SEC Filing | Eloxx Pharmaceuticals, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2022

☐	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: 001-31326

ELOXX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-1368850

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

480 Arsenal Way

Watertown, Massachusetts 02472

(Address of principal executive offices) (Zip Code)

781-577-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	ELOX	The Nasdaq Capital Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

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

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

On August 10, 2022, the registrant had 86,656,221 shares of common stock, $0.01 par value per share, outstanding.

ELOXX PHARMACEUTICALS, INC.

TABLE OF CONTENTS

		Page
	Special Note Regarding Forward-Looking Statements	3

	Market and Industry Data	4


	Risk Factor Summary	5

	PART I. FINANCIAL INFORMATION	7

Item 1.	Condensed Consolidated Financial Statements (unaudited)	7

	Balance Sheets as of June 30, 2022 and December 31, 2021	7

	Statements of Operations for the Three and Six Months ended June 30, 2022 and 2021	8

	Statements of Cash Flows for the Six Months ended June 30, 2022 and 2021	9

	Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2022 and 2021	10

	Notes to Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

	PART II. OTHER INFORMATION	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Mine Safety Data	59

Item 5.	Other Information	59

Item 6.	Exhibits	60

	SIGNATURES	62

Special Note Regarding Forward-Looking Statements

Eloxx Pharmaceuticals, Inc., together with its subsidiaries, is collectively referred to herein as “we,” “our,” “us,” “Eloxx” or the “Company”. Hyperlinks and web addresses are provided as a convenience and for informational purposes only. Eloxx bears no responsibility for the security or content of external websites.

This Quarterly Report on Form 10-Q, and information incorporated herein, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “would,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to:


	•			risks related to our dependence on our lead product candidate, ELX-02 and our ability to progress any product candidates in preclinical or clinical trials;
	•			the length and expense of preclinical and clinical trial development, the uncertainty of clinical trial results and the fact that positive results from preclinical studies are not always indicative of positive clinical results;
	•			risks related to the scope, rate and progress of our preclinical studies and clinical trials and other research and development activities;
	•			risks related to the competition for patient enrollment from drug candidates in development;
	•			the impact of the global COVID-19 pandemic on our clinical trials, operations, vendors, suppliers and employees;
	•			risks related to regulatory approvals and other requirements applicable to our product candidates;
		•			risks related to our ability to obtain the capital necessary to fund our operations;
		•			risks relating to the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
	•			risks related to our ability to obtain adequate financing in the future through product licensing, public or private equity or debt financing or otherwise;
	•			our and our stockholders’ ability to realize benefits from our strategic initiatives, including the Zikani Merger (defined below);
	•			general business conditions, regulatory environment, competition and market for our products;
	•			business abilities and judgment of personnel, and the availability of qualified personnel; and
•			those identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”).

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risks and uncertainties.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not rely upon forward-looking statements as predictions of future events. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, we will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made.

MARKET AND INDUSTRY DATA

This Quarterly Report on Form 10-Q and the other documents incorporated herein by reference include statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and disclaim responsibility for its content.

RISK FACTOR SUMMARY

The following is a summary of the principal risks of an investment in our common stock. This summary does not list all the risks that we face. Additional discussion of the risks summarized below follow directly under the heading “Risk Factors” and should be carefully considered, together with other information in our 2021 Annual Report and our other filings with the SEC before making an investment decision regarding our common stock.


	•		We depend heavily on the success of our lead product candidate, ELX-02. If ELX-02 fails during development or suffers any material development delays, it may adversely impact the commercial viability of ELX-02 and our business.
	•		Preclinical and clinical drug development is a lengthy and expensive process, with an uncertain outcome. Our preclinical and clinical programs may experience delays or may never advance, which would adversely affect ability to obtain regulatory approvals or commercialize our product candidates on a timely basis or at all, which could have an adverse effect on our business.
	•		We and our collaborating partners may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws and regulations. If we or our collaborating partners are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
	•		Our product candidates, including ELX-02, may cause adverse events or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
	•		Even though we have received orphan drug designation from the FDA for ELX-02 for the treatment of cystic fibrosis, cystinosis, MPS I, and Rett syndrome, we may not be able to maintain the benefits of orphan drug designation or obtain orphan drug marketing exclusivity for ELX-02 or any of our other product candidates for other indications.
	•		A Fast Track Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.
	•		We may find it difficult to recruit and enroll patients in our clinical trials, which could cause significant delays in the completion of such trials or may cause us to abandon one or more clinical trials.
	•		If we are unable to develop and commercialize our product candidates, our business will be adversely affected.
	•		We have incurred significant operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or maintain profitability.
	•		We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
	•		Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.
	•		Our stockholders may not realize a benefit from the Zikani Merger commensurate with the ownership dilution they experienced in connection with the Zikani Merger.
	•		If we fail to adequately protect or enforce our intellectual property rights or secure rights to third party patents, the value of our intellectual property rights would diminish, and our business, competitive position and results of operations would suffer.
	•		If we infringe the rights of third parties, we could be prevented from selling products, forced to pay damages and required to defend against litigation which could result in substantial costs and may have a material adverse effect on our business, results of operations and financial condition.


		•		Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
		•		Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
		•		Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Information

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	30,048		$	42,268
Restricted cash		263			299
Prepaid expenses and other current assets		1,281			913
Total current assets		31,592			43,480
Property and equipment, net		190			216
Operating lease right-of-use asset		1,159			1,443
Total assets	$	32,941		$	45,139

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,934		$	1,379
Accrued expenses		4,870			4,196
Current portion of long-term debt		1,125			—
Advances from collaboration partners		10,723			3,723
Derivative liabilities		166			—
Current portion of operating lease liability		686			657
Total current liabilities		19,504			9,955
Long-term debt, net of current portion		11,129			11,996
Operating lease liability		496			804
Total liabilities		31,129			22,755
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued or outstanding as of June 30, 2022 and December 31, 2021		—			—
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 87,077,587 and 87,071,324 shares issued and 86,656,221 and 86,649,958 shares outstanding as of June 30, 2022 and December 31, 2021, respectively		871			871
Common stock in treasury, at cost, 421,366 shares as of both June 30, 2022 and December 31, 2021		(2,190	)		(2,190	)
Additional paid-in capital		263,692			262,026
Accumulated deficit		(260,561	)		(238,323	)
Total stockholders’ equity		1,812			22,384
Total liabilities and stockholders’ equity	$	32,941		$	45,139

See accompanying notes to unaudited condensed consolidated financial statements

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	7,651		$	5,704		$	15,550		$	9,777
General and administrative		2,645			7,355			5,699			11,696
In process research and development		—			22,670			—			22,670
Total operating expenses		10,296			35,729			21,249			44,143
Loss from operations		(10,296	)		(35,729	)		(21,249	)		(44,143	)
Other expense, net		322			329			989			609
Net loss	$	(10,618	)	$	(36,058	)	$	(22,238	)	$	(44,752	)

Net loss per share, basic and diluted	$	(0.12	)	$	(0.54	)	$	(0.26	)	$	(0.84	)
Weighted average number of shares of common stock used in computing net loss per share, basic and diluted		86,654,120			66,389,865			86,652,587			53,357,401

See accompanying notes to unaudited condensed consolidated financial statements

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(22,238	)	$	(44,752	)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development		—			22,670
Stock-based compensation		1,666			5,343
Depreciation		44			56
Amortization of operating lease right-of-use asset		284			423
Amortization of debt discount		258			208
Loss on sales and disposals of property and equipment		—			84
Change in fair value of derivative liabilities		166			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(368	)		(84	)
Accounts payable		555			(75	)
Accrued expenses		674			69
Merger related costs paid		—			(1,003	)
Operating lease liabilities		(279	)		(417	)
Taxes payable		—			(4	)
Net cash used in operating activities		(19,238	)		(17,482	)
Cash flows from investing activities:
Purchases of property and equipment		(18	)		—
Cash acquired in merger transaction		—			2,145
Net cash (used in) provided by investing activities		(18	)		2,145
Cash flows from financing activities:
Proceeds from advances from collaboration partners		7,000			2,606
Proceeds from underwritten public offerings, net of issuance costs		—			47,718
Repayment of term loan principal		—			(2,500	)
Payment for settlement of taxes upon vesting of restricted stock units		—			(237	)
Proceeds from exercises of stock options		—			6
Net cash provided by financing activities		7,000			47,593
(Decrease) Increase in cash, cash equivalents and restricted cash		(12,256	)		32,256
Cash, cash equivalents and restricted cash at the beginning of the period		42,567			24,724
Cash, cash equivalents and restricted cash at the end of the period	$	30,311		$	56,980

Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets:
Cash and cash equivalents	$	30,048		$	56,734
Restricted cash		263			246
Total cash, cash equivalents and restricted cash	$	30,311		$	56,980

Supplemental disclosure of cash flow activities:
Issuance of common stock in merger transaction	$	—		$	22,335
Cash paid for interest	$	620		$	273

See accompanying notes to unaudited condensed consolidated financial statements

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Common stock						Treasury stock
	Shares		Amount		Additional paid-in capital		Shares			Amount			Accumulated deficit			Total stockholders' equity
Balance at December 31, 2021		86,649,958	$	871	$	262,026		(421,366	)	$	(2,190	)	$	(238,323	)	$	22,384
Vesting of restricted stock units		3,131		—		—		—			—			—			—
Stock-based compensation expense		—		—		922		—			—			—			922
Net loss		—		—		—		—			—			(11,620	)		(11,620	)
Balance at March 31, 2022		86,653,089	$	871	$	262,948		(421,366	)	$	(2,190	)	$	(249,943	)	$	11,686
Vesting of restricted stock units		3,132		—		—		—			—			—			—
Stock-based compensation expense		—		—		744		—			—			—			744
Net loss		—		—		—		—			—			(10,618	)		(10,618	)
Balance at June 30, 2022		86,656,221	$	871	$	263,692		(421,366	)	$	(2,190	)	$	(260,561	)	$	1,812

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Common stock						Treasury stock
	Shares		Amount		Additional paid-in capital		Shares			Amount			Accumulated deficit			Total stockholders' equity
Balance at December 31, 2020		40,157,187	$	404	$	183,250		(193,735	)	$	(1,828	)	$	(171,596	)	$	10,230
Vesting of restricted stock units		57,687		—		—		(23,883	)		(94	)		—			(94	)
Stock-based compensation expense		—		—		1,308		—			—			—			1,308
Net loss		—		—		—		—			—			(8,694	)		(8,694	)
Balance at March 31, 2021		40,214,874	$	404	$	184,558		(217,618	)	$	(1,922	)	$	(180,290	)	$	2,750
Exercise of stock options		3,525		—		6		—			—			—			6
Vesting of restricted stock units		53,224		—		—		(43,970	)		(143	)		—			(143	)
Stock-based compensation expense		—		—		4,035		—			—			—			4,035
Issuance of common stock in connection with merger		7,596,810		76		22,259		—			—			—			22,335
Issuance of shares upon public offering		38,333,334		383		47,335		—			—			—			47,718
Net loss		—		—		—		—			—			(36,058	)		(36,058	)
Balance at June 30, 2021		86,201,767	$	863	$	258,193		(261,588	)	$	(2,065	)	$	(216,348	)	$	40,643

See accompanying notes to unaudited condensed consolidated financial statements

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business

Eloxx Pharmaceuticals, Inc., together with its subsidiaries (collectively “Eloxx” or the “Company”), is a clinical-stage biopharmaceutical company engaged in the science of ribosomal modulation. The Company is developing novel small molecule drug candidates from its library of unique Ribosome Modulating Agents (“RMAs”) and Eukaryotic Ribosomal Selective glycosides (“ERSGs”), for the treatment of a subset of rare and ultra-rare diseases and cancers characterized by genetic mutations that cause defects in protein translation. Specifically, the Company is targeting premature stop codon mutations and ribosomal mutations. Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (mRNA) and the protein synthesis from that mRNA. Additionally, certain mutations of the ribosome disrupt normal protein translation and are drivers of a subset of cancers. On April 1, 2021, the Company acquired Zikani Therapeutics, Inc. (“Zikani”), a preclinical stage biopharmaceutical company engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZM^TM chemistry technology platform to develop novel ribosome modulating agents (“RMAs”). The TURBO-ZM^TM platform is designed to enable rapid synthesis of novel macrolides that can be optimized to modulate the human, bacterial or viral ribosomes to treat rare diseases and cancers with certain ribonucleic acid (“RNA”) and ribosomal mutations.

The Company is headquartered in Watertown, Massachusetts, with additional operations in Israel and Australia.

Liquidity and Going Concern

The Company has a history of net losses and negative cash flows from operating activities since its inception and, as of June 30, 2022, had an accumulated deficit of $260.6 million. The Company expects to continue to incur net losses and negative cash flows from its operations for the foreseeable future. The Company has not generated revenue from the sale of any product or service and does not expect to generate significant revenue unless it obtains marketing approval for and commercializes one or more of its product candidates currently in development. Successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support the Company’s cost structure.

The Company has financed its operations primarily from the sale of equity securities and to a lesser extent, loans and grants. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital to fund its operations. In addition, as disclosed in Note 6, in September 2021, the Company entered into the Hercules Term Loan (as defined below) for an aggregate principal amount of $30.0 million of which $12.5 million had been funded as of June 30, 2022. The Hercules Term Loan Agreement contains customary affirmative and negative covenants, which among others further described in Note 6, require the Company to maintain at all times a minimum qualified cash balance equaling amounts ranging from $6.3 million to $10.0 million plus qualified accounts payable (as defined in the Hercules Term Loan Agreement).

As of June 30, 2022, the Company was in compliance with all debt covenants. However, the inherent uncertainties described above may impact the Company’s ability to remain in compliance with these covenants over the next twelve months. If the Company breaches its financial covenants and fails to secure a waiver or forbearance from the third-party lender, such breach or failure could accelerate the repayment of the outstanding borrowings under the Hercules Term Loan Agreement or the exercise of other rights or remedies the third-party lender may have under applicable law. No assurance can be provided a waiver or forbearance will be granted or the outstanding borrowings under the Hercules Term Loan Agreement, will be successfully refinanced on terms that are acceptable to the Company.

The Company believes that its cash and cash equivalents of $30.0 million at June 30, 2022 will not be sufficient to maintain its current and planned operations for at least the next twelve months following the filing of this Quarterly Report on Form 10-Q. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. However, based on the Company’s current working capital, anticipated operating expenses and net losses and the uncertainties surrounding its ability to raise additional capital as needed, as discussed below, the Company believes that these conditions, in aggregate, raise substantial doubt about its ability to continue as a going concern for one year after the date these condensed consolidated financial statements are issued.

Management intends to fund future operations through private or public debt or equity financing transactions and may seek additional capital through arrangements with strategic partners or from other sources. The availability of sufficient funding to alleviate the conditions that raise substantial doubt are not within management’s control and cannot be assessed as

being probable of occurring. If the Company is unable to obtain adequate financing, it will evaluate options which may include reducing or deferring operating expenses, which may have a material adverse effect on the Company’s operations and future prospects.

2. Basis of Presentation and Significant Accounting Policies

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted, as permitted by such rules and regulations. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the interim periods ended June 30, 2022 and 2021.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2022 (the “2021 Annual Report”).

The significant accounting policies used in the preparation of these condensed consolidated financial statements are consistent with those described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, in the Company’s 2021 Annual Report.

Recent Accounting Pronouncements

Although the FASB has issued several ASUs for which adoption dates are pending, the Company does not expect any to have any impacts on its consolidated financial statements.

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	June 30, 2022		December 31, 2021
Research and development	$	164	$	413
Insurance		704		123
Other		413		377
Total	$	1,281	$	913

4. Property and Equipment

Property and equipment, net consisted of the following (in thousands):

	June 30, 2022			December 31, 2021
Computers and software	$	26		$	31
Office furniture and equipment		15			27
Laboratory equipment		251			221
Leasehold improvements		46			88
Assets in progress		—			20
		338			387
Less accumulated depreciation and amortization		(148	)		(171	)
Property and equipment, net	$	190		$	216

Depreciation expense was $22 thousand $40 thousand for the three months ended June 30, 2022 and 2021, respectively, and $44 thousand and $56 thousand for the six months ended June 30, 2022 and 2021, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	June 30, 2022		December 31, 2021
Research and development expenses	$	3,814	$	1,849
Payroll and other employee-related expenses		468		1,615
Professional services		268		489
Interest on debt		111		102
Other		209		141
Total	$	4,870	$	4,196

6. Debt

Hercules Term Loan

On September 30, 2021, the Company entered into a Loan and Security Agreement, dated as of September 30, 2021 (the “Hercules Term Loan Agreement”) with Hercules Capital, Inc. (“Hercules” or the “Lender”).

The Lender extended term loans in an aggregate principal amount of up to $30.0 million, comprised of (i) a tranche 1 advance of $12.5 million (the “Tranche 1 Advance”), (ii) a tranche 2 advance of $7.5 million (the “Tranche 2 Advance”) and (iii) a tranche 3 advance of $10.0 million (the “Tranche 3 Advance”) (collectively, the “Term Loan Advances”). The Tranche 1 Advance under the Hercules Term Loan Agreement was funded on September 30, 2021. The Tranche 2 Advance is available at the Company’s election after the occurrence of certain milestone events relating to data from the clinical trials. The Tranche 2 Advance will remain available for funding until August 15, 2022. The Tranche 3 Advance is available subject to approval by the Lenders’ investment committee in its sole discretion. The Tranche 3 Advance will remain available for funding until, initially, April 1, 2023, and (i) upon the occurrence of certain milestone events relating to the Company’s receipt of net cash proceeds, October 1, 2023, and (ii) upon the occurrence of certain milestone events relating to the Company’s receipt of net cash proceeds and certain milestone events relating to data from the clinical trials, April 1, 2024.

As security for its obligations, the Company granted Hercules a continuing security interest in substantially all of the assets of the Company, subject to certain customary exceptions, including for intellectual property.

Any outstanding principal on the Term Loan Advances will accrue interest at a floating rate equal to the greater of (i) 9.50% per annum and (ii) the sum of 6.25% plus the prime rate, as published in The Wall Street Journal. On June 30, 2022, the interest rate was 11.0%. Interest payments are payable monthly following the funding of a Term Loan Advance. The Company will be required to make principal payments on the outstanding balance of the Term Loan Advances commencing on April 1, 2023 (the “Term Loan Amortization Date”) in 36 equal monthly instalments, plus interest; provided that if the Company has achieved the milestones described above, then the Term Loan Amortization Date will be automatically extended to October 1, 2023 or April 1, 2024, as applicable. Any amounts outstanding under the Term Loan Advances, if not repaid sooner, are due and payable on April 1, 2025 (the “Maturity Date”). On any date that the Company partially repays the outstanding obligations, the Company shall pay the Lenders a charge equal to 6.55% of the original principal amount.

The Company may prepay the outstanding principal amount of the Term Loan Advances at any time (in whole, but not in part), plus accrued and unpaid interest and a prepayment premium equal to (i) 3% of the principal amount outstanding if prepaid on or prior to the first anniversary of the date of Hercules Term Loan Agreement, (ii) 2% of the principal amount outstanding if prepaid after the first anniversary the date of Hercules Loan Agreement but on or prior to the second anniversary of the date of Hercules Loan Agreement, and (iii) 1% of the principal amount outstanding if prepaid after the second anniversary of the date of Hercules Loan Agreement but on or prior to the Maturity Date.

The Hercules Term Loan Agreement contains customary affirmative and negative covenants which, among other things, requires the Company to maintain at all times a minimum qualified cash balance equaling amounts ranging from $6.3 million

to $10.0 million plus qualified accounts payable (as defined in the Hercules Term Loan Agreement) and limits the Company’s ability to (i) incur additional indebtedness