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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  FORM10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023
or 
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: 001-35670
Regulus Therapeutics Inc.
(Exact name of registrant as specified in its charter)
Delaware 26-4738379
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
4224 Campus Point Court, Suite 210 92121
San Diego
CA
(Address of Principal Executive Offices) (Zip Code)
858-202-6300
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s)  Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share

 RGLS  The Nasdaq Stock Market LLC

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  x    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  x    No  ¨
Indicate by check mark whether 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
As of August 4, 2023, the registrant had 19,484,461 shares of Common Stock ($0.001 par value) outstanding.



REGULUS THERAPEUTICS INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION

RISK FACTOR SUMMARY

Below is a summary of the material factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” under Part II, Item 1A of this Quarterly Report and should be carefully considered, together with other information in this Quarterly Report before making investment decisions regarding our common stock.

Our need for additional capital raises substantial doubt about our ability to continue as a going concern. We will need to raise additional capital to develop our product candidates and implement our operating plans, and if we are unable to do so when needed, we will not be able to complete the development and commercialization of our product candidates.

Payments under the instruments governing our indebtedness may reduce our working capital. In addition, a default under our loan and security agreement could cause a material adverse effect on our financial position.

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

The approach we are taking to discover and develop drugs is novel and may never lead to marketable products.

We may not be successful in our efforts to identify or discover potential product candidates.




Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful results from our preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our business may be materially harmed.

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Any of our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue from a future product.

We have never generated any revenue from product sales and may never be profitable.

We will depend upon collaborations for the development and eventual commercialization of certain microRNA product candidates. If these collaborations are unsuccessful or are terminated, we may be unable to commercialize certain product candidates and we may be unable to generate revenues from our development programs.

We rely on limited sources of supply for the drug substance of product candidates and any disruption in the chain of supply may cause a delay in developing and commercializing these product candidates.

Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.

We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

If we are unable to obtain or protect intellectual property rights related to our future products and product candidates, we may not be able to compete effectively in our markets.

We are subject to stringent and changing obligations related to data privacy and security. Actual or perceived failure by us or the third-party service providers upon which we rely to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.

We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

Our business could be adversely affected by the effects of health pandemics or epidemics, including COVID-19, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations, or materially affect our operations globally, including at our headquarters in San Diego, and at our clinical trial sites, as well as the business or operations of our collaborators, manufacturers, contract research organizations ("CROs") or other third parties with whom we conduct business.

The market price of our common stock may be highly volatile.





PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS
Regulus Therapeutics Inc.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
3


June 30,
2023
December 31,
2022
 (Unaudited) 
Assets
Current assets:
Cash and cash equivalents$37,263 $24,228 
Short-term investments 14,932 
Restricted cash62 62 
Contract and other receivables3  
Prepaid materials, net3,010 3,010 
Prepaid expenses and other current assets1,025 1,847 
Total current assets41,363 44,079 
Property and equipment, net482 536 
Intangibles, net39 62 
Right of use asset1,763 2,039 
Total assets$43,647 $46,716 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$362 $175 
Accrued liabilities623 961 
Accrued research and development expenses756 1,252 
Accrued compensation1,530 2,205 
Current portion of term loan, less debt issuance costs2,922 4,511 
Other current liabilities2,036 2,553 
Total current liabilities8,229 11,657 
Lease liability, less current portion1,421 1,768 
Total liabilities9,650 13,425 
Commitments and Contingencies
Stockholders’ equity:
Class A-1 convertible preferred stock, $0.001 par value; 256,700 shares authorized, issued, and outstanding at June 30, 2023 (unaudited) and December 31, 2022
  
Class A-2 convertible preferred stock, $0.001 par value; 1,330,832 shares authorized, issued, and outstanding at June 30, 2023 (unaudited) and December 31, 2022
1 1 
Class A-3 convertible preferred stock, $0.001 par value; 258,707 shares authorized, issued, and outstanding at June 30, 2023 (unaudited) and December 31, 2022
  
Class A-4 convertible preferred stock, $0.001 par value; 3,725,720 shares authorized, issued, and outstanding at June 30, 2023 (unaudited) and December 31, 2022
4 4 
Class A-5 convertible preferred stock, $0.001 par value; 140,827 shares authorized, issued, and outstanding at June 30, 2023 (unaudited); 0 shares authorized, issued, and outstanding at December 31, 2022
  
Common stock, $0.001 par value; 300,000,000 shares authorized at June 30, 2023 and December 31, 2022; 19,484,461 and 16,840,261 shares issued and outstanding at June 30, 2023 (unaudited) and December 31, 2022, respectively
19 17 
Additional paid-in capital531,301 516,457 
Accumulated other comprehensive loss (12)
Accumulated deficit(497,328)(483,176)
Total stockholders’ equity 33,997 33,291 
Total liabilities and stockholders’ equity $43,647 $46,716 
See accompanying notes to these condensed financial statements.

4


Regulus Therapeutics Inc.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
 
 Three months ended
June 30,
Six months ended
June 30,
 2023202220232022
 (Unaudited)
Operating expenses:
Research and development4,976 4,708 9,901 8,387 
General and administrative2,339 2,467 4,783 5,357 
Total operating expenses7,315 7,175 14,684 13,744 
Loss from operations(7,315)(7,175)(14,684)(13,744)
Other income (expense):
Interest and other income471 79 886 85 
Interest and other expense(168)(162)(353)(317)
Loss before income taxes(7,012)(7,258)(14,151)(13,976)
Income tax expense(1) (1)(1)
Net loss and comprehensive loss$(7,013)$(7,258)$(14,152)$(13,977)
Other comprehensive loss:
Unrealized loss on short-term investments, net (36) (36)
Comprehensive loss$(7,013)$(7,294)$(14,152)$(14,013)
Net loss per share, basic and diluted$(0.37)$(0.50)$(0.79)$(0.96)
Weighted average shares used to compute basic and diluted net loss per share19,101,969 14,612,312 17,979,343 14,604,594 
See accompanying notes to these condensed financial statements.

5


Regulus Therapeutics Inc.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)

Convertible preferred stockCommon stockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal stockholders’ equity (deficit)
SharesAmountSharesAmount
Balance at December 31, 20225,571,959 $5 16,840,261 $17 $516,457 $(12)$(483,176)$33,291 
Issuance of common stock under Employee Stock Purchase Plan— — 19,472 — 21 — — 21 
Stock-based compensation expense— — — — 410 — — 410 
Gain on short-term investments— — — — — 12 — 12 
Net loss— — — — — — (7,139)(7,139)
Balance at March 31, 20235,571,959 $5 16,859,733 $17 $516,888 $ $(490,315)$26,595 
Issuance of common stock and preferred stock from private placement, net of offering costs140,827 — 2,615,536 2 14,001 — — 14,003 
Stock-based compensation expense— — — — 382 — — 382 
Issuance of common stock through ATM— — 9,192 — 30 — — 30 
Net loss— — — — — — (7,013)(7,013)
Balance at June 30, 20235,712,786 $5 19,484,461 $19 $531,301 $ $(497,328)$33,997 
Balance at December 31, 20215,571,959 $5 14,597,118 $15 $509,791 $ $(454,853)$54,958 
Issuance of common stock under Employee Stock Purchase Plan— — 996 — 2 — — 2 
Stock-based compensation expense— — — — 1,000 — — 1,000 
Net loss— — — — — — (6,719)(6,719)
Balance at March 31, 20225,571,959 $5 14,598,114 $15 $510,793 $ $(461,572)$49,241 
Issuance of common stock upon vesting of restricted stock units— — 36,300 — — — — — 
Stock-based compensation expense— — — — 420 — — 420 
Net loss— — — — — — (7,258)(7,258)
Unrealized loss on short-term investments— — — — — (36)— (36)
Balance at June 30, 20225,571,959 $5 14,634,414 $15 $511,213 $(36)$(468,830)$42,367 

See accompanying notes to these condensed financial statements.
6


Regulus Therapeutics Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
 Six months ended
June 30,
 20232022
 (Unaudited)
Operating activities
Net loss$(14,152)$(13,977)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense95 57 
Stock-based compensation792 1,420 
Amortization of premiums and accretion of discounts on investments, net(56)(20)
Other81 70 
Change in operating assets and liabilities:
Contracts and other receivables(3) 
Prepaid expenses and other assets821 990 
Accounts payable188 311 
Accrued liabilities(371)(6)
Accrued research and development expenses(497)(55)
Accrued compensation(676)(623)
Operating lease right-of-use assets and liabilities, net(40)(28)
Other liabilities
(548)(679)
Net cash used in operating activities(14,366)(12,540)
Investing activities
Purchases of short-term investments (12,431)
Sales of short-term investments15,000  
Purchases of property and equipment(1)(295)
Net cash provided by (used in) investing activities14,999 (12,726)
Financing activities
Proceeds from issuance of securities through private placement, net of issuance costs14,003  
Proceeds from issuance of common stock, net51 2 
Principal payments on term loan(1,652) 
Net cash provided by financing activities12,402 2 
Net increase (decrease) in cash and cash equivalents13,035 (25,264)
Cash and cash equivalents at beginning of period24,290 60,445 
Cash and cash equivalents at end of period$37,325 $35,181 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$37,263 $35,119 
Restricted cash62 62 
Total cash, cash equivalents and restricted cash$37,325 $35,181 
Supplemental disclosure of cash flow information
Interest paid$(276)$(226)
Income taxes paid$(1)$(1)
Supplemental disclosure of non-cash investing and financing activities
Non-cash acquisition of property and equipment$33 $ 
See accompanying notes to these condensed financial statements.
7


Regulus Therapeutics Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.
Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022, from which the balance sheet information herein was derived.

On June 24, 2022, we filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation with the Secretary of State of the state of Delaware to effect a 1-for-10 reverse stock split of our issued and outstanding common stock. The primary purpose of the reverse stock split was to raise the per share trading price of our common stock to seek to maintain the listing of our common stock on The Nasdaq Capital Market. At the effective time of the reverse stock split, 5:00 p.m. on June 28, 2022, each 10 shares of our issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. All of our stock options, restricted stock units ("RSUs") and warrants outstanding immediately prior to the reverse stock split, as well as the conversion ratio of our outstanding convertible preferred stock, were proportionately adjusted. All issued and outstanding common stock, options exercisable for common stock, restricted stock units, common stock issuable upon conversion of outstanding convertible preferred stock, warrants and per share amounts contained in our condensed financial statements have been retrospectively adjusted.

Liquidity
The accompanying financial statements have been prepared on a basis which assumes we are a going concern and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to our ability to continue as a going concern. Through June 30, 2023, we have principally been financed through proceeds received from the sale of our common stock and other equity securities, debt financings, up-front payments and milestones received from collaboration agreements, totaling $556.6 million. As of June 30, 2023, we had approximately $37.3 million of cash and cash equivalents. Based on our operating plans, we believe our cash and cash equivalents may not be sufficient to fund our operations for the period one year following the issuance of these financial statements. Specifically, we believe these existing resources will only be sufficient to fund our planned operations and expenditures into mid-2024. Our current liquidity position, recurring losses from operations since inception and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern. As of June 30, 2023, we are in compliance with all loan agreement covenants.
We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements with partners or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations.
If we are unable to continue as a going concern, we may have to liquidate our assets, and in doing so might realize significantly less for those assets than the values at which they are carried on our financial statements. Stockholders may lose all or part of their investment in our common stock.
Use of Estimates
Our condensed financial statements are prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
8


Stock-Based Compensation
We account for stock-based compensation expense related to stock options granted to employees and members of our board of directors by estimating the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. We recognize stock-based compensation expense using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award was in substance multiple awards, resulting in accelerated expense recognition over the vesting period. For performance-based awards granted to employees (i) the fair value of the award is determined on the grant date, (ii) we assess the probability of the individual milestones under the award being achieved and (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes the performance criteria is probable of being met.
We account for restricted stock units by determining the fair value of each restricted stock unit based on the closing market price of our common stock on the date of grant. We recognize stock-based compensation expense using the accelerated multiple-option approach over the requisite service periods of the awards.
Clinical Trial and Preclinical Study Accruals
We make estimates of our accrued expenses for clinical trial and preclinical study activities as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. These accruals are based upon estimates of costs incurred and fees that may be associated with services provided by clinical trial investigational sites and CROs and for other clinical trial-related activities. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and progression through the various stages of our clinical trials. In accruing for these services, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activities or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.
Prepaid Materials
We capitalize the purchase of certain raw materials and related supplies for use in the manufacturing of drug product in our preclinical and clinical development programs, as we have determined that these materials have alternative future use. We can use these raw materials and related supplies in multiple clinical drug products, and therefore have future use independent of the development status of any particular program until it is utilized in the manufacturing process. We expense the cost of materials when used. We periodically review these capitalized materials for continued alternative future use and write down the asset to its net realizable value in the period in which an impairment is identified.
Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses. This ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance had no impact on our financial statements and disclosures.

9


In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides guidance around reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation in response to concerns about structural risks of interbank offered rates and the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments in the ASU provide option expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform and apply only if such contracts, hedging relationships and other transactions that reference LIBOR or another reference rate are expected to be discontinued because of reference rate reform. On December 21, 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date in Topic 848 from December 31, 2022 to December 31, 2024. The ASU became effective upon issuance. We adopted this guidance in June 2023 when we entered into an amendment to our loan agreement (see note 5).
2. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method or if-converted method. Dilutive common stock equivalents are comprised of stock options, restricted stock units, warrants and convertible preferred stock outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted net loss per share.
Potentially dilutive securities not included in the calculation of diluted net loss per common share, because to do so would be anti-dilutive, were (in common stock equivalent shares) 28,772,824 and 20,758,912 for the three and six months ended June 30, 2023, respectively, consisting of convertible preferred stock, warrants, stock options and restricted stock units. Potentially dilutive securities not included in the calculation of diluted net loss per common share, because to do so would be anti-dilutive, were (in common stock equivalent shares) 13,233,238 for the three and six months ended June 30, 2022, consisting of convertible preferred stock, warrants, stock options and restricted stock units.
3. Investments
Historically, we have invested our excess cash primarily in debt instruments of financial institutions, corporations, U.S. government-sponsored agencies and the U.S. Treasury. We generally hold our investments to maturity and do not sell our investments before we have recovered our amortized cost basis.
As of June 30, 2023, our cash balance was comprised entirely of cash and cash equivalents (money market funds) and there was no unrealized gain or loss in the period.
Unrealized
Maturity (in years)Amortized costGainsLossesEstimated fair value
As of December 31, 2022
U.S. Treasury securities1 or less$14,944 $ $(12)$14,932 
$14,944 $ $(12)$14,932 
4. Fair Value Measurements
We have certain financial assets recorded at fair value which have been classified as Level 1, 2, or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
Accounting standards define fair value 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 as of the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The accounting standards provide an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors that market participants would use in valuing the asset or liability. The accounting standards prioritize the inputs used in measuring the fair value into the following hierarchy:
 
Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.
10


Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including management’s own assumptions.

Financial Assets Measured at Fair Value
The following table presents our fair value hierarchy for assets measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 (in thousands):
 
 Fair value as of June 30, 2023
 TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$36,312 $36,312 $ $ 
$36,312 $36,312 $ $ 
 
 Fair value as of December 31, 2022
 TotalLevel 1Level 2Level 3
Cash equivalents and short-term investments:
Money market funds$21,490 $21,490 $ $ 
U.S. Treasury securities14,932 14,932   
$36,422 $36,422 $ $ 
We obtain pricing information from quoted market prices or quotes from brokers/dealers. We have historically determined the fair value of our investment securities using standard observable inputs, including reported trades, broker/dealer quotes, bids and/or offers.
5. Debt
Term Loan
On June 17, 2016, we entered into a loan and security agreement ("Loan Agreement") with Oxford Finance, LLC, (the Lender), pursuant to which we received $20.0 million in proceeds, net of debt issuance costs, on June 22, 2016 (the "Term Loan").
The outstanding Term Loan bore interest at a floating per annum rate equal to (i) 8.51% plus (ii) the greater of (a) the 30 day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (b) 0.44%. In June 2023, we entered into an amendment to the Loan Agreement (the “Rate Amendment”) pursuant to which, effective July 1, 2023, the Term Loan bears interest at a floating per annum rate equal to the greater of (a) 8.95% and (b) the sum of (i) the 1-month CME Term Secured Overnight Financing Rate ("SOFR") reference rate on the last business day of the month that immediately precedes the month in which the interest will accrue, (ii) 0.10% and (iii) 8.51%.

Under the original Loan Agreement, we were required to make interest-only payments through June 1, 2018, followed by 24 equal monthly payments of principal and unpaid accrued interest.

The Loan Agreement was amended ten times between October 2017 through August 2020. On December 31, 2021, we entered into an eleventh amendment to the Loan Agreement (the "Eleventh Amendment"). Under the terms of the Eleventh Amendment, the maturity date for the Term Loan was extended to May 1, 2024. In addition, under the Eleventh Amendment, our required monthly payments to the Lender were comprised of interest only through and including (i) December 1, 2022, if the 2022 Equity Event (as defined below) did not occur or (ii) December 1, 2023 if the 2022 Equity Event did occur. The “2022 Equity Event” meant the receipt by us, during the calendar year 2022, of unrestricted net cash proceeds of at least $20.0 million from the sale and issuance of our equity securities. The 2022 Equity Event did not occur.
11



The Eleventh Amendment also provides that we are required to maintain a minimum cash balance of $5.0 million. As consideration for the Lender’s entry into the Eleventh Amendment, we made a payment of $0.3 million to the Lender.

We used the proceeds from the Term Loan solely for working capital and to fund our general business requirements. Our obligations under the Loan Agreement are secured by a first priority security interest in substantially all of our current and future assets, other than our intellectual property, for which the Lender currently has a positive lien. We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreement. The Loan Agreement includes customary events of default, including instances of a material adverse change in our operations, that may require prepayment of the outstanding Term Loan. We are in compliance with all Loan Agreement covenants as of the date of the filing of this Form 10-Q.      
As of June 30, 2023, $3.0 million of principal was outstanding under the Term Loan. An additional $1.3 million is also payable at the conclusion of the Term Loan (the related $1.3 million accrued liability balance is presented in other current liabilities on our balance sheet at June 30, 2023). We had less than $0.1 million of debt issuance costs outstanding as of June 30, 2023, which are being accreted to interest expense over the life of the Term Loan using an effective interest rate of 8.98%. The exit fees are being accrued over the life of the Term Loan through interest expense.
As of June 30, 2023, future principal payments for the Term Loan due under the Loan Agreement are as follows (in thousands):
2023$1,652 
20241,377 
$3,029 
6. Stockholders’ Equity

Common Stock

As of June 30, 2023, there were 19,484,461 shares of common stock outstanding. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by our Board of Directors.

Reverse Stock Split

On June 24, 2022, we filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation with the Secretary of State of the state of Delaware to effect a 1-for-10 reverse stock split of our issued and outstanding common stock. The primary purpose of the reverse stock split was to raise the per share trading price of our common stock to seek to maintain the listing of our common stock on The Nasdaq Capital Market. At the effective time of the reverse stock split, 5:00 p.m. on June 28, 2022, each 10 shares of our issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. All of our stock options, RSUs and warrants outstanding immediately prior to the reverse stock split, as well as the conversion ratio of our outstanding convertible preferred stock, were proportionately adjusted. All issued and outstanding common stock, options exercisable for common stock, restricted stock units, common stock issuable upon conversion of outstanding convertible preferred stock, warrants and per share amounts contained in these financial statements have been retrospectively adjusted.

12


2019 Equity Incentive Plan

On June 15, 2019, the Company's board of directors approved, and on August 1, 2019 the Company's stockholders approved, the Company's 2019 Equity Incentive Plan (the "2019 Plan"). The 2019 Plan is the successor to and continuation of the Company's 2012 Equity Incentive Plan. The number of shares authorized for issuance under the 2019 Plan may be increased by (a) the shares subject to outstanding stock awards granted under the Company’s 2009 Equity Incentive Plan (the “2009 Plan”) and the Company’s 2012 Equity Incentive Plan (together with the 2009 Plan, the “Prior Plans”) that on or after the effective date of the 2019 Plan (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company, or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award. No further grants will be made under the Prior Plans. In addition, on January 22, 2020, an additional 416,686 shares of common stock became available for issuance under the 2019 Plan pursuant to the second closing under our May 2019 securities purchase agreement. Further, on January 1st of each year, for a period of not more than ten years, beginning on January 1, 2021 and continuing through January 1, 2029, the number of shares authorized for issuance under the 2019 Plan will increase by 5.0% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by our Board of Directors. In addition, on June 13, 2023, our stockholders approved an amendment to the 2019 Plan, which authorized an additional 5,000,000 shares of common stock available for issuance thereunder. As of June 30, 2023, 5,237,056 shares of common stock were available for new equity award grants under the 2019 Plan and 2,931,353 shares of common stock were reserved for issuance pursuant to equity awards outstanding under the 2019 Plan as of June 30, 2023.
2021 Inducement Plan

On November 23, 2021, our Board of Directors adopted the 2021 Inducement Plan (the “Inducement Plan”), which became effective immediately. Stockholder approval of the Inducement Plan was not required pursuant to Rule 5635I(4) of the Nasdaq Listing Rules. The Inducement Plan initially reserved 200,000 shares of common stock and provides for the grant of non-qualified stock options that was used exclusively for grants to individuals that were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company. The authorized number of shares available for grant under the Inducement Plan was subsequently increased in October 2022 to 540,000 shares in the aggregate.
Under the Inducement Plan, options are granted with varying vesting terms, but typically vested over four years, with 25% of the total grant vesting on the first anniversary of the effective date of the option grant and the remaining grant vesting monthly thereafter over the following 36 months.
As of June 30, 2023, 10,000 shares of common stock were reserved for future issuance under the Inducement Plan and 530,000 shares of common stock were reserved for future issuance pursuant to equity awards outstanding under the Inducement Plan.
2022 Employee Stock Purchase Plan

In June 2022, our stockholders approved and we adopted the 2022 Employee Stock Purchase Plan (the “2022 Purchase Plan”), which enables participants to contribute up to 15% of such participant’s eligible compensation during a defined rolling six-month periods to purchase our common stock. The purchase price of common stock under the 2022 Purchase Plan will be the lesser of: (i) 85% of the fair market value of our common stock at the inception of the enrollment period or (ii) 85% of the fair market value of our common stock at the applicable purchase date. The 2022 Purchase Plan supersedes the 2012 Employee Stock Purchase Plan, and no further offerings will be made under the 2012 Employee Stock Purchase Plan. As of June 30 2023, a maximum of 159,635 shares of our common stock were reserved for future issuance and have been authorized for purchase under the 2022 Purchase Plan.

13


2023 Private Placement of Common Stock and Non-Voting Preferred Stock

On April 13, 2023, we entered into a Securities Purchase Agreement (the “April 2023 SPA”) with certain institutional and other accredited investors (the “2023 Purchasers”), pursuant to which we agreed to sell and issue shares of our common stock and shares of our newly designated non-voting convertible preferred stock in a private placement transaction (the "2023 PIPE").

At the closing under the April 2023 SPA that occurred on April 13, 2023 (the “2023 Closing”), we sold and issued to the 2023 Purchasers (i) 2,615,536 shares of common stock at a purchase price of $0.9001 per share, and (ii) 140,827 shares of non-voting Class A-5 convertible preferred stock, in lieu of shares of common stock, at a price of $90.01 per share. Total gross proceeds from the 2023 Closing were approximately $15.0 million. Each share of non-voting Class A-5 convertible preferred stock is convertible into 100 shares of common stock, subject to certain beneficial ownership conversion limitations. An aggregate of 222,198 shares of common stock were purchased for $0.2 million by a director of the Company at the 2023 Closing.

We evaluated the non-voting Class A-5 convertible preferred stock sold in the 2023 PIPE under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, and determined permanent equity treatment was appropriate for these freestanding financial instruments and there were no embedded features that required bifurcation.
Additional Outstanding Non-Voting Preferred Stock and Warrants
In May 2019, we sold and issued (i) 973,045 shares of common stock (ii) 415,898 shares of non-voting Class A-1 convertible preferred stock and (iii) accompanying warrants to purchase an aggregate of 1,388,943 shares of common stock. Each share of non-voting Class A-1 convertible preferred stock is convertible into one share of common stock, subject to certain beneficial ownership conversion limitations. The warrants are exercisable for a period of five years following the date of issuance and have an exercise price of $10.80 per share, subject to proportional adjustments in the event of stock splits or combinations or similar events. The warrants are also exercisable on a net exercise "cashless" basis.
In December 2019, we sold and issued 3,288,390 shares of non-voting Class A-2 convertible preferred stock and accompanying warrants to purchase an aggregate of 3,288,390 shares of common stock. Each share of non-voting Class A-2 convertible preferred stock is convertible into one share of common stock, subject to certain beneficial ownership conversion limitations. The warrants will be exercisable for a period of five years following the date of issuance and have an exercise price of $6.66 per share, subject to proportional adjustments in the event of stock splits or combinations or similar events. The warrants are also exercisable on a net exercise “cashless” basis.
In December 2020, we sold and issued (i) 2,434,152 shares of common stock (ii) 272,970 shares of non-voting Class A-3 convertible preferred stock and (iii) accompanying warrants to purchase an aggregate of 2,030,341 shares of common stock. Each share of non-voting Class A-3 convertible preferred stock is convertible into one share of common stock, subject to certain beneficial ownership conversion limitations. The warrants are exercisable for a period of five years following the date of issuance and have an exercise price of $7.46 per share, subject to proportional adjustments in the event of stock splits or combinations or similar events. The warrants are also exercisable on a net exercise "cashless" basis.
In November 2021, we sold and issued (i) 5,892,335 shares of common stock and (ii) 3,725,720 shares of non-voting Class A-4 convertible preferred stock. Each share of non-voting Class A-4 convertible preferred stock is convertible into one share of common stock, subject to certain beneficial ownership conversion limitations.

14


ATM Offering

On December 12, 2018, we entered into a Common Stock Sales Agreement (the “Stock Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”), pursuant to which we may sell and issue shares of our common stock from time to time through HCW, as our sales agent (the “ATM Offering”). We have no obligation to sell any shares of common stock in the ATM Offering, and may, at any time suspend offers under the Stock Sales Agreement or terminate the Stock Sales Agreement. Subject to the terms and conditions of the Stock Sales Agreement, HCW will use its commercially reasonable efforts to sell shares of our common stock from time to time based upon our instructions (including any price, time or size limits or other parameters or conditions that we may impose, subject to certain restrictions). We pay HCW a commission of 3.0% of the gross sales price of any shares sold under the Stock Sales Agreement. On August 10, 2021, we increased the amount of common stock available for sale in the ATM Offering under the Stock Sales Agreement to $50.0 million.

A total of 9,192 shares were sold and settled for proceeds of less than $0.1 million under the ATM Offering during the three and six months ended June 30, 2023. No shares were sold under the ATM Offering during the six months ended June 30, 2022. At June 30, 2023, approximately $45.3 million remained eligible to be sold in the ATM Offering, subject to compliance with the rules applicable to sales on Form S-3.
Shares Reserved for Future Issuance
The following shares of common stock were reserved for future issuance as of June 30, 2023 (in thousands):
 
Class A-1 convertible preferred stock outstanding (as-converted)257 
Class A-2 convertible preferred stock outstanding (as-converted)1,331 
Class A-3 convertible preferred stock outstanding (as-converted)259 
Class A-4 convertible preferred stock outstanding (as-converted)3,726 
Class A-5 convertible preferred stock outstanding (as-converted)14,083 
Warrants to purchase common stock6,186 
Common stock options outstanding2,721 
RSUs outstanding210 
Common stock available for future grant under the 2019 Equity Incentive Plan5,237 
Common stock available for future grant under the 2021 Inducement Plan10 
2022 Employee Stock Purchase Plan160 
Total common shares reserved for future issuance34,180 
The following table summarizes our stock option and RSU (together, "Stock Awards") activity under all equity incentive plans for the six months ended June 30, 2023 (shares in thousands): 
Number of
options
Weighted
average
exercise
price
Number of
RSUs
Weighted average grant date fair value
Stock Awards outstanding at December 31, 20221,372 $7.53 70 $2.57 
Granted1,452 $1.46 210 $1.48 
Exercised (options) or Vested (RSUs) $  $ 
Canceled/forfeited/expired(103)$6.01 (70)$2.57 
Stock Awards outstanding at June 30, 20232,721 $4.34 210 $1.48 

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Stock-Based Compensation
The following table summarizes the weighted average assumptions used to estimate the fair value of stock options and performance stock awards granted to employees under our 2019 Equity Incentive Plan, 2021 Inducement Plan and the shares purchasable under our Employee Stock Purchase Plans during the periods presented:
 
 Three months ended
June 30,
Six months ended
June 30,
 2023202220232022
Stock options
    Risk-free interest rate4.1 %3.0 %3.8 %2.0 %
    Volatility96.7 %97.5 %96.6 %96.1 %
    Dividend yield     
    Expected term (years)6.16.16.16.1
Employee stock purchase plan shares
    Risk-free interest rate4.9 %0.8 %4.5 %0.5 %
    Volatility71.8 %98.4 %88.1 %96.1 %
    Dividend yield    
    Expected term (years)0.50.50.50.5
The following table summarizes the allocation of our stock-based compensation expense for all stock awards during the periods presented (in thousands): 
 Three months ended
June 30,
Six months ended
June 30,
 2023202220232022
Research and development$154 $100 $327 $370 
General and administrative228 321 465 1,055 
Total$382 $421 $792 $1,425 
7. Collaborations
Sanofi
In February 2014, we and Sanofi entered into a second amended and restated collaboration and license agreement (the “Sanofi Agreement”) to discover, develop and commercialize microRNA therapeutics to focus on specific orphan disease and oncology targets. Under the terms of the Sanofi Agreement, Sanofi had opt-in rights to our clinical fibrosis program targeting miR-21 for the treatment of Alport syndrome (which rights were relinquished by Sanofi in November 2018), our preclinical program targeting miR-21 for oncology indications, and our preclinical program targeting miR-221/222 for HCC. We were responsible for developing each of these programs to proof-of-concept, at which time Sanofi had an exclusive option on each program. We were eligible to receive royalties on microRNA therapeutic products commercialized by Sanofi and would have had have the right to co-promote these products relating to our preclinical program targeting miR-221/222.
On January 6, 2023, Sanofi delivered to us a written notice of Sanofi's election to terminate, in its entirety, the Sanofi Agreement. Previously, on July 12, 2022, we received notification from Sanofi of its decision to terminate the Phase 2 clinical study of lademirsen for the treatment of Alport syndrome for failure to meet Sanofi’s pre-defined futility criteria. In accordance with the Sanofi Agreement, the termination became effective on February 5, 2023, which was 30 days following the date of delivery of the notice by Sanofi. As of the effective date of the termination of the Sanofi Agreement, we are no longer eligible to receive any option exercise fees, royalties, or development, clinical, regulatory or commercial milestones from Sanofi.
8. Leases

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At the inception of a contractual arrangement, we determine whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. For operating leases with an initial term greater than 12 months, we recognize operating lease right of use assets ("ROU assets") and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease ROU assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when we are reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For our operating leases, we generally cannot determine the interest rate implicit in the lease, in which case we use our incremental borrowing rate as the discount rate for the lease. We estimate our incremental borrowing rate for our operating leases based on what we would normally pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. Leases with a lease term of 12 months or less at inception are not recorded on the unaudited condensed balance sheet. Instead, we recognize lease expense for these leases on a straight-line basis over the lease term. Our lease agreements do not contain any material variable lease payments, residual value guarantees or restrictive covenants. Certain leases require us to pay taxes, insurance, utilities, and maintenance costs for the building, which do not represent lease components. We elected to not separate lease and non-lease components.
On June 19, 2019, we entered into a lease agreement (the “Prior Lease”) with ARE SD Region No.44 LLC ("Landlord") for the lease of approximately 8,727 square feet of rentable area of the building located at 10628 Science Center Drive, Suite 225, San Diego, California 92121 (the “Prior Premises”). The commencement date of the Prior Lease was July 1, 2019 (the “Prior Commencement Date”). We used the Prior Premises as our principal executive offices and as a laboratory for research and development and other related uses. The term of the Prior Lease (the “Prior Initial Term”) was two years, six months, ending December 31, 2021. The base rent payments due for the Prior Premises were $0.4 million in 2020 and $0.4 million in 2021, net of certain rent abatement terms. We were also responsible for the payment of additional rent to cover our share of the annual operating expenses of the building, the annual tax expenses of the building and the annual utilities cost of the building.
On July 1, 2019, we recorded a $0.8 million lease liability for the Prior Lease, which was calculated as the present value of future lease payments to be made under the Prior Lease. A $0.6 million ROU asset was also recorded on July 1, 2019, which represents the difference between the lease liability and the remaining $0.2 million deferred credit for the reduction of the lease liability under the operating lease agreement with Landlord dated February 25, 2019.
On February 11, 2021, we entered into a lease agreement (the "Campus Point Lease") with ARE-SD Region No. 61, LLC (as successor in interest to ARE-SD Region No. 58, LLC) ("Campus Point Landlord"), for the lease of approximately 13,438 square feet of rentable area located at 4224 Campus Point Court, Suite 210, San Diego, California, 92121 (the "Campus Point Premises"). The commencement date of the Campus Point Lease was April 15, 2021. However, for accounting purposes the lease commencement date was February 11, 2021. We are using the Campus Point Premises as our principal executive offices and as a laboratory for research and development. The term of the Campus Point Lease (“Campus Point Initial Term”) is 60 months, ending April 30, 2026. The aggregate base rent due over the initial term of the Campus Point Lease is approximately $3.8 million. We are also responsible for the payment of additional amounts to cover our share of the annual operating expenses of the building, the annual tax expenses of the building and the utilities costs for the building. Under the Campus Point Lease, we are required to maintain a deposit of $61,591 in a specially designated bank account, which we recorded as restricted cash on our balance sheet at June 30, 2023 and December 31, 2022.

On February 11, 2021, concurrently with entry into the Campus Point Lease, we entered into an Assignment and Assumption of Lease (the “Assignment Agreement”) with Turning Point Therapeutics, Inc. (“Assignee”) and a Consent to Assignment (the "Consent") with Landlord. Pursuant to the Assignment Agreement, we assigned all rights, title, and interest under the Prior Lease to Assignee and delivered the Prior Premises to Assignee on April 22, 2021. Pursuant to the Assignment Agreement, Assignee paid us $60,000 in non-refundable assignment consideration. Additionally, the Consent stipulates that we were not required to pay a fee pursuant to the Prior Lease in connection with the assignment.

The execution of the Campus Point Lease, Consent, and Assignment Agreement resulted in a modification which was not accounted for as a separate contract. Rather, we accounted for the three contracts with Campus Point Landlord in combination, as they were entered into at the same time and negotiated as a package to achieve the same commercial objective. We accounted for a $0.2 million reduction in the lease liability for the Prior Lease as a deferred credit that is amortized as a reduction to rent expense over the term of the Campus Point Lease. A lease liability of less than $0.1 million and ROU asset of less than $0.1 million remained with respect to the Prior Lease and was fully amortized as of April 30, 2021. On February 11, 2021, we recorded a $3.2 million lease liability for the Campus Point Lease, which was calculated as the present value of future lease payments to be made under the Campus Point Lease. A $3.0 million ROU asset was also recorded on February 11, 2021, which represents the difference between the lease liability and the $0.2 million deferred credit for the reduction of the lease liability under the Prior Lease.

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Our future lease payments under operating leases at June 30, 2023 are as follows (in thousands):
Operating Leases
Remaining 2023$392 
2024800 
2025824 
2026277 
Total operating lease payments$2,293 
Less: amount representing interest
(191)
Present value of obligations under operating leases2,102 
Less: current portion
(681)
Long-term operating lease obligations$1,421 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The interim unaudited condensed financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or Annual Report, filed with the Securities and Exchange Commission on March 23, 2023. Past operating results are not necessarily indicative of results that may occur in future periods.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” in this quarterly report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. These statements, which represent our current expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. Such statements may include, but are not limited to, statements concerning the following:
 
the initiation, cost, timing, progress and results of, and our expected ability to undertake certain activities and accomplish certain goals with respect to our research and development activities, preclinical studies and clinical trials;
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;
our ability to obtain funding for our operations;
our plans to research, develop and commercialize our product candidates;
our ability to attract collaborators with relevant development, regulatory and commercialization expertise;
future activities to be undertaken by any third parties with whom we collaborate or otherwise contract;
our ability to obtain and maintain intellectual property protection for our product candidates;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
our ability to successfully commercialize, and our expectations regarding future therapeutic and commercial potential with respect to our product candidates;
the rate and degree of market acceptance of our product candidates;
our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;
regulatory developments in the United States and foreign countries;
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the performance of our third-party suppliers and manufacturers;
the success of competing therapies that are or may become available;
the loss of key scientific or management personnel;
our ability to successfully secure and deploy capital;
our ability to satisfy our debt obligations;
the accuracy of our estimates regarding future expenses, future revenues, capital requirements and need for additional financing;
the potential impact of COVID-19 on our business; and
the risks and other forward-looking statements described under the caption “Risk Factors” under Part II, Item 1A of this quarterly report on Form 10-Q.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
OVERVIEW

We are a clinical-stage biopharmaceutical company focused on discovering and developing first-in-class drugs targeting microRNAs to treat diseases with significant unmet medical need. We were formed in 2007 when Alnylam Pharmaceuticals, Inc. ("Alnylam") and Ionis Pharmaceuticals, Inc. ("Ionis") contributed significant intellectual property, know-how and financial and human capital to pursue the development of drugs targeting microRNAs pursuant to a license and collaboration agreement. We are currently focused on orphan kidney diseases where microRNA genetic drivers are implicated and there are clear unmet medical needs. Our product candidate, RGLS8429, an anti-miR next generation oligonucleotide targeting miR-17 for the treatment of autosomal dominant polycystic kidney disease ("ADPKD"), is in Phase 1b clinical development. In June 2022, the U.S. Food and Drug Administration ("FDA") granted orphan drug designation to RGLS8429 for the treatment of ADPKD.

In addition to this program, we continue to research other preclinical drug product candidates to develop a pipeline.
microRNAs are naturally occurring ribonucleic acid ("RNA") molecules that play a critical role in regulating key biological pathways. Scientific research has shown that an imbalance, or dysregulation, of microRNAs is directly linked to many diseases. Furthermore, many different infectious pathogens interact and bind to host microRNA to survive. To date, over 500 microRNAs have been identified in humans, each of which can bind to multiple messenger RNAs that control key aspects of cell biology. Since many diseases are multi-factorial, involving multiple targets and pathways, the ability to modulate multiple pathways by targeting a single microRNA provides a new therapeutic approach for treating complex diseases.
RNA plays an essential role in the process used by cells to encode and translate genetic information from deoxyribonucleic acid ("DNA") to proteins. RNA is comprised of subunits called nucleotides and is synthesized from a DNA template by a process known as transcription. Transcription generates different types of RNA, including messenger RNAs that carry the information for proteins in the sequence of their nucleotides. In contrast, microRNAs are RNAs that do not code for proteins but rather are responsible for regulating gene expression by modulating the translation and decay of target messenger RNAs. By interacting with many messenger RNAs, a single microRNA can regulate the expression of multiple genes involved in the normal function of a biological pathway. Many pathogens, including viruses, bacteria and parasites, also use host microRNAs to regulate the cellular environment for survival. In some instances, the host microRNAs are essential for the replication and/or survival of the pathogen.
We believe that microRNA therapeutics have the potential to become a new and major class of drugs with broad therapeutic application for the following reasons:

microRNAs play a critical role in regulating biological pathways by controlling the translation of many target genes;
microRNA therapeutics regulate disease pathways which may result in more effective treatment of complex multi-factorial diseases;
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many human pathogens, including viruses, bacteria and parasites, use microRNAs (host and pathogen encoded) to enable their replication and suppression of host immune responses; and
microRNA therapeutics may be synergistic with other therapies because of their different mechanism of action.
We have assembled significant expertise in the microRNA field, including expertise in microRNA biology and oligonucleotide chemistry, a broad intellectual property estate, relationships with key opinion leaders and a disciplined drug discovery and development process. We are using our microRNA expertise to develop chemically modified, single-stranded oligonucleotides that we call anti-miRs to modulate microRNAs and address underlying disease. We believe microRNAs may play a critical role in complex disease and that targeting them with anti-miRs may become a source of a new and major class of drugs with broad therapeutic application, much like small molecules, biologics and monoclonal antibodies.
Since our inception through June 30, 2023, we have received $435.0 million from the sale of our equity and convertible debt securities, $101.8 million from collaborations, principally from upfront payments, research funding and preclinical and clinical milestones, and $19.8 million in net proceeds from our Term Loan. As of June 30, 2023, we had cash and cash equivalents of $37.3 million.
Product Candidate

RGLS8429: RGLS8429 is an anti-miR next-generation oligonucleotide targeting miR-17 for the treatment of ADPKD. RGLS8429 maintains beneficial attributes, such as preferential kidney exposure and similar PK profile, miR-17 inhibition potency and duration of action in the kidney, equal potency in in vitro and in vivo efficacy studies; without the off-target effects observed in our first-generation compound. Additionally, in IND-enabling 13-week toxicity studies, RGLS8429 was well tolerated at dose levels higher than those that resulted in off-target central nervous system effects in the chronic toxicity studies of the first generation compound.

In May 2022, the FDA accepted our IND for RGLS8429 for the treatment of ADPKD. The Phase 1 single-ascending dose ("SAD") study in healthy volunteers to assess safety, tolerability and PK of RGLS8429 has been completed. RGLS8429 was well-tolerated with no serious adverse events reported, and plasma exposure was approximately linear across the four doses tested and is similar to the PK data from the first-generation compound. Enrollment is ongoing in our Phase 1b multiple-ascending dose double-blind, placebo-controlled study (“MAD”) in adult patients with ADPKD to assess safety, tolerability and PK of RGLS8429, and to evaluate the efficacy of RGLS8429 treatment across three different dose levels, including changes in polycystins, cystic kidney volume (htTKV), and overall kidney function. The first cohort is being dosed at 1 mg/kg of RGLS8429 or placebo every other week for three months. In April 2023, we announced we had completed enrollment of the first cohort of 12 patients. Top-line data from the first cohort of RGLS8429-treated ADPKD patients are expected around the end of the third quarter of 2023. No issues were identified in the first cohort based on the review of all available blinded safety data, clearing the way to advancement to the second cohort. The safety review incorporated available data from all 12 patients in the first cohort, including several who had completed the dosing schedule. We commenced dosing in the second cohort of patients in June 2023. The second cohort is being dosed at 2 mg/kg of RGLS8429 or placebo every other week for three months. We also completed the 27-week chronic mouse toxicity study for RGLS8429. No RGLS8429-related toxicity, including CNS effects, was observed at any dose level up to the top dose of 300 mg/kg administered every other week.

Preclinical Pipeline

A major focus of our preclinical research has historically targeted dysregulated microRNAs implicated in diseases of high unmet medical need where we know we can effectively deliver to the target tissue or organ, such as the liver, kidney and central nervous system ("CNS"). Furthermore, we are investigating the potential for target organ-selective delivery strategies.
FINANCIAL OPERATIONS OVERVIEW
Research and development expenses
Research and development expenses consist of costs associated with our research activities, including our drug discovery efforts and the development of our therapeutic programs. Our research and development expenses include:
 
employee-related expenses, including salaries, benefits, travel and stock-based compensation;
external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, contract manufacturing organizations, or CMOs, other clinical trial related vendors, consultants and our scientific advisors;
license fees; and
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facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, amortization of leasehold improvements and equipment, and laboratory and other supplies.
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. Certain of the raw materials used in the process of manufacturing drug product are capitalized upon their acquisition and expensed upon usage, as we have determined these materials have alternative future use.
To date, we have conducted research on many different microRNAs with the goal of understanding how they function and identifying those that might be targets for therapeutic modulation. At any given time we are working on multiple targets, primarily within our therapeutic areas of focus. Our organization is structured to allow the rapid deployment and shifting of resources to focus on the most promising targets based on our ongoing research. As a result, in the early phase of our development programs, our research and development costs are not tied to any specific target. However, we are currently spending the vast majority of our research and development resources on our ADPKD program.
Since our inception, we have incurred a total of approximately $419.5 million in research and development expenses through June 30, 2023.
The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming. We, or any future strategic collaboration partners, may never succeed in achieving marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including preclinical data, clinical data, regulatory developments, competition, manufacturing capability and commercial viability.
Successful development of future product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new collaborations with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, as well as ongoing assessments as to each future product candidate’s commercial potential. We will need to raise additional capital and may seek additional collaborations in the future in order to advance our various programs.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses and professional fees for auditing, tax, intellectual property, legal services and director and officer insurance programs and investor relations costs, some of which are incurred as a result of being a publicly-traded company.
Other income (expense), net
Other income (expense) consists primarily of interest income and expense and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds. Interest expense is primarily attributable to interest charges associated with borrowings under our secured Term Loan.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no significant changes to our critical accounting policies since December 31, 2022. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our financial statements, refer to Item 7 in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our financial statements contained in our Annual Report and Note 1 to our condensed financial statements contained in this quarterly report on Form 10-Q.
RESULTS OF OPERATIONS
Comparison of the three and six months ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands):    
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 Three months ended
June 30,
Six months ended
June 30,
 2023202220232022
Research and development expenses4,976 4,708 9,901 8,387 
General and administrative expenses2,339 2,467 4,783 5,357 
Interest and other income (expenses), net303 (83)533 (232)
Research and development expenses
The following tables summarize the components of our research and development expenses for the periods indicated, together with year-over-year changes (dollars in thousands):
Increase (decrease)
Three months ended June 30, 2023% of totalThree months ended June 30, 2022% of total$%
Research and development
     Personnel and internal expenses$2,093 42 %$1,798 38 %$295 16 %
     Third-party and outsourced expenses2,702 54 %2,786 59 %(84)(3)%
Non-cash stock-based compensation154 %99 %55 56 %
Depreciation27 %25 %%
Total research and development expenses$4,976 100 %$4,708 100 %$268 %
Increase (decrease)
Six months ended June 30, 2023% of totalSix months ended June 30, 2022% of total$%
Research and development
     Personnel and internal expenses$4,268 43 %$3,512 42 %$756 22 %
     Third-party and outsourced expenses5,253 53 %4,461 53 %792 18 %
Non-cash stock-based compensation327 %369 %(42)(11)%
Depreciation53 %45 %18 %
Total research and development expenses$9,901 100 %$8,387 100 %$1,514 18 %
Research and development expenses were $5.0 million and $9.9 million for the three and six months ended June 30, 2023, respectively, compared to $4.7 million and $8.4 million for the three and six months ended June 30, 2022, respectively. These amounts reflect the internal and external costs associated with advancing our clinical and preclinical pipeline. The aggregate increase for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily attributable to increases in internal and external research and development expenses, which were driven by increases in spend on activities for our RGLS8429 program as we continue to enroll and dose patients in our RGLS8429 Phase 1b MAD study.
General and administrative expenses
General and administrative expenses were $2.3 million and $4.8 million for the three and six months ended June 30, 2023, respectively, compared to $2.5 million and $5.4 million for the three and six months ended June 30, 2022, respectively. The decrease for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily attributable to a decrease in non-cash stock-based compensation.
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Interest and other income (expenses), net
Net interest and other income was $0.3 million and $0.5 million for the three and six months ended June 30, 2023, respectively, compared to net interest and other expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively. The amounts for the three and six months ended June 30, 2023 and 2022 primarily consisted of interest earned on our cash equivalents and short-term investments, offset by interest charges associated with our outstanding Term Loan.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2023, we had cash and cash equivalents of $37.3 million.
The accompanying financial statements have been prepared on a basis which assumes we are a going concern, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to our ability to continue as a going concern.

If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. To fund our operations in both the near term and long term (beyond 12 months), we will need to raise additional capital to develop our product candidates and implement our operating plans. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders. We believe our existing resources will fund our planned operations and expenditures into mid-2024. These factors raise substantial doubt about our ability to continue as a going concern.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
the initiation, progress, timing and completion of preclinical studies and clinical trials for our development programs and product candidates, and associated costs;
the number and characteristics of product candidates that we pursue;
the terms and timing of any strategic collaboration, licensing and other arrangements that we may establish;
the outcome, timing and cost of regulatory approvals;
delays that may be caused by changing regulatory requirements;
the cost and timing of hiring new employees to support our continued growth;
the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
the costs and timing of procuring clinical and commercial supplies of our product candidates;
the costs and timing of establishing sales, marketing and distribution capabilities, and the pricing and reimbursement for any products for which we may receive regulatory approval;
the extent to which we acquire or invest in businesses, products or technologies; and
payments under our Term Loan.
To date, we have funded our operations primarily through the sale of equity, and to a lesser extent, through convertible debt, up-front payments, research funding and milestone payments under collaborative arrangements. Since inception, we have primarily devoted our resources to funding research and development, including discovery research, and preclinical and clinical development activities. To fund future operations, we will likely need to raise additional capital. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot make assurances that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future. The global credit and financial markets have experienced extreme volatility, including in liquidity and credit availability, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

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The following table shows a summary of our cash flows for the six months ended June 30, 2023 and 2022 (in thousands):
 Six months ended
June 30,
 20232022
 (unaudited)
Net cash (used in) provided by:
Operating activities$(14,366)$(12,540)
Investing activities14,999 (12,726)
Financing activities12,402 
Total$13,035 $(25,264)
Operating activities
Net cash used in operating activities was $14.4 million for the six months ended June 30, 2023, compared to $12.5 million for the six months ended June 30, 2022. The increase in net cash used in operating activities was primarily attributable to a $1.0 million change in working capital for the six months ended June 30, 2023, as compared to the same period in 2022, and a $0.6 million decrease in adjustments for non-cash charges, including stock-based compensation, for the six months ended June 30, 2023, as compared to the same period in 2022.
Investing activities
Net cash provided by investing activities was $15.0 million for the six months ended June 30, 2023, compared to net cash used in investing activities of $12.7 million for the six months ended June 30, 2022. The net cash provided by investing activities for the six months ended June 30, 2023 was attributable to the sales of $15.0 million of short-term investments (U.S. Treasury securities).
Financing activities
Net cash provided by financing activities was $12.4 million for the six months ended June 30, 2023, compared to net cash provided by financing activities of less than $0.1 million for the six months ended June 30, 2022. Net cash provided by financing activities for the six months ended June 30, 2023 was primarily attributable to total net proceeds received from our private placement of common stock and non-voting convertible preferred stock in April 2023 of $14.0 million, partially offset by principal payments made on our Term Loan.
MATERIAL CASH REQUIREMENTS

As of June 30, 2023, there have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations or in our material cash requirements from those disclosed under the subheading Material Cash Requirements in our Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Some of the securities that we invest in have market risk where a change in prevailing interest rates may cause the principal amount of short-term investments to fluctuate. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. We invest our excess cash primarily in money market funds and U.S. Treasury securities. The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the interest income we receive from our investments without significantly increasing risk. We have established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.
Because of the short-term maturities of our cash equivalents and short-term investments, we do not believe that an increase in market rates would have any significant impact on the realized value of our cash equivalents and short-term investments. If a 10% change in interest rates were to have occurred on June 30, 2023, this change would not have had a material effect on the fair value of our cash equivalents as of that date.
We also have interest rate exposure as a result of our outstanding Term Loan. As of June 30, 2023, the outstanding principal amount of the Term Loan was $3.0 million. The Term Loan bore interest at a floating per annum rate equal to (i) 8.51% plus (ii) the greater of (a) the 30 day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (b) 0.44%.

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In June 2023, we entered into an amendment to the Loan Agreement (the “Rate Amendment”) pursuant to which, effective July 1, 2023, the Term Loan bears interest at a floating per annum rate equal to the greater of (a) 8.95% and (b) the sum of (i) the 1-month CME Term Secured Overnight Financing Rate (SOFR) reference rate on the last business day of the month that immediately precedes the month in which the interest will accrue, (ii) 0.10% and (iii) 8.51%.
If a 10% change in interest rates were to have occurred on June 30, 2023, this change would not have had a material effect on our interest expense as of that date.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our periodic and current reports that we file with the SEC 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 our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As of June 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. An evaluation was also performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

We currently are not a party to, and none of our property is the subject of, any material legal proceedings within the meaning of Item 103 of Regulation S-K promulgated under the Securities Act of 1933, as amended.
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ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all the factors described when evaluating our business. The risk factors set forth below that are marked with an asterisk (*) were not included as a separate risk factor in, or contain changes to the similarly titled risk factors included in, Item 1A of our Annual Report. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline.
RISKS RELATED TO OUR FINANCIAL CONDITION AND NEED FOR ADDITIONAL CAPITAL

Our need for additional capital raises substantial doubt about our ability to continue as a going concern. We will need to raise additional capital to develop our product candidates and implement our operating plans, and if we are unable to do so when needed, we will not be able to complete the development and commercialization of our product candidates.*

This Form 10-Q includes disclosures regarding management’s assessment of our ability to continue as a going concern as our current liquidity position and recurring losses from operations since inception and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern. As of June 30, 2023, we had approximately $37.3 million of cash and cash equivalents, and we had $4.3 million of outstanding debt obligations (which includes $3.0 million of outstanding principal and $1.3 million of final payment and loan amendment fees) under our Term Loan with the Lender, which we borrowed under the Loan Agreement. In April 2023, we raised approximately $14.0 million in net proceeds from the sale of our common stock and non-voting convertible preferred stock in a private placement financing. We believe our existing resources will be sufficient to fund our planned operations and expenditures into mid-2024. We will need to raise additional capital to fund our operations and service our debt obligations, and if we are unable to raise additional capital when needed, we will not be able to continue as a going concern.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidates towards or through clinical trials. We will need to raise additional capital to fund our operations and such funding may not be available to us on acceptable terms, or at all.

For the foreseeable future, we expect to rely primarily on equity and/or debt financings to fund our operations. The current volatility in the equity markets may create additional challenges to raising sufficient additional capital through an equity or equity-linked financing in the near term. Raising additional capital through the sale of securities could cause significant dilution to our stockholders.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Our ability to raise additional funds will depend, in part, on the success of our preclinical studies and clinical trials and other product development activities, regulatory events, our ability to identify and enter into licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. There can be no assurances that sufficient funds will be available to us when required or on acceptable terms, if at all.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

significantly delay, scale back or discontinue the development or commercialization of any future product candidates;
seek collaborations, or amend existing collaborations, for research and development programs at an earlier stage than otherwise would be desirable or for the development of programs that we otherwise would have sought to develop independently, or on terms that are less favorable than might otherwise be available;
dispose of technology assets, or relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize ourselves;
pursue the sale of our company to a third party at a price that may result in a loss on investment for our stockholders; or
file for bankruptcy or cease operations altogether.
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Any of these events could have a material adverse effect on our business, operating results and prospects.
Payments under the instruments governing our indebtedness may reduce our working capital. In addition, a default under our loan and security agreement could cause a material adverse effect on our financial position.*
In June 2016, we entered into a Loan Agreement with the Lender. Under the terms of the Loan Agreement, the Lender provided us with a $20.0 million Term Loan. Our obligations under the Loan Agreement are secured by a first priority security interest in substantially all of our current and future assets, except for the assets that were licensed, assigned and transferred to Sanofi pursuant to the 2018 Sanofi Amendment that modify the parties’ rights and obligations with respect to our miR-21 programs, including our RG-012 program. We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreement. Our required monthly payments to the Lender were comprised of interest only through and including the payment made in December 2022. We resumed making principal payments in January 2023. Under the terms of the Loan Agreement, we are required to maintain a cash balance of no less than $5.0 million. We are in compliance with all Loan Agreement covenants as of the date of the filing of this Form 10-Q.
Amounts outstanding under the Term Loan mature on May 1, 2024.
The Loan Agreement requires us, and any debt arrangements we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:
dispose of assets;
complete mergers or acquisitions;
incur indebtedness;
encumber assets;
pay dividends or make other distributions to holders of our capital stock;
make specified investments; and
engage in transactions with our affiliates.

These restrictions could inhibit our ability to pursue our business strategies. If we default under our obligations under the Loan Agreement, including as a result of a "material adverse change," the lender could proceed against the collateral granted to it to secure our indebtedness or declare all obligation under the Loan Agreement to be due and payable. The definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the Term Loan, a material adverse change in our business, operations, or condition (financial or otherwise), and a material impairment of the prospect of repayment of any portion of the Term Loan. Moreover, the determination by the lender as to whether a “material adverse change” has occurred is not within our control. In certain circumstances, procedures by the lenders could result in a loss by us of all of our equipment and inventory, which are included in the collateral granted to the lenders. If any indebtedness under the Loan Agreement were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness. In addition, upon any distribution of assets pursuant to any liquidation, insolvency, dissolution, reorganization or similar proceeding, the holders of secured indebtedness will be entitled to receive payment in full from the proceeds of the collateral securing our secured indebtedness before the holders of other indebtedness or our common stock will be entitled to receive any distribution with respect thereto.
We may incur additional indebtedness in the future. The debt instruments governing such indebtedness may contain provisions that are as, or more, restrictive than the provisions governing our existing indebtedness under the Loan Agreement. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against the collateral or force us into bankruptcy or liquidation.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.*
Since inception, our operations have been primarily limited to acquiring and in-licensing intellectual property rights, developing our microRNA product platform, undertaking basic research around microRNA targets and conducting preclinical and clinical studies for our initial programs. We have not yet obtained regulatory approval for any product candidates. Consequently, any predictions about our future success or viability, or any evaluation of our business and prospects, may not be accurate.
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We have incurred losses in each year since our inception in September 2007. Our net loss was $7.0 million and $14.2 million for the three and six months ended June 30, 2023, respectively, compared to $7.3 million and $14.0 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $497.3 million.

We have devoted most of our financial resources to research and development, including our preclinical and clinical development activities. To date, we have financed our operations primarily through the sale of equity securities and convertible debt, through our Term Loan and from revenue received from our former collaboration partners.
The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to obtain funding through equity or debt financings, collaborations or grants. We initiated clinical development of RGLS8429 in the second quarter of 2022. Even if we or a future collaboration partner successfully obtains regulatory approval to market a product candidate, our revenues will also depend upon the size of any markets in which our product candidates have received market approval, and our ability to achieve sufficient market acceptance and adequate market share for our products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we: continue our research and preclinical and clinical development of our product candidates, both independently and under any future collaboration agreements; seek to identify additional microRNA targets and product candidates; acquire or in-license other products and technologies; continue with clinical development of our product candidates; seek marketing approvals for our product candidates that successfully complete clinical trials; ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; maintain, expand and protect our intellectual property portfolio; hire additional clinical, regulatory, research and administrative personnel; and create additional infrastructure to support our operations and our product development and planned future commercialization efforts.
We have never generated any revenue from product sales and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaboration partners, to successfully complete the development of, obtain the necessary regulatory approvals for and commercialize product candidates. We do not anticipate generating revenues from sales of products for the foreseeable future, if ever. Our ability to generate future revenues from product sales depends heavily on our success in:

identifying and validating new microRNAs as therapeutic targets;
completing our research and preclinical development of product candidates;
initiating and completing clinical trials for product candidates;
seeking and obtaining marketing approvals for product candidates that successfully complete clinical trials;
establishing and maintaining supply and manufacturing relationships with third parties;
launching and commercializing product candidates for which we obtain marketing approval, with a collaboration partner or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;
maintaining, protecting and expanding our intellectual property portfolio; and
attracting, hiring and retaining qualified personnel.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the FDA or foreign regulatory agencies to perform studies and trials in addition to those that we currently anticipate.
Even if one or more of the product candidates that we independently develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
RISKS RELATED TO THE DISCOVERY AND DEVELOPMENT OF PRODUCT CANDIDATES
The approach we are taking to discover and develop drugs is novel and may never lead to marketable products.
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We have concentrated our therapeutic product research and development efforts on microRNA technology, and our future success depends on the successful development of this technology and products based on our microRNA product platform. Neither we, nor any other company, has received regulatory approval to market therapeutics targeting microRNAs. The scientific discoveries that form the basis for our efforts to discover and develop product candidates are relatively new. The scientific evidence to support the feasibility of developing product candidates based on these discoveries is both preliminary and limited. If we do not successfully develop and commercialize product candidates based upon our technological approach, we may not become profitable and the value of our common stock may decline.
Further, our focus solely on microRNA technology for developing drugs as opposed to multiple, more proven technologies for drug development increases the risks associated with the ownership of our common stock. If we are not successful in developing any product candidates using microRNA technology, we may be required to change the scope and direction of our product development activities. In that case, we may not be able to identify and implement successfully an alternative product development strategy.
We may not be successful in our efforts to identify or discover potential product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize microRNA therapeutics. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:
our research methodology or that of any future collaboration partner may be unsuccessful in identifying potential product candidates;
potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval; or
any future collaboration partners may change their development profiles for potential product candidates or abandon a therapeutic area.    
                                                
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful results from our preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our business may be materially harmed.
We have invested a significant portion of our efforts and financial resources in the identification and development of product candidates that target microRNAs. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates.
The success of our product candidates will depend on several factors, including the following:

successfully designing preclinical studies which may be predictive of clinical outcomes;
successful results from preclinical and clinical studies;
receipt of marketing approvals from applicable regulatory authorities;
obtaining and maintaining patent and trade secret protection for future product candidates;
establishing and maintaining manufacturing relationships with third parties or establishing our own manufacturing capability; and
successfully commercializing our products, if and when approved, whether alone or in collaboration with others.

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If we do not, or any future collaboration partners do not, achieve one or more of these factors in a timely manner or at all, we or any future collaboration partners could experience significant delays or an inability to successfully complete the development of, or commercialize, our product candidates, which would materially harm our business. For example, in July 2022, we received notification from Sanofi of its decision to terminate the HERA trial of RG-012 for failure to meet Sanofi’s pre-defined futility criteria. In January 2023, we received notification from Sanofi of its decision to terminate the collaboration in its entirety. Preclinical studies, even if successful, may not lead to successful clinical trials and results in early-stage clinical trials may not be predictive of successful results in later stage clinical trials.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.*
Before obtaining marketing approval from regulatory authorities for the sale of product candidates, we or a collaboration partner must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.
Events which may result in a delay or unsuccessful completion of clinical development include:

delays in reaching an agreement with the FDA or other regulatory authorities on final trial design;
imposition of a clinical hold of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
our inability to adhere to clinical trial requirements directly or with third parties such as CROs;
delays in obtaining required institutional review board approval at each clinical trial site;
delays in recruiting suitable patients to participate in a trial;
delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
delays caused by patients dropping out of a trial due to protocol procedures or requirements, product side effects or disease progression;
clinical sites dropping out of a trial to the detriment of enrollment;
time required to add new clinical sites; or
delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

For example, in July 2018, we voluntarily paused our Phase 1 MAD clinical trial for RGLS4326 due to unexpected observations in our 27-week mouse chronic toxicity study, which was designed to support the Phase 2 proof-of-concept clinical trial in ADPKD previously planned to start in mid-2019. The observations in the mouse chronic toxicity study were unexpected, given the favorable safety profile of RGLS4326 in previous non-GLP and GLP toxicity studies at the same or similar doses supporting the IND and Phase 1 clinical trial. In July 2019, the FDA notified us of additional nonclinical data requirements and placed the IND on a partial clinical hold, formalizing the specific requirements to initiate the MAD study and further proceed into chronic dosing. In October 2021, we announced we would discontinue development of RGLS4326 and would instead prioritize RGLS8429, targeting miR-17. We may be incorrect in our expectation that the development work for RGLS4326 will benefit the development of RGLS8429.

Additionally, in July 2022, we received notification from Sanofi of its decision to terminate the HERA trial of RG-012 for failure to meet Sanofi’s pre-defined futility criteria. In January 2023, we received notification from Sanofi of its decision to terminate the collaboration in its entirety.

In addition, enrollment and retention of patients in clinical trials could be disrupted by man-made or natural disasters, public health pandemics or epidemics or other business interruptions, including COVID-19. COVID-19 has impacted, and may continue to impact, our future clinical activities and/or the activities of our partnered programs.
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If we or any future collaboration partners are required to conduct additional clinical trials or other testing of any product candidates beyond those that are originally contemplated, are unable to successfully complete clinical trials of any such product candidates or other testing, or if the results of these trials or tests are not positive or are only moderately positive or if there are safety concerns, we or any future collaboration partners may:

be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as originally intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
be subject to additional post-marketing testing requirements; or
have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. Any inability to successfully complete preclinical and clinical development, whether independently or with a collaboration partner, could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties.
Any of our product candidates may cause adverse effects ("AEs") or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
AEs caused by our product candidates could cause us, other reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. Certain oligonucleotide therapeutics have shown injection site reactions and pro-inflammatory effects and may also lead to impairment of kidney or liver function. There is a risk that our future product candidates may induce similar AEs.
If AEs are observed in any clinical trials of our product candidates, including those that a future collaboration partner may develop under an agreement with us, our or any future collaboration partners’ ability to obtain regulatory approval for product candidates may be negatively impacted.
Further, if any of our future products, if and when approved for commercial sale, cause serious or unexpected side effects, a number of potentially significant negative consequences could result, including:

regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy;
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
we may be required to change the way the product is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to patients; or
our reputation may suffer.
Any of these events could prevent us or any future collaboration partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our future products and impair our ability to generate revenues from the commercialization of these products either on our own or with a collaboration partner.
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Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue from a future product.
Neither we nor any collaboration partner can commercialize a product until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee recommends restrictions on approval or recommends non-approval. In addition, we or a collaboration partner may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.
Even if we obtain regulatory approval for a product candidate, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, drug product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP and adherence to commitments made in the NDA. If we or a regulatory agency discovers previously unknown problems with a product such as AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If we or a future collaboration partner fails to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory agency may:

issue a warning letter asserting that we are in violation of the law;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve a pending NDA or supplements to an NDA submitted by us;
seize product; or
refuse to allow us to enter into supply contracts, including government contracts.
Moreover, the FDA closely regulates the marketing, labeling, advertising and promotion of pharmaceutical products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. Companies may also share truthful and not misleading information that is otherwise consistent with the labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in significant civil, criminal and administrative penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA made in the physician’s independent medical judgement. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our future products and generate revenues.
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We may not be successful in obtaining or maintaining necessary rights to microRNA targets, drug compounds and processes for our development pipeline through acquisitions and in-licenses.
Presently, we have rights to the intellectual property, through licenses from third parties and under patents that we own, to modulate only a subset of the known microRNA targets. Because our programs may involve a range of microRNA targets, including targets that require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
For example, we may collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation for intellectual property, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.    
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and human resources, we may have to pursue collaboration agreements for the development and commercialization of our programs and potential product candidates in indications with potentially large commercial markets, while focusing our internal development resources and any internal sales and marketing organization that we may establish on research programs and product candidates for selected smaller markets, such as orphan diseases. As a result, we may forego or delay pursuit of opportunities with other programs or product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
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Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
RISKS RELATED TO OUR RELIANCE ON THIRD PARTIES
We may depend upon collaborations for the development and eventual commercialization of certain microRNA product candidates. If these collaborations are unsuccessful or are terminated, we may be unable to commercialize certain product candidates and we may be unable to generate revenues from our development programs.

We may depend upon third party collaboration partners for financial and scientific resources for the clinical development and commercialization of certain of our microRNA product candidates. These collaborations will likely provide us with limited control over the course of development of a microRNA product candidate, especially once a candidate has reached the stage of clinical development.
Our ability to recognize revenues from successful collaborations may be impaired by several factors including:

a collaboration partner may shift its priorities and resources away from our programs due to a change in business strategies, or a merger, acquisition, sale or downsizing of its company or business unit;
a collaboration partner may cease development in therapeutic areas which are the subject of the collaboration;
a collaboration partner may change the success criteria for a particular program or potential product candidate thereby delaying or ceasing development of such program or candidate;
a significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;
a collaboration partner could develop a product that competes, either directly or indirectly, with a collaboration product;
a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;
a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;
a collaboration partner may exercise its rights under the agreement to terminate the collaboration;
a dispute may arise between us and a collaboration partner concerning the research, development or commercialization of a program or product candidate resulting in a delay in milestones, royalty payments or termination of a program and possibly resulting in costly litigation or arbitration which may divert management attention and resources; and
a collaboration partner may use our proprietary information or intellectual property in such a way as to invite litigation from a third party or fail to maintain or prosecute intellectual property rights such that our rights in such property are jeopardized.
We rely on third parties to conduct some aspects of our compound formulation, research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such formulation, research or testing.
We do not expect to independently conduct all aspects of our drug discovery activities, compound formulation research or preclinical studies of product candidates. We currently rely and expect to continue to rely on third parties to conduct some aspects of our preclinical studies and formulation development.
Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, for product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our IND-enabling studies and clinical trials are conducted in accordance with the study plan and protocols for the trial.
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If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the necessary preclinical studies to enable us or any future collaboration partners to select viable product candidates for IND submissions and will not be able to, or may be delayed in our efforts to, successfully develop and commercialize such product candidates.
We rely on third-party manufacturers to produce our preclinical and clinical product candidates, and we intend to rely on third parties to produce future clinical supplies of product candidates that we advance into clinical trials and commercial supplies of any approved product candidates.
Reliance on third-party manufacturers entails risks, including risks that we would not be subject to if we manufactured the product candidates ourselves, including:

the inability to meet any product specifications and quality requirements consistently;
a delay or inability to procure or expand sufficient manufacturing capacity;
manufacturing and product quality issues related to scale-up of manufacturing;
costs and validation of new equipment and facilities required for scale-up;
a failure to comply with cGMP and similar foreign standards;
the inability to negotiate manufacturing or supply agreements with third parties under commercially reasonable terms;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;
the reliance on a limited number of sources, and in some cases, single sources for raw materials, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell future product candidates in a timely fashion, in sufficient quantities or under acceptable terms;
the lack of qualified backup suppliers for any raw materials that are currently purchased from a single source supplier;
operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier;
carrier disruptions or increased costs that are beyond our control;
disruptions caused by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including, for example, COVID-19; and
the failure to deliver products under specified storage conditions and in a timely manner.
Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.
We rely on limited sources of supply for the drug substance of product candidates and any disruption in the chain of supply may cause a delay in developing and commercializing these product candidates.
We have established manufacturing relationships with a limited number of suppliers to manufacture raw materials and the drug substance of any product candidate for which we are responsible for preclinical or clinical development. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain. As part of any marketing approval, a manufacturer and its processes are required to be qualified by the FDA prior to commercialization. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new supplier is relied upon for commercial production. Switching vendors may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
In addition, if any future collaboration partners elect to pursue the development and commercialization of certain programs, we will lose control over the manufacturing of the product candidate subject to the agreement.
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These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, delay milestone payments owed to us or cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of active pharmaceutical ingredients on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable of production in a timely manner at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.
As we scale-up manufacturing of product candidates and conduct required stability testing, product, packaging, equipment and process-related issues may require refinement or resolution in order to proceed with any clinical trials and obtain regulatory approval for commercial marketing. We may identify significant impurities, which could result in increased scrutiny by the regulatory agencies, delays in clinical programs and regulatory approval, increases in our operating expenses, or failure to obtain or maintain approval for product candidates or any approved products.
We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.
We rely, and any future collaboration partners may rely, on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we will have agreements governing their activities, we have limited influence over their actual performance. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We, any future collaboration partners and our CROs are required to comply with the FDA’s or other regulatory agency’s GCPs for conducting, recording and reporting the results of IND-enabling studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA and non-U.S. regulatory agencies enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or applicable non-U.S. regulatory agency may require us to perform additional clinical trials before approving any marketing applications for the relevant jurisdiction. Upon inspection, the FDA or applicable non-U.S. regulatory agency may determine that our clinical trials did not comply with GCPs. In addition, our clinical trials will require a sufficiently large number of test subjects to evaluate the safety and effectiveness of a potential drug product. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs will not be our employees, and we will not be able to control whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for such products and any product candidates that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.                
We also rely on other third parties to store and distribute drug products for any clinical trials that we may conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.
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RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If we are unable to obtain or protect intellectual property rights related to our future products and product candidates, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our future products and product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in patents with claims that cover the products in the United States or in other countries. There is no assurance that all of the potentially relevant prior art relating to our pat