenders are entitled to an end of term charge equal to 6.45% of the aggregate original principal amount of the term loans made pursuant to the Loan Agreement. We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

For a discussion of our critical accounting estimates, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”), filed with the SEC on March 9, 2023 in connection with the notes to our audited consolidated financial statements appearing in the Annual Report and the notes to the condensed consolidated financial statements appearing elsewhere in

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this Quarterly Report on Form 10-Q. There have been no material changes to these critical accounting policies and estimates through March 31, 2023, from those discussed in our Annual Report.

Recently Issued and Adopted Accounting Pronouncements

There were no recently adopted accounting pronouncements which would have a material effect on the Company's financial condition, results of operations and cash flows.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2023, we had cash, cash equivalents and marketable securities of $73.9 million. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.

We are not currently exposed to significant risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

RISK FACTORS

Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider and read carefully all of the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q, including our financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, net revenue and future prospects. In such event, the trading price of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and the market price of our common stock. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report on Form 10-Q.

Risk Factor Summary

The following summarizes the most material risks that make an investment in our securities risky or speculative. If any of the following risks occur or persist, our business, financial condition and results of operations could be materially harmed and the price of our common stock could significantly decline.

●

We have a limited operating history, which may make it difficult to evaluate the success of our business to date and to assess our future viability. We have incurred significant operating losses since our inception in 2019 and have not generated any revenue. We expect to incur continued losses for the foreseeable future and may never achieve or maintain profitability.

●

We are highly dependent on the success of our lead product candidate, EO-3021. We have not completed clinical development or obtained regulatory approval for any product candidate. We may never obtain approval for EO-3021 or any other product candidate.

●

If we experience delays or difficulties in enrolling patients in our ongoing or planned clinical trials, our receipt of necessary regulatory approval could be delayed or prevented.

●

Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials or abandon further development, limit the commercial profile of an approved product or result in significant negative consequences following marketing approval, if any.

●

We have, and we may in the future, seek to engage in strategic transactions to acquire or in-license new products, product candidates or technologies. If we are unable to realize the benefits from such transactions, it may adversely affect our ability to develop and commercialize product candidates, negatively impact our cash position, increase our expenses and present significant distractions to our management.

●

The development and commercialization of biological products are subject to extensive regulation, and we may not obtain regulatory approvals for any of our product candidates, on a timely basis or at all.

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●

If we are unable to successfully develop, validate, obtain regulatory approval of and commercialize companion or complementary diagnostic tests for our product candidates or any future product candidates that require or would benefit from such tests, or experience significant delays in doing so, we may not realize the full commercial potential of these product candidates.

●

Manufacturing biological products is complex and subject to product loss for a variety of reasons. We rely on third parties to manufacture clinical supplies of our product candidates and we intend to rely on third parties to produce commercial supplies of any approved product. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

●

The incidence and prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, then our revenue potential and ability to achieve profitability will be adversely affected.

●

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

●

We expect to significantly expand our development and regulatory capabilities as we grow our company, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

●

If we or our licensors are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, third parties, including our competitors, could develop and commercialize products similar or identical to ours, and our ability to commercialize our product candidates may be adversely affected.

●

The continued presence of COVID-19, or the outbreak of similar public health crises, could adversely impact our business, including our supply chain and the conduct of our clinical trials.

Risks related to our financial position and need for additional capital

Investment in drug development is a highly speculative undertaking and involves a substantial degree of risk. We commenced operations in 2019 and are a clinical-stage biologics company with a limited operating history. We have not yet commercialized any product, nor do we expect to generate revenue from sales of any products for several years, if at all. Consequently, there have been limited operations upon which you can evaluate our business, and predictions about our future success or viability may not be as cancer therapies. For the three months ended March 31, 2023 and 2022, we had a net loss of $17.1 million and $17.3 million, respectively. As of March 31, 2023, we had an accumulated deficit of $167.3 million. We expect to continue to incur significant research and development and other expenses related to our ongoing operations, which we anticipate will result in net losses for at least the next several years.

Since our inception, we have focused substantially all of our efforts and financial resources on the acquisition and clinical development of seribantumab and EO-3021. In January 2023, we announced a pipeline prioritization and realignment of resources to advance EO-3021 and other pipeline programs, and to pause further investment in the clinical development of seribantumab. We intend to pursue further development of seribantumab only in collaboration with a partner.

To date, we have funded our operations with proceeds from sales of shares of our convertible preferred stock, proceeds from the sale of common stock in our initial public offering (“IPO”), and borrowings under loan agreements. From our

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inception through March 31, 2023, we received an aggregate of $97.2 million in net proceeds from sale of our convertible preferred stock. We received an aggregate of $97.1 million in net proceeds from our IPO. We received net proceeds of $29.5 million from long-term debt. As of March 31, 2023, our cash, cash equivalents and marketable securities were $73.9 million.

We expect to incur increasing levels of operating losses for the foreseeable future, particularly as we seek to advance EO-3021 and other product candidates through clinical development. Our prior losses, combined with expected future losses, have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. We expect to incur increasing research and development expenses in connection with our planned clinical trials for EO-3021, and the development of other product candidates we may choose to pursue. In addition, if we obtain marketing approval for any product candidate, we will incur significant sales, marketing and outsourced manufacturing expenses in connection with the commercialization of such product candidate. After our IPO, we incurred and will continue to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and begin to sell, a product candidate. Our ability to generate revenue and become profitable will depend on a number of factors, including, but not limited to, our ability to:

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Initiate and successfully meet our clinical endpoints in our planned clinical trials for EO-3021;

●

initiate and successfully complete all safety, pharmacokinetic and other registrational-enabling studies required to obtain U.S. and foreign marketing approval for EO-3021;

●

initiate and complete successful later-stage clinical trials that meet their clinical endpoints;

●

submit a BLA for EO-3021 to the FDA that is filed by the FDA;

●

obtain marketing approval for EO-3021 and our other product candidates;

●

establish licenses, collaborations or strategic partnerships that may increase the value of our programs;

●

successfully manufacture or contract with others to manufacture our product candidates;

●

further develop seribantumab in collaboration with a partner;

●

commercialize product candidates, if approved, by building a sales force or entering into collaborations with third parties;

●

obtain, maintain, protect and defend our intellectual property portfolio;

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achieve market acceptance of our product candidates with the medical community and with third-party payors; and

●

attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.

We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.

In cases where we are successful in obtaining regulatory approval to market our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement, and whether we own the commercial rights for that

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territory. If the number of our addressable patients is significantly lower than we estimate, the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if they are approved.

Because of the numerous risks and uncertainties associated with drug development, we are unable to accurately predict the timing or amount of increased expenses we will incur and when, or if, we will be able to achieve profitability. If we decide to or are required by the FDA or regulatory authorities in other jurisdictions to perform studies or clinical trials in addition to those we currently anticipate, or if there are any delays in establishing appropriate manufacturing arrangements for, in initiating or completing our current and planned clinical trials for, or in the development of, our product candidates, our expenses could increase materially and our potential profitability could be further delayed.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Accordingly, you should not rely upon the results of any quarterly or annual periods as predictions or indications of future operating performance. We expect our financial condition and operating results to fluctuate from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

Based on current operating plans, there is substantial doubt regarding our ability to continue as a going concern. We will require substantial additional funding to finance our operations, and if we are unable to raise capital, we could be forced to delay, reduce or explore other strategic options for certain of our development programs, or even terminate our operations.

We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements included in this Quarterly Report on Form 10-Q are issued. Based upon our current operating plans we believe that our existing cash, cash equivalents, and marketable securities will not meet our anticipated capital requirements over the next 12 months, when giving effect to financial covenant compliance under our debt facility. Accordingly, we determined that there is substantial doubt about our ability to continue as a going concern within twelve months of the issuance date of these financial statements.

In view of these matters, our ability to continue as a going concern is dependent upon our ability to raise additional capital through outside sources. We plan to fund our operations through public and private placements of equity and/or debt, payments from potential strategic research and development arrangements, licensing and/or collaboration arrangements, or funding from other third parties. Such financing and funding may not be available at all, or on terms that are favorable to us. Failure to raise additional capital could have a material adverse effect on our ability to achieve our intended business objectives.

We require substantial additional funding to pursue our business objectives. If we are unable to raise additional capital when needed or on terms acceptable to us, we could be forced to delay, reduce or terminate our research or drug development programs, any future commercialization efforts or other operations.

Identifying and developing potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and begin selling any approved product. We expect to incur substantial expenses as we advance the clinical development of our product candidates and seek to develop, acquire or in-license additional product candidates. We expect increased expenses as we continue our research and development activities, initiate additional clinical trials and seek marketing approval for our product candidates. In addition, if we obtain marketing approval for any product candidate, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we have incurred, and expect to continue to incur, additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on favorable terms, or at all.

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In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise additional capital when needed or on favorable terms, we could be forced to delay, reduce or eliminate our research and development programs, our commercialization plans or other operations. In July 2022, we entered into the Sales Agreement with Cowen, pursuant to which we may offer and sell to or through Cowen acting as agent and/or principal, shares of our common stock having aggregate gross proceeds of up to $50.0 million. Under the Sales Agreement, Cowen may sell the shares by any method permitted by law and deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act or in other transactions pursuant to an effective shelf registration statement on Form S-3. Also in July 2022, we entered into the Loan Agreement with K2HV to provide up to $50.0 million principal amount in term loans.

We had cash, cash equivalents and marketable securities of $73.9 million as of March 31, 2023. Based on current operating plans, we do not expect that this amount will meet our anticipated capital requirements over the next 12 months, when giving effect to financial covenant compliance under our debt facility. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Changes beyond our control may occur that would cause us to use our available capital before that time, including changes in and progress of our drug development activities and changes in government regulations. Our future capital requirements will depend on many factors, including:

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the progress, timing and results of preclinical studies and clinical trials for EO-3021 and our other product candidates;

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disruptions or delays in enrollment of our clinical trials, including due to the COVID-19 pandemic;

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

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the number and development requirements of other future product candidates that we may pursue, and other indications for product candidates that we may pursue;

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the costs, timing and outcome of obtaining regulatory approvals of EO-3021 and our other product candidates and any companion or complementary diagnostics that we may pursue;

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the scope and costs of making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our product candidates;

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the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or future product candidates;

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the costs associated with commercializing any approved product candidates, including establishing sales, marketing and distribution capabilities;

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the costs associated with completing any post-marketing studies or trials required by the FDA or other regulatory authorities;

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the revenue, if any, received from commercial sales of our product candidates, if approved;

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ELEV Elevation Oncology Inc