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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 SEPTEMBER 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 November 3, 2023, the registrant had 20,222,672 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 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


September 30,
2023
December 31,
2022
 (Unaudited) 
Assets
Current assets:
Cash and cash equivalents$25,833 $24,228 
Short-term investments4,949 14,932 
Restricted cash62 62 
Prepaid materials, net3,010 3,010 
Prepaid expenses and other current assets1,228 1,847 
Total current assets35,082 44,079 
Property and equipment, net1,008 536 
Intangibles, net36 62 
Right of use asset1,621 2,039 
Total assets$37,747 $46,716 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$599 $175 
Accrued liabilities620 961 
Accrued research and development expenses793 1,252 
Accrued compensation2,138 2,205 
Current portion of term loan, less debt issuance costs2,128 4,511 
Other current liabilities1,970 2,553 
Total current liabilities8,248 11,657 
Lease liability, less current portion1,240 1,768 
Total liabilities9,488 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 September 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 September 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 September 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 September 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 September 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 September 30, 2023 and December 31, 2022; 20,222,672 and 16,840,261 shares issued and outstanding at September 30, 2023 (unaudited) and December 31, 2022, respectively
20 17 
Additional paid-in capital533,386 516,457 
Accumulated other comprehensive loss (12)
Accumulated deficit(505,152)(483,176)
Total stockholders’ equity 28,259 33,291 
Total liabilities and stockholders’ equity $37,747 $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
September 30,
Nine months ended
September 30,
 2023202220232022
 (Unaudited)
Operating expenses:
Research and development$5,488 $5,310 $15,389 $13,697 
General and administrative2,637 2,253 7,420 7,610 
Total operating expenses8,125 7,563 22,809 21,307 
Loss from operations(8,125)(7,563)(22,809)(21,307)
Other income (expense):
Interest and other income438 187 1,324 272 
Interest and other expense(137)(175)(490)(492)
Loss before income taxes(7,824)(7,551)(21,975)(21,527)
Income tax expense  (1)(1)
Net loss and comprehensive loss$(7,824)$(7,551)$(21,976)$(21,528)
Other comprehensive loss:
Unrealized gain (loss) on short-term investments, net 5  (31)
Comprehensive loss$(7,824)$(7,546)$(21,976)$(21,559)
Net loss per share, basic and diluted$(0.40)$(0.50)$(1.19)$(1.46)
Weighted average shares used to compute basic and diluted net loss per share19,628,815 14,969,574 18,535,209 14,727,591 
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)

6


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 
Issuance of common stock through ATM— — 716,000 1 1,088 — — 1,089 
Issuance of common stock under Employee Stock Purchase Plan— — 22,211 — 24 — — 24 
Stock-based compensation expense— — — — 973 — — 973 
Net loss— — — — — — (7,824)(7,824)
Balance at September 30, 20235,712,786 $5 20,222,672 $20 $533,386 $ $(505,152)$28,259 
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 
Issuance of common stock through ATM— — 2,205,100 2 4,486 — — 4,488 
Issuance of common stock under Employee Stock Purchase Plan— — 747 — 1 — — 1 
Stock-based compensation expense— — — — 360 — — 360 
Net loss— — — — — — (7,551)(7,551)
Unrealized gain on short-term investments— — — — — 5 — 5 
Balance at September 30, 20225,571,959 $5 16,840,261 $17 $516,060 $(31)$(476,381)$39,670 

See accompanying notes to these condensed financial statements.
7


Regulus Therapeutics Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine months ended
September 30,
 20232022
 (Unaudited)
Operating activities
Net loss$(21,976)$(21,528)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense151 89 
Stock-based compensation1,765 1,780 
Amortization of premiums and accretion of discounts on investments, net(107)(52)
Other113 101 
Change in operating assets and liabilities:
Prepaid expenses and other assets619 802 
Accounts payable424 511 
Accrued liabilities(411)(217)
Accrued research and development expenses(459)271 
Accrued compensation(68)(319)
Operating lease right-of-use assets and liabilities, net(63)(46)
Other liabilities
(631)(665)
Net cash used in operating activities(20,643)(19,273)
Investing activities
Purchases of short-term investments(4,899)(30,289)
Maturities of short-term investments15,000 5,000 
Purchases of property and equipment(542)(298)
Net cash provided by (used in) investing activities9,559 (25,587)
Financing activities
Proceeds from issuance of securities through private placement, net of issuance costs14,004  
Proceeds from issuance of common stock, net1,163 4,491 
Principal payments on term loan(2,478) 
Net cash provided by financing activities12,689 4,491 
Net increase (decrease) in cash and cash equivalents1,605 (40,369)
Cash and cash equivalents at beginning of period24,290 60,445 
Cash and cash equivalents at end of period$25,895 $20,076 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$25,833 $20,014 
Restricted cash62 62 
Total cash, cash equivalents and restricted cash$25,895 $20,076 
Supplemental disclosure of cash flow information
Interest paid$(375)$(348)
Income taxes paid$(1)$(1)
Supplemental disclosure of non-cash investing and financing activities
Non-cash acquisition of property and equipment$71 $ 
See accompanying notes to these condensed financial statements.
8


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 September 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 $557.6 million. As of September 30, 2023, we had approximately $30.8 million of cash, cash equivalents and short-term investments. Based on our operating plans, we believe our cash, cash equivalents and short-term investments 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 September 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.
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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.

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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) 33,225,055 and 25,211,143 for the three and nine months ended September 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) 13,229,539 for the three and nine months ended September 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.
Unrealized
Maturity (in years)Amortized costGainsLossesEstimated fair value
As of September 30, 2023
U.S. Treasury securities1 or less$4,950 $ $(1)$4,949 
$4,950 $ $(1)$4,949 
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
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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.
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 September 30, 2023 and December 31, 2022 (in thousands):
 
 Fair value as of September 30, 2023
 TotalLevel 1Level 2Level 3
Cash equivalents and short-term investments:
Money market funds$25,291 $25,291 $ $ 
U.S. Treasury securities4,949 4,949   
$30,240 $30,240 $ $ 
 
 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%.

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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.

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 September 30, 2023, $2.2 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 September 30, 2023). We had less than $0.1 million of debt issuance costs outstanding as of September 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 September 30, 2023, future principal payments for the Term Loan due under the Loan Agreement are as follows (in thousands):
2023$826 
20241,377 
$2,203 
6. Stockholders’ Equity

Common Stock

As of September 30, 2023, there were 20,222,672 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.

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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 September 30, 2023, 784,825 shares of common stock were available for new equity award grants under the 2019 Plan and 7,383,584 shares of common stock were reserved for issuance pursuant to equity awards outstanding under the 2019 Plan as of September 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 September 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 September 30 2023, a maximum of 137,424 shares of our common stock were reserved for future issuance and have been authorized for purchase under the 2022 Purchase Plan.

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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.

15


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 716,000 and 725,192 shares were sold and settled under the ATM Offering during the three and nine months ended September 30, 2023, respectively, for proceeds of $1.1 million for each the three and nine months ended September 30, 2023. A total of 2,205,100 shares were sold and settled for proceeds of $4.5 million under the ATM Offering during the three and nine months ended September 30, 2022. At September 30, 2023, approximately $44.2 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 September 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 outstanding6,222 
RSUs outstanding1,161 
Common stock available for future grant under the 2019 Equity Incentive Plan785 
Common stock available for future grant under the 2021 Inducement Plan10 
2022 Employee Stock Purchase Plan137 
Total common shares reserved for future issuance34,157 
The following table summarizes our stock option and RSU (together, "Stock Awards") activity under all equity incentive plans for the nine months ended September 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 
Granted4,979 $1.39 1,161 $1.38 
Exercised (options) or Vested (RSUs) $  $ 
Canceled/forfeited/expired(129)$6.18 (70)$2.57 
Stock Awards outstanding at September 30, 20236,222 $2.64 1,161 $1.38 

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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
September 30,
Nine months ended
September 30,
 2023202220232022
Stock options
    Risk-free interest rate4.2 %3.1 %4.1 %2.0 %
    Volatility96.3 %97.5 %96.4 %96.1 %
    Dividend yield     
    Expected term (years)6.16.16.16.1
Employee stock purchase plan shares
    Risk-free interest rate5.1 %1.7 %4.7 %0.9 %
    Volatility81.0 %105.9 %85.7 %99.3 %
    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
September 30,
Nine months ended
September 30,
 2023202220232022
Research and development$311 $56 $638 $425 
General and administrative662 304 1,127 1,355 
Total$973 $360 $1,765 $1,780 
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 September 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 September 30, 2023 are as follows (in thousands):
Operating Leases
Remaining 2023$196 
2024800 
2025824 
2026277 
Total operating lease payments$2,097 
Less: amount representing interest
(161)
Present value of obligations under operating leases1,936 
Less: current portion
(696)
Long-term operating lease obligations$1,240 
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; 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 advance and expand our internal discovery pipeline to identify potential product candidates.
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 September 30, 2023, we have received $436.0 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 September 30, 2023, we had cash, cash equivalents and short-term investments of $30.8 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 was dosed at 1 mg/kg of RGLS8429 or placebo every other week for three months. In September 2023, we announced positive top-line data from the first cohort of RGLS8429-treated ADPKD patients. Increases in both PC1 and PC2 biomarkers were observed. Statistically significant increases in mean PC1 levels were observed at Day 85 and Day 86 (n=9) compared to baseline (36%-41%). Numeric increases in PC2 were observed during the treatment period, although not statistically significant. These data are consistent with what was observed with our first-generation compound, RGLS4326, which showed a significant dose response between 0.3mg/kg and 1mg/kg of RGLS4326. Furthermore, the correlation between PK and urinary PC1 response at 1mg/kg is comparable between RGLS4326 and RGLS8429. RGLS8429 was well tolerated by all 9 subjects receiving active drug with no safety findings.

In September 2023, we announced we had completed enrollment of the second cohort of patients. The second cohort is being dosed at 2 mg/kg of RGLS8429 or placebo every other week for three months, with top-line data anticipated in the first quarter of 2024. In October 2023, we announced that we had reviewed all available safety data and have advanced to the third cohort of patients in the MAD study. In November 2023, we announced that we had dosed the first patient in the third cohort. 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:
 
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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
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 $425.0 million in research and development expenses through September 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.
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RESULTS OF OPERATIONS
Comparison of the three and nine months ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three and nine months ended September 30, 2023 and 2022 (in thousands):    
 Three months ended
September 30,
Nine months ended
September 30,
 2023202220232022
Research and development expenses5,488 5,310 15,389 13,697 
General and administrative expenses2,637 2,253 7,420 7,610 
Interest and other income (expenses), net301 12 834 (220)
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 September 30, 2023% of totalThree months ended September 30, 2022% of total$%
Research and development
     Personnel and internal expenses$2,189 40 %$1,742 33 %$447 26 %
     Third-party and outsourced expenses2,952 53 %3,487 66 %(535)(15)%
Non-cash stock-based compensation311 %56 %255 455 %
Depreciation36 %25 — %11 44 %
Total research and development expenses$5,488 100 %$5,310 100 %$178 %
Increase (decrease)
Nine months ended September 30, 2023% of totalNine months ended September 30, 2022% of total$%
Research and development
     Personnel and internal expenses$6,458 42 %$5,255 38 %$1,203 23 %
     Third-party and outsourced expenses8,204 53 %7,947 58 %257 %
Non-cash stock-based compensation638 %425 %213 50 %
Depreciation89 %70 %19 27 %
Total research and development expenses$15,389 100 %$13,697 100 %$1,692 12 %
Research and development expenses were $5.5 million and $15.4 million for the three and nine months ended September 30, 2023, respectively, compared to $5.3 million and $13.7 million for the three and nine months ended September 30, 2022, respectively. These amounts reflect the internal and external costs associated with advancing our clinical and preclinical pipeline. The aggregate increase for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily attributable to external costs associated with the progression of clinical trials and preclinical studies.
General and administrative expenses
General and administrative expenses were $2.6 million and $7.4 million for the three and nine months ended September 30, 2023, respectively, compared to $2.3 million and $7.6 million for the three and nine months ended September 30, 2022, respectively. The increase for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, was primarily attributable to 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 $0.8 million for the three and nine months ended September 30, 2023, respectively, compared to net interest and other income of less than $0.1 million and net interest and other expense of $0.2 million for the three and nine months ended September 30, 2022, respectively. These amounts 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 September 30, 2023, we had cash, cash equivalents and investments of $30.8 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 nine months ended September 30, 2023 and 2022 (in thousands):
 Nine months ended
September 30,
 20232022
 (unaudited)
Net cash (used in) provided by:
Operating activities$(20,643)$(19,273)
Investing activities9,559 (25,587)
Financing activities12,689 4,491 
Total$1,605 $(40,369)
Operating activities
Net cash used in operating activities was $20.6 million for the nine months ended September 30, 2023, compared to $19.3 million for the nine months ended September 30, 2022. The increase in net cash used in operating activities was primarily attributable to a $0.9 million change in working capital for the nine months ended September 30, 2023, as compared to the same period in 2022, and a $0.5 million increase in net loss for the nine months ended September 30, 2023, as compared to the same period in 2022.
Investing activities
Net cash provided by investing activities was $9.6 million for the nine months ended September 30, 2023, compared to net cash used in investing activities of $25.6 million for the nine months ended September 30, 2022. The net cash provided by investing activities for the nine months ended September 30, 2023 was primarily attributable to sales of $15.0 million of short-term investments, partially offset by purchases of $4.9 million of short-term investments. The net cash used in investing activities for the nine months ended September 30, 2022 was primarily attributable to purchases of $30.3 million of short-term investments, partially offset by sales of $5.0 million of short-term investments. The short-term investments purchased and sold in the nine months ended September 30, 2023 and 2022 were all U.S. Treasury securities.
Financing activities
Net cash provided by financing activities was $12.7 million for the nine months ended September 30, 2023, compared to net cash provided by financing activities of $4.5 million for the nine months ended September 30, 2022. Net cash provided by financing activities for the nine months ended September 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 and proceeds from shares sold and settled under the ATM Offering of $1.1 million, partially offset by principal payments made on our Term Loan.
MATERIAL CASH REQUIREMENTS

As of September 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 September 30, 2023, this change would not have had a material effect on the fair value of our cash equivalents as of that date.
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We also have interest rate exposure as a result of our outstanding Term Loan. As of September 30, 2023, the outstanding principal amount of the Term Loan was $2.2 million.
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 September 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 September 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 September 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 September 30, 2023, we had approximately $30.8 million of cash, cash equivalents and short-term investments, and we had $3.5 million of outstanding debt obligations (which includes $2.2 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. 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.
We have incurred losses in each year since our inception in September 2007. Our net loss was $7.8 million and $22.0 million for the three and nine months ended September 30, 2023, respectively, compared to $7.6 million and $21.5 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $505.2 million.
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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