eldn-10q_20210331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021 

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: 001-36620

 

ELEDON PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

20-1000967

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

19900 MacArthur Blvd., Suite 550

Irvine, California

 

92612

(Address of principal executive offices)

 

(Zip Code)

 

 

(949) 238-8090

Registrant’s telephone number, including area code

 

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, $0.001 par value

 

ELDN

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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

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

As of May 11, 2021, there were 14,306,614 shares of the Registrant’s common stock outstanding.

 

 

 


 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Any statements in this Quarterly Report on Form 10-Q about the Company’s future expectations, plans and prospects, including statements about its strategy, future operations, development of its product candidates, and other statements containing words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “intends,” “predicts,” “projects,” “targets,” “could,” “may,” and similar expressions, constitute forward-looking statements, although not all forward-looking statements include such identifying words. Forward-looking statements include, but are not limited to statements regarding:

 

our short operating history and the Anelixis acquisition, which may make it difficult to evaluate the success of our business to date and to assess our future viability;

 

the impact of the COVID-19 pandemic on our operations, including our ability to execute clinical trials or access capital markets;

 

expectations regarding the timing for the commencement and completion of product development or clinical trials for the Company’s product candidates;

 

the timing, costs, conduct and outcome of preclinical studies and clinical trials;

 

meeting future clinical and regulatory milestones, such as New Drug Application (“NDA”) submissions;

 

the risk that clinical trials of the Company’s product candidates may not be successful in establishing safety and tolerability or efficacy;

 

the Company’s plans and timing with respect to seeking regulatory approvals and uncertainties regarding the regulatory process;

 

the anticipated treatment of data by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) or other regulatory authorities of the Company’s product candidates;

 

the rate and degree of market acceptance and clinical utility of the Company’s product candidates;

 

the Company’s commercialization, marketing, and manufacturing capabilities and strategy;

 

the Company’s intellectual property position and strategy;

 

the Company’s ability to identify additional product candidates with significant commercial potential;

 

the availability of funds and resources to pursue the Company’s research and development projects, including preclinical studies and clinical trials of its product candidates, and manufacturing activities;

 

the Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

the Company’s ability to continue as a going concern;

 

developments relating to the Company’s competitors and industry;

 

the impact of government laws and regulations; and

 

the duration over which the Company’s cash balances will fund its operations.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the ability to develop commercially viable product formulations on a timely basis, or at all; the sufficiency of the Company’s cash resources; the ability to obtain necessary regulatory and ethics approvals to commence additional clinical trials; whether data from early clinical trials will be indicative of the data that will be obtained from future clinical trials; whether the results of clinical trials will warrant submission for regulatory approval of any investigational product; whether any such submission will receive approval from the FDA or equivalent foreign regulatory agencies and, if the Company is able to obtain such approval for an investigational product, whether it will be successfully distributed and marketed; and the duration of the COVID-19 pandemic, including economic and other impacts of the pandemic and actions taken in response to it by governments, businesses, and individuals. These risks and uncertainties, as well as other risks and uncertainties that could cause the Company’s actual results to differ significantly from the forward-looking statements contained herein, are described in greater detail in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

2


Any forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and not of any future date, and the Company expressly disclaims any intent to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The market data and certain other statistical information used in this Quarterly Report are based on independent industry publications, governmental publications, reports by market research firms or other independent sources. Some data are also based on our good faith estimates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.


3


 

RISK FACTOR SUMMARY

The following summarizes the principal factors that make an investment in the Company speculative or risky, all of which are more fully described in Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business. The occurrence of any of these 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 of the risk factors described in our public filings when evaluating our business.

Risks Related to Our Operations

 

Our short operating history and the Anelixis acquisition may make it difficult to evaluate the success of our business to date and to assess our future viability.

 

We have incurred significant operating losses since our inception and expect that we will continue to incur losses over the next several years and may never achieve or maintain profitability.

 

Our product candidates are in the early stages of clinical development and may not be successfully developed. If we are unable to successfully develop and commercialize these or any other product candidate, or if we experience significant delays in doing so, our business will be materially harmed.

 

The ongoing COVID-19 pandemic and actions taken in response to it may result in additional disruptions to our business operations, which could have a material adverse effect on our business.

 

Drug development involves a lengthy and expensive process with an uncertain outcome, including failure to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the formulation and commercialization of our product candidates.

 

Delays or difficulties in the enrollment of patients in clinical trials, could delay or prevent our receipt of necessary regulatory approvals and increase expenses for the development of our product candidates.

 

If serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.

 

We will require additional funding to be able to complete the development of our lead drug candidate. If we are unable to raise capital when needed, we may be forced to significantly alter our business strategy, substantially curtail our current operations, or liquidate and cease operations altogether.

 

Our future success depends on our ability to retain executives and key employees and to attract, retain and motivate qualified personnel in the future.

 

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

 

 

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, or the approvals may be for a narrow indication, we may not be able to commercialize our product candidates, and our ability to generate revenue may be materially impaired.

 

Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

 

Legislation regulating the pharmaceutical and healthcare industries may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

 

Our business operations and relationships will be subject to applicable anti-kickback, fraud and abuse and other broadly applicable healthcare laws, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.

 

Our internal computer systems, or those of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches, disruptions, or incidents, which could result in a material disruption of our development programs or loss of data or compromise the privacy, security, integrity or confidentiality of sensitive information related to our business and have a material adverse effect on our reputation, business, financial condition or results of operations.

 

European data collection is governed by restrictive regulations governing the collection, use, processing and cross-border transfer of personal information.

 

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

4


 

Risks Related to the Commercialization of Our Product Candidates

 

Even if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for commercial success.

 

If our current product candidates, or a future product candidate receives marketing approval and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, the ability to market the product could be compromised.

 

If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.

 

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

 

The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

 

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

 

Risks Related to Our Dependence on Third Parties

 

 

The reliance on third parties for the manufacture of our product candidates for nonclinical and clinical trials, and for eventual commercialization, increases the risk that we will not have sufficient quantities of our product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.

 

We depend on CROs and other contracted third parties to perform nonclinical and clinical testing and certain other research and development activities. As a result, the outcomes of the activities performed by these organizations will be, to a certain extent, beyond our control.

 

Risks Related to Our Intellectual Property

 

 

If we are unable to obtain and maintain intellectual property protection for our technology and products or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

 

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

 

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

 

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

 

We may be subject to trade secret claims from former employers of Company personnel.

 

Risks Related to Our Common Stock

 

Our stock price could be volatile as holders of our preferred stock become able to convert their shares to common stock and sell these shares in the open market.

 

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

 

Provisions in our corporate charter and under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by our stockholders to replace or remove our current management.

 

We do not expect to pay any cash dividends in the foreseeable future.

 

 

 

 

5


 

ELEDON PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2021

Table of Contents

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements - Unaudited

 

7

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

7

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020

 

8

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

9

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

10

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

11

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

51

 

 

 

 

Item 4.

Mine Safety Disclosures

 

51

 

 

 

 

Item 5.

Other Information

 

51

 

 

 

 

Item 6.

Exhibits

 

51

 

 

 

 

Exhibit Index

 

52

 

 

 

 

Signatures

 

 

 

6


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

108,579

 

 

$

114,195

 

Prepaid expenses and other current assets

 

 

1,662

 

 

 

1,435

 

Total current assets

 

 

110,241

 

 

 

115,630

 

Operating lease asset, net

 

 

92

 

 

 

138

 

Goodwill

 

 

48,648

 

 

 

48,648

 

In-process research and development

 

 

32,386

 

 

 

32,386

 

Other assets

 

 

315

 

 

 

383

 

Total assets

 

$

191,682

 

 

$

197,185

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,514

 

 

$

1,366

 

Current operating lease liability

 

 

97

 

 

 

144

 

Accrued severance

 

 

5

 

 

 

12

 

Accrued expenses and other liabilities

 

 

2,590

 

 

 

961

 

Total current liabilities

 

 

4,206

 

 

 

2,483

 

Deferred tax liabilities

 

 

3,605

 

 

 

4,106

 

Total liabilities

 

 

7,811

 

 

 

6,589

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Series X1 non-voting convertible preferred stock, $0.001 par value, 515,000 shares

   authorized; 108,070 shares issued and outstanding at March 31, 2021 and

   December 31, 2020

 

 

 

 

 

 

Series X preferred stock, $0.001 par value, 10,000 shares authorized; 6,204 and no shares

   issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized at March 31, 2021

   and December 31, 2020; 14,306,614 and 15,160,397 shares issued and

   outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

14

 

 

 

15

 

Additional paid-in capital

 

 

272,749

 

 

 

270,974

 

Accumulated deficit

 

 

(88,892

)

 

 

(80,393

)

Total stockholders’ equity

 

 

183,871

 

 

 

190,596

 

Total liabilities and stockholders’ equity

 

$

191,682

 

 

$

197,185

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

$

5,653

 

 

$

1,648

 

General and administrative

 

 

3,352

 

 

 

1,730

 

Total operating expenses

 

 

9,005

 

 

 

3,378

 

Loss from operations

 

 

(9,005

)

 

 

(3,378

)

Other income, net

 

 

5

 

 

 

30

 

Warrant inducement expense

 

 

 

 

 

(4,829

)

Loss before income tax benefit

 

 

(9,000

)

 

 

(8,177

)

Income tax benefit

 

 

501

 

 

 

 

Net loss and comprehensive loss

 

$

(8,499

)

 

$

(8,177

)

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(8.52

)

Weighted-average common shares outstanding, basic and diluted

 

 

14,831,049

 

 

 

959,285

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

8


 

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series X1 Preferred Stock

 

 

Series X Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance as of December 31, 2020

 

 

108,070

 

 

$

 

 

 

 

 

$

 

 

 

15,160,397

 

 

$

15

 

 

$

270,974

 

 

$

(80,393

)

 

$

190,596

 

Cancellation of common stock in connection

   with exchange for preferred stock

 

 

 

 

 

 

 

 

6,204

 

 

 

 

 

 

(344,666

)

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock in connection

   with exchange for warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(509,117

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,774

 

 

 

 

 

 

1,774

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,499

)

 

 

(8,499

)

Balance as of March 31, 2021

 

 

108,070

 

 

$

 

 

 

6,204

 

 

$

 

 

 

14,306,614

 

 

$

14

 

 

$

272,749

 

 

$

(88,892

)

 

$

183,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

720,408

 

 

$

1

 

 

$

67,046

 

 

$

(57,582

)

 

$

9,465

 

Issuance of common stock in connection with

   exercise of warrants, net of issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

383,234

 

 

 

 

 

 

5,191

 

 

 

 

 

 

5,191

 

Cancellation of common stock in connection

   with exchange for preferred stock

 

 

 

 

 

 

 

 

3,796

 

 

 

 

 

 

(210,889

)

 

 

 

 

 

 

 

 

 

 

 

 

Warrant inducement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,829

 

 

 

 

 

 

4,829

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

437

 

 

 

 

 

 

437

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,177

)

 

 

(8,177

)

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

3,796

 

 

$

 

 

 

892,753

 

 

$

1

 

 

$

77,503

 

 

$

(65,759

)

 

$

11,745

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

9


 

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(8,499

)

 

$

(8,177

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

2

 

Amortization of operating lease asset

 

 

46

 

 

 

44

 

Warrant inducement expense

 

 

 

 

 

4,829

 

Stock-based compensation

 

 

1,774

 

 

 

437

 

Deferred tax liabilities

 

 

(501

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(159

)

 

 

159

 

Accounts payable and accrued expenses

 

 

2,220

 

 

 

552

 

Operating lease liability

 

 

(47

)

 

 

(43

)

Net cash used in operating activities

 

 

(5,166

)

 

 

(2,197

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of warrants, net

 

 

 

 

 

5,191

 

Offering costs in connection with PIPE transaction

 

 

(450

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(450

)

 

 

5,191

 

Net change in cash and cash equivalents

 

 

(5,616

)

 

 

2,994

 

Cash and cash equivalents at beginning of period

 

 

114,195

 

 

 

8,791

 

Cash and cash equivalents at end of period

 

$

108,579

 

 

$

11,785

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Common stock exchanged for warrants

 

$

1

 

 

$

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

10


ELEDON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business

Eledon Pharmaceuticals, Inc. (formerly Novus Therapeutics, Inc.) is a clinical stage biopharmaceutical company focused on discovering or acquiring, and then developing life-changing, targeted medicines for persons living with an autoimmune disease, requiring an organ or cell-based transplant, or living with amyotrophic lateral sclerosis (“ALS”). We believe that this approach has the potential to allow us to: develop more precise therapies with a resulting potential for both increased efficacy and safety; identify patients and indications more likely to respond to our treatment approaches; and pursue multiple indications for product candidates. The company’s lead compound in development is AT-1501, an anti-CD40L antibody with high affinity for CD40 ligand (CD40L, also called CD154), a well-validated biological target with broad therapeutic potential. AT-1501 is a humanized IgG1 antibody engineered to potentially both improve safety and provide pharmacokinetic, pharmacodynamic, and dosing advantages compared to other anti-CD40 approaches. The central role of CD40/CD40L signaling in generating pro-inflammatory responses makes it an attractive candidate for therapeutic intervention in autoimmune disease, induction and maintenance of transplant tolerance, and neuroinflammation. Blocking the activation of the CD40L pathway prevents acute and long-term allograft transplant rejection in multiple animal species and ameliorates disease progression and pathology in preclinical models of autoimmunity and ALS. Unless otherwise indicated, references to the terms “Eledon,” “our,” “us,” “we”, or the “Company” refer to Eledon Pharmaceuticals, Inc. and its wholly-owned subsidiaries, on a consolidated basis.

On September 14, 2020, we acquired Anelixis Therapeutics, Inc. (“Anelixis”), a privately held clinical stage biotechnology company developing a next generation anti-CD40L antibody as a potential treatment for organ and cellular transplantation, autoimmune diseases, and neurodegenerative diseases (see Note 7). Following the acquisition of Anelixis, we changed our name to Eledon Pharmaceuticals, Inc. The Company has continued to maintain its corporate headquarters in Irvine, California and has research and development facilities in the Boston, Massachusetts area.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and Article 8 of Regulation S-X requirements as set forth by the Securities and Exchange Commission (“SEC”) for interim financial information and reflect all adjustments and disclosures, which are, in the opinion of management, of a normal and recurring nature, and considered necessary for a fair presentation of the financial information contained herein. Pursuant to these rules and regulations, the unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of results of operations and comprehensive loss, financial position, and cash flows in conformity with GAAP.

The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and accompanying notes of Eledon for the year ended December 31, 2020 included in the Annual Report on Form 10-K filed by the Company with the SEC on March 31, 2021. The results of operations and comprehensive loss for the three months ended March 31, 2021 are not necessarily indicative of results expected for the full fiscal year or any other future period.

Principles of Consolidation

Eledon, a Delaware corporation, owns 100% of the issued and outstanding common stock or other ownership interest in Anelixis Therapeutics, LLC, a Delaware corporation, and Otic Pharma, Ltd., a private limited company organized under the laws of the State of Israel (“Otic”). Otic owns 100% of the issued and outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc.

The functional currency of the Company’s foreign subsidiary is the U.S. Dollar; however, certain expenses, assets and liabilities are transacted at the local currency. These transactions are translated from the local currency into U.S. Dollars at exchange rates during or at the end of the reporting period. The activities of the Company’s foreign subsidiary are not significant to the condensed consolidated financial statements.

All significant intercompany accounts and transactions among the entities have been eliminated from the condensed consolidated financial statements.

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Liquidity and Financial Condition

The Company has experienced recurring net losses and negative cash flows from operating activities since its inception. The Company recorded a net loss of $8.5 million for the three months ended March 31, 2021. As of March 31, 2021, the Company had cash and cash equivalents of $108.6 million, working capital of $106.0 million and an accumulated deficit of $88.9 million. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. In order to continue these activities, the Company will need to raise additional funds through public or private debt and equity financings or strategic collaboration and licensing arrangements. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.  If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets.       

At the time of issuance of the condensed consolidated financial statements for the three months ended March 31, 2021, the Company’s management performed an analysis and concluded that the Company had sufficient cash resources to meet its anticipated cash needs through at least the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements.           

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to stock-based transactions, accruals for liabilities, fair value of assets acquired and liabilities assumed in a business combination, impairment of long lived assets, including goodwill, and other matters that affect the condensed consolidated financial statements and related disclosures. Actual results could differ materially from those estimates under different assumptions or conditions and the differences may be material to the condensed consolidated financial statements.

Cash and Cash Equivalents

Cash represents cash deposits held at financial institutions. The Company considers all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. Cash equivalents are held for the purpose of meeting short-term liquidity requirements, rather than for investment purposes. The Company had $9.2 million of cash equivalents at March 31, 2021 and December 31, 2020.

Concentration of Credit Risk and Other Risks and Uncertainties

As of March 31, 2021 and December 31, 2020, all of the Company’s long-lived assets were located in the United States.

Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents. The Company’s policy is to invest cash in institutional money market funds to limit the amount of credit exposure. At times, the Company maintains cash equivalents in short‑term money market funds and it has not experienced any losses on its cash equivalents.

The Company’s products will require approval from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies before commercial sales can commence. There can be no assurance that the Company’s products will receive any of these required approvals. The denial or delay of such approvals may impact the Company’s business in the future. In addition, after approval by the FDA, there is still an ongoing risk of adverse events that did not appear during the product approval process.

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The Company is subject to risks common to companies in the pharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of products, product liability, the volatility of its stock price and the need to obtain additional financing.

Our facilities and equipment, including those of our suppliers and vendors, may be affected by natural or man-made disasters. Our administrative office is based in Irvine, California and we manage all our research and development activities through third parties that are located throughout the world. We have taken precautions to safeguard our facilities, equipment and systems, including insurance, health and safety protocols, and off-site storage of computer data. However, our facilities and systems, as well as those of our third-party suppliers and vendors, may be vulnerable to earthquakes, fire, storm, health emergencies, including the ongoing COVID-19 pandemic, power loss, telecommunications failures, physical and software break-ins, software viruses and similar events which could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses and delay research and development activities. In addition, the insurance coverage we maintain may not be adequate to cover our losses in any circumstance and may not continue to be available to use on acceptable terms, or at all.

Reportable Segments

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer and the Company has determined that it operates in one business segment, which is the development of products for therapeutic medicines selectively targeting critical pathways associated with the underlying molecular pathogenesis for patients with severe inflammation and autoimmune diseases.

Research and Development Expenses

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

The Company contracts with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to its vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. The Company’s accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. These contracts may be terminated by the Company upon written notice and the Company is generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances the Company may be further responsible for termination fees and penalties, as well as reasonable shutdown costs. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time. There have been no material adjustments to the Company’s prior‑period accrued estimates for clinical trial activities through March 31, 2021.

Net Loss Per Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, preferred stock, convertible notes and accrued interest, stock options, warrants and restricted stock units are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share was the same for the periods presented due to the Company’s net loss position. Basic weighted average shares outstanding for the three months ended March 31, 2021 include 509,117 shares underlying warrants to purchase common shares. As the shares underlying these warrants can be issued for little

13


consideration (an exercise price per share equal to $0.001 per share), these shares are deemed to be issued for purposes of basic earnings per share.

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands, except share and per share data)

 

Net loss used in the calculation of basic and diluted

   loss per share

 

$

(8,499

)

 

$

(8,177

)

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(8.52

)

Weighted-average number of common shares, basic

   and diluted

 

 

14,831,049

 

 

 

959,285

 

 

The computation of diluted earnings per share excludes stock options, warrants, and restricted stock units that are anti-dilutive. As of March 31, 2021 and 2020, common share equivalents of 4,659,416 shares and 528,659 shares were anti-dilutive, respectively.   

Stock-based Compensation

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

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

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

    

In March 2020, the Board of Directors approved an increase of 28,816 shares issuable under the 2014 Plan and 7,204 shares issuable under the ESPP.   

On December 18, 2020, the Company held the Special Meeting, whereby the Company’s stockholders approved the 2020 Long Term Incentive Plan (the “2020 Plan”). The aggregate number of shares of stock available for issuance under the 2020 Plan will initially be 4,860,000 shares of Common Stock, which represents approximately 15% of the total issued and outstanding shares of the Company’s common stock as of the record date of the Special Meeting (calculated on an as-converted basis and without regard to the potential application of beneficial ownership conversion limitations on the Preferred Stock) and may be increased by the number of shares under the 2014 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company. Based on projected utilization rates, the Board of Directors currently intends that the initial shares under the 2020 Plan will be sufficient to fund the Company’s equity compensation needs for approximately 3 years.

The 2014 Plan was closed to new grants following the approval of the 2020 plan, and therefore, there were no longer any shares reserved for issuance under the 2014 Plan as of December 31, 2020. The number of shares reserved for issuance under the 2020 Plan and ESPP was 4,135,044 and 24,077 shares, respectively, as of March 31, 2021.

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Recently Adopted Accounting Pronouncements

No new accounting pronouncement issued or effective during the fiscal period had or is expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.

Note 3. Prepaid Expenses and Other Current Assets

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

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Prepaid insurance

 

$

892

 

 

$

1,157

 

Prepaid clinical

 

 

481

 

 

 

89

 

Prepaid other

 

 

66

 

 

 

41

 

Insurance receivable

 

 

197

 

 

 

110

 

Other current assets

 

 

26

 

 

 

38

 

Total prepaid expenses and other current assets

 

$

1,662

 

 

$

1,435

 

 

Note 4. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Accrued compensation and related expenses

 

$

836

 

 

$

31

 

Accrued clinical

 

 

1,415

 

 

 

258

 

Accrued professional services

 

 

159

 

 

 

9

 

Accrued vacation

 

 

128

 

 

 

67

 

Accrued costs associated with PIPE financing

 

 

 

 

 

450

 

Accrued other

 

 

52

 

 

 

146

 

Total accrued expenses and other liabilities

 

$

2,590

 

 

$

961

 

 

Note 5. Commitments and Contingencies

Operating Leases

The Company leases office space under various operating leases. Total rental expense for all operating leases in the accompanying condensed consolidated statements of operations and comprehensive loss was $63,000 and $47,000 for the three months ended March 31, 2021 and 2020, respectively.  

The Company has an operating lease for 5,197 square feet of office space in Irvine, California, that expires on September 30, 2021, as amended. Additionally, the Company has operating leases for four serviced office spaces in Burlington, Massachusetts that expire on June 30, 2021. The Burlington, Massachusetts office leases are considered short-term leases and are not recorded on the condensed consolidated balance sheet.   

The Company determines if a contract contains a lease at inception. Our office leases have a remaining term ranging from three months to six months and do not include options to extend the leases for additional periods.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities as adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. As we have no outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management’s judgment.

15


Our Irvine lease contains rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. Our lease agreement does not contain any material residual value guarantees or material restrictive covenants.

While we do not currently have any lease agreement with lease and non-lease components, we elected to account for lease and non-lease components as separate components.

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the condensed consolidated balance sheet.

 

The components of lease expense were as follows:

 

 

 

Three Months Ended March 31, 2021

 

Operating lease cost(a)

 

$

49

 

(a) Includes variable operating lease expenses, which are immaterial

 

 

Other information related to leases was as follows (in thousands, except lease term and discount rate):

 

 

 

Three Months Ended March 31, 2021

 

Supplemental Cash Flows Information

 

 

 

 

Cash paid for amounts included in the measurement of lease liability:

 

 

 

 

Operating cash flows from operating lease

 

$

49

 

Remaining lease term

 

 

 

 

Operating lease

 

0.5

 

Discount rate

 

 

 

 

Operating lease

 

 

3.25

%

 

Future payments under noncancelable operating leases having initial or remaining terms of one year or more are as follows for the remaining fiscal year and thereafter (in thousands):

 

Years ending

 

2021 (remainder of)

 

$

97

 

Total minimum lease payments

 

 

97

 

Less imputed interest

 

 

 

Present value of lease liabilities

 

 

97

 

Less current portion

 

 

(97

)

 

 

$

 

 

Grants and Licenses

ALS Therapy Development Foundation, Inc. License Agreement

In May 2015, Anelixis executed a License Agreement (the “Agreement”), which is an exclusive patent rights agreement with ALS Therapy Development Foundation, Inc. (“ALSTDI”) for certain patents and “know-how” of ALSTDI. This agreement continues until the licensee terminates the agreement with ninety days written notice. The Agreement requires license fees payable to ALSTDI, subject to the achievement of certain milestones and other conditions.

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The first and second milestones of the Agreement are the dosing of the first subjects in a first toxicity study in non-human primates and the dosing of the first patient in a Phase I Clinical Trial, respectively. Both of these milestones were achieved as of December 31, 2018 and 2017. The fee due for the achievement of these milestones was $1,000,000 each. During 2018 and 2017, Anelixis issued $1,000,000 worth of its common stock in lieu of making a cash payment. There were no milestones achieved during the three months ended March 31, 2021 and the year ended December 31, 2020.

The Agreement was amended and restated in February 2020, and a first amendment to the restated license agreement was executed in September 2020. As amended in September 2020, the remaining milestone payments for a first licensed product total $6.0 million. In the event that the Company develops a second licensed product, the Company is obligated to pay up to $2.5 million in additional milestone payments.

In addition to the milestone payments, the Company is required to pay ALSTDI an amended annual license maintenance fee of $100,000 beginning on the earlier of January 1, 2022, the Company’s first sublicense, or change in control, as defined in the Agreement.  

Furthermore, the Company shall pay ALSTDI fees based on reaching certain levels of annual net sales of any product produced with the patent rights. A royalty in the low single digits will be due on aggregate net sales. Upon the first calendar year of reaching $500 million in aggregate net sales, the Company shall pay ALS TDI a one-time milestone payment of $15,000,000. Upon the first calendar year of reaching $1 billion in aggregate net sales, the Company is obligated to pay ALSTDI a one-time milestone payment of $30,000,000.

Israeli Innovation Authority Grant

From 2012 through 2015, the Company received grants in the amount of approximately $537,000 from the Israeli Innovation Authority (previously the Office of Chief Scientist) of the Israeli Ministry of Economy and Industry designated for investments in research and development. The grants are linked to the U.S. Dollar and bear annual interest of LIBOR. The grants are to be repaid out of royalties from sales of the products developed by the Company from its investments in research and development. Because the Company has not yet earned revenues related to these investments and cannot estimate potential royalties, no liabilities related to these grants have been recorded as of each period presented. Repayment of the grant is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the research and development program fails, is unsuccessful or aborted or if no sales are generated. The Company has not yet generated sales as of March 31, 2021; therefore, no liability was recorded for the repayment in the accompanying condensed consolidated financial statements.

Otodyne License Agreement

In November 2015, the Company entered into an exclusive license agreement with Scientific Development and Research, Inc. and Otodyne, Inc. (collectively, the “Licensors”) granting the Company exclusive worldwide rights to develop and commercialize OP0201, a potential first-in-class treatment option for patients at risk for or with otitis media (middle ear inflammation with or without infection), which is often caused by Eustachian tube dysfunction (“ETD”). Under the terms of the agreement, the Company is obligated to use commercially reasonable efforts to seek approval for and commercialize at least one product for otitis media in the U.S. and key European markets (France, Germany, Italy, Spain, and the United Kingdom). The Company is responsible for prosecuting, maintaining, and enforcing all related intellectual property and will be the sole owner of improvements.   

In December 2015, the Licensors completed transfer of all technology, including the active Investigational New Drug application for OP0201 to the Company. The Company is obligated to pay up to $42.1 million in development and regulatory milestones if OP0201 is approved for three indications in the United States, two in Europe, and two in Japan. The Company is also obligated to pay up to $36.0 million in sales-based milestones, beginning with sales exceeding $1.0 billion in a calendar year. The Company is also obligated to pay a tiered royalty for a period up to eight years, on a country-by-country basis. The royalty ranges from a low-single to mid-single digit percentage of net sales. The Company made a $300,000 milestone payment in March 2019 related to the first patient enrolled in a phase 2 study. There were no other milestones achieved during the three months ended March 31, 2021.

Legal Matters

The Company is involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, the Company assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability

17


is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, the Company does not consider a liability probable and is currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible loss or range of loss that could result from an unfavorable outcome. In the event that opposing litigants in outstanding litigation proceedings or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

Legal Proceedings

On September 22, 2014, Tokai, the legal predecessor of the Company, completed the initial public offering of its common stock (the “IPO”). On July 25, 2017, a purported stockholder of Tokai filed a lawsuit in the U.S. District Court for the District of Massachusetts, entitled Peter B. Angelos v. Tokai Pharmaceuticals, Inc., et al., No. 1:17-cv-11365-MLW. The lawsuit was filed against Tokai, Jodie P. Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the underwriters of the IPO. The lawsuit alleges that Tokai made false and misleading statements and omissions about its clinical trials for galeterone, in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys’ fees.

On September 7, 2018, plaintiff filed an amended complaint. Defendants moved to dismiss the amended complaint on October 15, 2018. Plaintiff opposed defendants’ motion on November 19, 2018, defendants filed a reply in support of their motion on December 17, 2018, and plaintiff filed a sur-reply in support of his opposition on January 8, 2019. On February 18, 2020, the court held a hearing on defendants’ motion to dismiss. The court also ordered the parties to confer and notify it by March 10, 2020, if they reached an agreement to settle the case. On March 10, 2020, pursuant to the court’s order, the parties advised the court they did not agree on a settlement. On July 15, 2020, plaintiff filed a Notice of Supplemental Authority, and on July 21, 2020, defendants filed a response. On October 9, 2020, the court entered an order granting defendants’ motion to dismiss and dismissing the action in its entirety. Judgment was entered on October 14, 2020. On November 12, 2020, plaintiff filed a notice of appeal. On February 17, 2021, the parties submitted a stipulated motion to dismiss the appeal, following a settlement payment to plaintiff by the Company’s insurance carrier of an immaterial amount.  On February 18, 2021, the United States Court of Appeals for the First Circuit granted the motion, entered judgment dismissing the appeal, and issued the mandate.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future because of these indemnification obligations. No amounts associated with such indemnifications have been recorded to date.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. There have been no contingent liabilities requiring accrual at March 31, 2021.

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Note 6. Stockholders’ Equity

Equity Distribution Agreement

On July 23, 2018, the Company filed a prospectus and prospectus supplement (the “2018 Prospectus”) under which the Company may offer and sell, from time to time, pursuant to an equity distribution agreement with Piper Jaffray & Co., up to $9.8 million in shares of its common stock. During the year ended December 31, 2020 and three months ended March 31, 2021, no shares were sold under the 2018 Prospectus.               

Common Stock Warrants                

As of March 31, 2021, a total of 846,939 warrants were exercisable into common stock. The shares of common stock underlying the warrants are registered for offer and sale under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s effective registration statements on Form S-1.

The following table shows the warrant activity:

 

 

 

Rollforward of Warrant Activity

 

 

 

Registered direct

warrants, placement agent

 

 

Private placement warrants

 

 

Private placement warrants, placement agent

 

 

Warrants exchanged for common stock

 

 

Total

 

Balance as of December 31, 2020

 

 

9,581

 

 

 

319,064

 

 

 

9,177

 

 

 

 

 

 

337,822

 

Issued

 

 

 

 

 

 

 

 

 

 

 

509,117

 

 

 

509,117

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled/Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

9,581

 

 

 

319,064

 

 

 

9,177

 

 

 

509,117

 

 

 

846,939

 

Preferred Stock Warrants

As of March 31, 2021, 55,853.875 warrants were exercisable into Series X1 Preferred Stock. Each share of Series X1 Preferred Stock is convertible into approximately 55.5556 shares of common stock. The shares of Series X1 Preferred Stock underlying the assumed and replaced warrants in connection with the Anelixis acquisition are expected to be converted into shares of Eledon common stock in the second fiscal quarter of 2021.

The following table shows the warrant activity:

 

 

Rollforward of Warrant Activity

 

 

 

Warrants assumed and

replaced in acquisition

 

 

Total

 

Balance as of December 31, 2020

 

 

55,583.875

 

 

 

55,583.875

 

Assumed and replaced

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

Cancelled/Expired

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

55,583.875

 

 

 

55,583.875

 

Exchange Agreements

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

19


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

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

Following the Exchanges, the Company had 14,306,614 shares of Common Stock outstanding and 6,203.98 shares of Series X Preferred Stock outstanding, which are convertible into 344,663 shares of Common Stock (after rounding for fractional shares).

As of March 31, 2021, a total of 509,117 warrants were available for exercise. The shares of common stock underlying the registered direct placement agent warrants are registered for offer and sale under the Securities Act, pursuant to the Company’s effective registration statements on Form S-1.

Stock-Based Compensation

Total stock-based compensation expense was recognized in our condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

685

 

 

$

154

 

General and administrative

 

 

1,089

 

 

 

283

 

Total stock-based compensation

 

$

1,774

 

 

$

437

 

 

Note 7. Business Acquisition

On September 14, 2020, the Company acquired Anelixis pursuant to that certain Agreement and Plan of Merger, dated September 14, 2020 (the “Merger Agreement”), by and among Eledon, Nautilus Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of Eledon (“First Merger Sub”), Nautilus Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Eledon (“Second Merger Sub”), and Anelixis. Pursuant to the Merger Agreement, First Merger Sub merged with and into Anelixis, pursuant to which Anelixis was the surviving entity and became a wholly owned subsidiary of Eledon (the “First Merger”). Immediately following the First Merger, Anelixis merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity (the “Second Merger,” together with the First Merger, the “Merger”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.  Following the acquisition of Anelixis, the Company has continued to maintain its corporate headquarters in Southern California and maintain research and development facilities in the Boston area.

Under the terms of the Merger Agreement, at the closing of the Merger, Eledon issued to the stockholders of Anelixis 175,488 shares of the common stock of Eledon, par value $0.001 per share and 140,026 shares of newly designated Series X1 Preferred Stock. Subject to stockholder approval, each share of Series X1 Preferred Stock is convertible into approximately 55.5556 shares of common stock. The preferences, rights and limitations applicable to the Series X1 Preferred Stock are set forth in the Certificate of Designation, as filed with the SEC.

In addition to the common stock and preferred stock issued, certain outstanding warrants issued and equity awards granted by Anelixis were not settled upon completion of the merger, and instead were assumed and then replaced with Eledon warrants and equity awards. The amounts for the assumed and replaced warrants and equity awards attributed to pre-merger services are included in other consideration amounts transferred and added to goodwill.

The Company determined that FASB Accounting Standards Codification Topic 805 (“ASC 805”), Business Combinations, is the authoritative guidance in accounting for this transaction and for determining whether Anelixis was a

20


dormant, non-operating entity that would not meet the definition of a business under ASC 805. If Anelixis was not an operating entity, the acquisition would instead be considered a capital transaction and equivalent to the issuance of shares by Eledon for the net monetary assets of Anelixis accompanied by a recapitalization. Conversely, if Anelixis was determined to be a business, the acquisition method of accounting would apply and the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed would be recorded as goodwill.

The Company evaluated the terms of the Merger Agreement and the transaction under the applicable accounting guidance and determined that Anelixis satisfied the definition of a business under ASC 805 and as further clarified by ASU 2017-01.  Based on this analysis, the Company accounted for the acquisition of Anelixis as a business combination under the acquisition method of accounting as it had determined that Anelixis’ assets acquired in the transaction included an input and a substantive process that together significantly contributed to the ability to create outputs. Additionally, the Company was determined to be both the legal and accounting acquirer as it had issued equity interests to acquire all of Anelixis’ equity interests. Goodwill generated from the acquisition was primarily attributable to the expected synergies from combining operations and expanding market potential, together with certain intangible assets that do not qualify for separate recognition. None of the approximately $48.6 million in goodwill is expected to be deductible for tax purposes.

Concurrently and in connection with the execution of the Merger Agreement, the Company entered into the Purchase Agreement with certain institutional and accredited investors. Pursuant to the Stock Purchase Agreement, the Company agreed to sell an aggregate of approximately 199,112 shares of Series X1 Preferred Stock for an aggregate purchase price of approximately $99.1 million in the Financing (collectively, the “Financing”). Eledon had commitments for an additional $9.0 million in equity financing that was contingent upon the satisfaction of certain incremental closing conditions, including stockholders’ approval of the issuance of the Company’s common stock upon the conversion of the Company’s Series X1 Preferred Stock and the effective registration of its common stock. The merger was a pre-requisite in order for the Financing to transpire; without the merger, those certain institutional and accredited investors would not have purchased the Company’s Series X1 convertible preferred stock.

On December 18, 2020, the Company held the Special Meeting, whereby the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X1 Preferred Stock, par value $0.001 per share, issued in September 2020. As a result, approximately 231,068 shares of Series X1 Preferred Stock were converted into 12,837,056 shares of the Company’s common stock. As of March 31, 2021 and December 31, 2020, approximately 108,070 shares of Series X1 Preferred Stock remain outstanding.

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

Acquisition Consideration

 

The following table summarizes the fair value of purchase price consideration to acquire Anelixis (in thousands):

 

Description

 

Amount

 

Fair value of purchase consideration:

 

 

 

 

Common shares issued (1)

 

$

1,194

 

Preferred shares issued (2)

 

 

69,723

 

Options assumed (3)

 

 

2,950

 

Warrants assumed (3)

 

 

12,944

 

Total purchase consideration

 

$

86,811

 

 

(1)

The fair value of common shares issued in the merger is based on 175,488 shares issued on the September 14, 2020 acquisition date at the closing price of the Company's common stock of $6.80 per share.

 

(2)

The fair value of preferred shares issued in the merger is based on the amount per share of Series X1 preferred stock in the September 2020 Purchase Agreement.

 

(3)

The fair value of the options and warrants assumed and replaced in the merger is based on applying the Black-Scholes valuation method using appropriate inputs of volatility rates ranging from 82% to 83%, expected terms of 5.0 to 5.9 years and risk-free rates of 0.27% to 0.45%.

21


 Purchase Price Allocation

The following is an allocation of purchase price as of the September 14, 2020 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

 

Description

 

Amount

 

Cash and cash equivalents

 

$

11,035

 

Prepaid expenses and other current assets

 

 

26

 

Other non-current assets

 

 

11

 

Accounts payable

 

 

(580

)

Accrued expenses and other liabilities

 

 

(205

)

Deferred tax liability

 

 

(4,510

)

Net identifiable assets acquired

 

 

5,777

 

 

 

 

 

 

Goodwill

 

 

48,648

 

Identifiable intangible assets

 

 

32,386

 

Net assets acquired

 

$

86,811

 

 

Acquisition costs of approximately $2.9 million were included in general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2020.

Deferred Income Taxes

The net deferred tax liability was based upon the difference between the estimated book basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of Anelixis.

Identifiable Intangible Assets

Through its acquisition of Anelixis, the Company acquired intangible assets that consisted of in-process research and development (“IPR&D”) with an estimated fair value of $32.4 million, related to its clinical development program of AT-1501. The estimated fair value of the IPR&D was determined by management based on external valuation specialists’ analysis of replacement costs to recreate AT-1501 in its current clinical stage. The replacement cost method contemplates the cost to recreate the utility of AT-1501 but in a form that is not a replica of AT-1501. In this method, the replacement cost is determined and reduced for depreciation of the asset. In this context, depreciation has three components: (i) physical deterioration, (ii) functional obsolescence, and (iii) economic obsolescence.  

Goodwill

Under the acquisition method of accounting, goodwill of approximately $48.6 million would be generated after accounting for Anelixis’ assets acquired, liabilities assumed, and intangible assets identified and valued.

Pro Forma Information (Unaudited)

The following unaudited pro forma combined financial information is presented to illustrate the estimated effects of the Merger based on the historical financial statements and accounting records of Eledon and Anelixis after giving effect to the Merger and the Merger-related pro forma adjustments.

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net loss and other comprehensive loss

 

$

(8,499

)

 

$

(10,297

)

The unaudited pro forma combined statements of operations for the three months ended March 31, 2021 and 2020 combine the historical statements of operations of Eledon and Anelixis, giving effect to the Merger as if it had occurred on January 1, 2020, the first day of the fiscal year ended December 31, 2020.

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The unaudited pro forma combined financial information has been presented for informational purposes only. The unaudited pro forma combined financial information does not purport to represent the actual results of operations that Eledon and Anelixis would have achieved had the companies been combined during the periods presented in the unaudited pro forma combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the Merger. The unaudited pro forma combined financial information does not reflect any potential cost savings that may be realized as a result of the Merger and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.

Additionally, the unaudited pro forma combined financial information does not reflect any merger-related expenses, which totaled approximately $30,000 during the period ended March 31, 2020. There were no merger related expenses during the period ended March 31, 2021.                      

Anelixis has not recognized any revenue since its acquisition by the Company.

8. Subsequent Events

The Company has evaluated events subsequent to March 31, 2021 through the filing date of this Quarterly Report on Form 10-Q. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the condensed consolidated financial statements and accompanying notes.

On May 3, 2021, the Company amended its operating lease in Irvine, California, which was set to expire on September 31, 2021. The Company extended the term of the lease through December 31, 2022, effective October 1, 2021.

23


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

The unaudited interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our audited financial statements and accompanying notes for the year ended December 31, 2020 included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, as amended. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please see Part II, Item 1A. Risk Factors for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period. Unless otherwise indicated, references to the terms “Eledon”, the “Company”, “we”, “our”, and “us” refer to Eledon Pharmaceuticals, Inc. References to the term “Tokai” refer to Tokai Pharmaceuticals, Inc., the legal predecessor of the Company.

ABOUT ELEDON PHARMACEUTICALS

Overview

Eledon Pharmaceuticals, Inc. (“Eledon” or the “Company”) is a clinical stage biopharmaceutical company focused on developing life-changing, targeted medicines for persons living with an autoimmune disease, requiring an organ or cell-based transplant, or living with amyotrophic lateral sclerosis (“ALS”). The company’s lead compound in development is AT-1501, an anti-CD40L antibody with high affinity for CD40 ligand (CD40L, also called CD154), a well-validated biological target with broad therapeutic potential. AT-1501 is a humanized IgG1 antibody engineered to potentially both improve safety and provide pharmacokinetic, pharmacodynamic, and dosing advantages compared to other anti-CD40 approaches. AT-1501 is a humanized IgG1 antibody engineered to potentially both improve safety and provide pharmacokinetic, pharmacodynamic, and dosing advantages compared to other anti-CD40 approaches. The CD40L/CD40 pathway is widely recognized for its prominent role in immune regulation. CD40L is primarily expressed on activated CD4+ T cells, platelets and endothelial cells while the CD40 receptor is constitutively expressed on antigen presenting cells such as B cells, macrophages, and dendritic cells. By blocking CD40L and not the CD40 receptor, AT-1501 inhibits both the CD40 and CD11 costimulatory signaling pathways, providing the potential for improved efficacy compared to anti-CD40 receptor approaches. Blocking CD40L also increases polarization of CD4+ lymphocytes to Tregs, a specialized subpopulation of T cells that act to suppress an immune response, thus creating a more tolerogenic environment, which may also play a therapeutic role for autoimmune diseases and in the transplant setting.

In September 2020, we acquired Anelixis Therapeutics, Inc. (“Anelixis”), the company that owned or controlled the intellectual property related to AT-1501.

Our business strategy is to optimize the clinical and commercial value of AT-1501, and become a global biopharmaceutical company with a focused autoimmune franchise.

AT-1501 is designed to negate the risk of thrombolytic events seen in the first generation of anti-CD40L antibodies by introducing structural modifications that have been shown in preclinical models to eliminate binding to the Fcγ receptors associated with platelet activation without altering the binding of AT-1501 to CD40L. In non-human primate studies, dosing of AT-1501 up to 200 mg/kg per week for 26 weeks, demonstrated no adverse events regarding coagulation, platelet activation or thromboembolism.

We have completed a single ascending dose Phase 1 study of AT-1501 in healthy volunteers and people with ALS. In this study, the doses of AT-1501 studied were well tolerated in healthy subjects and adults with ALS, and demonstrated a safety profile comparable to placebo.  AT-1501 demonstrated low anti-drug antibody responses that were not dose related, linear dose proportionality across the dose ranges, and a half-life of up to 26 days.

We plan to develop AT-1501 in up to four indications: prevention of kidney allograft rejection, prevention of islet cell allograft rejection, autoimmune nephritis, and ALS. We selected our indications based on preclinical and clinical data that was generated with either our molecule or historical anti-CD40L molecules. In October 2020, we initiated a Phase 2a clinical trial of AT-1501 in ALS. In November 2020, we received clearance from Health Canada to proceed with the initiation of a Phase 2 clinical trial of AT-1501 in islet cell transplantation for the treatment of type 1 diabetes.

24


Prior to our acquisition of Anelixis, we had been focused on developing medicines for patients with disorders of the ear, nose, and throat (“ENT”). In June 2020, we announced that our lead program did not achieve statistical significance for the primary efficacy endpoints in the treatment of acute otitis media. As a result of this failure to achieve the primary study endpoint, we suspended the clinical development of our legacy ENT assets while we assessed potential development strategies. Following the June 2020 announcement, we significantly curtailed development expenses as we sought to identify strategic alternatives that would maximize stockholder value. As a result of these activities, we acquired Anelixis and raised additional capital in September 2020, as described above.

Kidney transplantation: prevention of allograft rejection

Kidney transplantation is the most common type of solid organ transplantation in the United States with an estimated 200,000 Americans living with a transplanted kidney.  In 2019, an estimated 23,000 kidneys were transplanted, of which 10-15% were re-transplants in persons that had already received at least one other kidney.  Yet, over 90,000 people in the U.S. are waiting for a kidney transplant and in 2014, nearly 5,000 Americans died waiting for a kidney with another nearly 4,000 becoming too sick to receive a transplant.

Calcineurin inhibitor (“CNI”s) are a critical component of many immunosuppressive regimens to prevent acute and long-term kidney transplant rejection. However, chronic exposure to certain CNIs including tacrolimus is associated with nephrotoxicity, cardiotoxicity, an increase in opportunistic infections, increased malignancies, and an increase in type 1 diabetes due to pancreatic Beta cell toxicity. These liabilities may result in a requirement for reduced exposures to CNIs over long periods of time and a resulting decrease in the ability to prevent long-term rejection.

AT-1501 seeks to address challenges associated with current immunosuppressive transplantation regimens using CNI-based therapies. The ability to prevent acute and chronic transplant rejection without the need for CNIs has the potential to transform the clinical management of preventing graft rejection by mitigating the adverse events associated with CNIs and improving long-term graft survival, thus potentially decreasing the need for repeat kidney transplants.

Several historical studies have described the effects of anti-CD40L antibodies in nonhuman primate models of kidney transplant and shown that even short courses of anti CD40L therapy can prevent both acute rejection and long-term rejection in nonhuman primates with durable efficacy.

Islet cell transplantation (“ICT”): prevention of allograft rejection

Type 1 diabetes is a T cell mediated autoimmune disease with progressive loss of insulin producing pancreatic beta cells and affects over one million persons in the U.S. Of these individuals, an estimated 70,000 people have a particularly hard to control type 1 diabetes called Brittle Diabetes (“BT1D”) which is in part characterized by large swings in blood glucose levels and impaired awareness of hypoglycemia. Impaired awareness of hypoglycemia for people with type 1 diabetes is associated with severe hypoglycemic events which can lead to significant symptoms and even death. Pancreatic islet cell transplantation is gaining attention as a therapeutic option for type 1 diabetes because it can restore physiological insulin secretion, minimize the risk of hypoglycemic unawareness, and reduce the risk of death due to severe hypoglycemia. The advances made in this field over the past decade have improved patient outcomes, and the procedure has been evolving from an experimental treatment to a clinical treatment option. In November 2020, we received clearance from Health Canada to proceed with the initiation of a Phase 2 clinical trial of AT-1501 in islet cell transplantation for the treatment of type 1 diabetes.

A number of issues are believed to continue to hamper the overall success of ICT and to need to be addressed in order for there to be widespread clinical acceptance. These include the acute loss of transplanted islets with current immunosuppressive treatments, particularly those with CNI-based therapies, due to islet cell toxicity and alloreactive immunologic responses to transplanted islets. Over time, the progressive loss of islet cells and decline in islet cell function often leads to the need for multiple donors in order for BTID patients to have optimal response to blood glucose levels and possibly achieve insulin independence. AT-1501 seeks to address the challenges associated with current ICT immunosuppressive regimens using CNI-based therapies, by replacing the CNIs with AT-1501. CD40L blockade may abolish many effector mechanisms of inflammation, prevent and intervene in the progression of autoimmunity, and instill transplant tolerance.

25


Historical studies in nonhuman primate models of islet cell transplantation have demonstrated that treatment with anti-CD40L antibodies induces long term islet cell function and graft survival, even as a monotherapy. AT-1501 has shown pre-clinical, proof-of-concept efficacy in a non-human primate model of type 1 diabetes, where animals undergoing ICT maintained glucose control and sustained levels of C-peptide with chronic AT-1501 treatment for up to a year. Compared to combination immunosuppressive therapy including CNIs, AT-1501 monotherapy was more effective in preventing long term islet cell rejection, associated with better graft function, and showed an improved safety profile.

Autoimmune Nephritis

Autoimmune Nephritis refers to a group of autoimmune disorders associated with inflammation and eventual destruction of the kidney. These disorders include Lupus Nephritis (“LN”), focal segmental glomerulosclerosis (“FSGS”) and IgA Nephropathy (“IgAN”). Systemic lupus erythematosus, (“SLE”), is one of the largest autoimmune populations globally and up to an estimated 40 percent of people with SLE develop LN, which may lead to kidney dysfunction, dialysis and end stage renal disease. LN is an orphan disease with an estimated prevalence of between 65,000 and 120,000 persons in the United States. FSGS is also an orphan disease with an estimated prevalence of 40,000 people in the US and variable progression to end stage renal failure. FSGS results from renal podocyte injury associated with immune complex formation in the glomeruli. IgAN, also called Berger’s disease, is a type of glomerulonephritis that occurs when galactose-deficient IgA immune complexes build up in the kidneys, causing inflammation that ultimately damages kidney tissues. With an estimated prevalence of approximately 140,000 persons in the United States, IgAN is one of the most common, orphan, kidney diseases. There are currently no European Medicines Agency (“EMA”) or U.S. Food and Drug Administration (“FDA”) approved treatments for IgAN or FSGS, and only two approved for LN, although immunosuppressants such as systemic steroids and CNIs are prescribed off-label.

In historical preclinical animal models of lupus nephritis, anti-CD40L antibodies ameliorated disease progression, improved kidney function, reduced immune cell infiltrate into the kidney, and improved survival. Systemic biomarkers of SLE such as anti-dsDNA antibodies have also been reduced with anti-CD40L treatment in animal models. Similar data has been described in preclinical models of FSGS. FSGS models using historical anti-CD40L treatments have shown ameliorated kidney function as measured by a reduction in proteinuria and were associated with a decrease in immune cell infiltrate into the glomeruli.

Amyotrophic Lateral Sclerosis

ALS is a progressive, paralytic disorder characterized by degeneration of motor neurons in the brain and spinal cord. In the U.S., the incidence is estimated at approximately 5,000 cases per year with a prevalence of approximately 30,000 cases overall. Despite 2 approved drugs, in most cases, death from respiratory failure occurs approximately 2 to 5 years after diagnosis, with 50% of patients living 3 years from diagnosis and only 20% of patients living 5 years from diagnosis.

Neuroinflammation in ALS is characterized by the infiltration of lymphocytes and macrophages into the central nervous system, and the activation of microglia and reactive astrocytes. Reactive astrocytes and microglia as well as infiltrating lymphocytes, dendritic cells, monocytes, macrophages and immune complexes have been identified in cerebrospinal fluid and neural tissues in both animal models of ALS and at autopsy in ALS patients. While the exact pathogenic mechanism of ALS is still not fully understood, there is strong evidence indicating that this neuroinflammation plays an important role in the disease’s pathogenesis.

AT-1501 is designed to block CD40L binding to CD40, thereby potentially inhibiting neuroinflammatory pathways leading to disease progression in ALS. In vitro proof-of-concept studies have shown that AT-1501 binds to CD40L in human cells and blocks CD40L binding on APCs and activated T cells. The potential for therapeutic benefit of CD40L blockage in treating ALS has been demonstrated in a SOD1 mouse model of ALS, where a murine anti-CD40L antibody, MR1, prolonged survival and delayed the onset of neurological disease progression. These clinical manifestations are believed to be due to reduced immune cell infiltration of macrophages into skeletal muscle and their destroying denervated nerves. The plasticity of the nervous system to repair itself in the absence of this immune cell attack is believed to result in improved neuromuscular junction occupancy and improved muscle function. Blocking CD40L signaling also prevents pro-inflammatory polarization of lymphocytes, reduced neuroinflammation and improved motor neuron survival in rodent ALS models.

26


In October 2020, we initiated a Phase 2a, open-label, multi-center study to evaluate the safety and tolerability of multiple doses of AT-1501 in adult subjects with ALS. Approximately 54 subjects with ALS are planned to be enrolled into the study in the United States and Canada at up to 13 ALS treatment sites. Ascending doses of AT-1501 will be administered as IV infusions to four sequentially enrolling cohorts. The first two cohorts will consist of nine participants, and the last two cohorts of 18 participants, who will each receive six bi-weekly infusions of AT-1501 over a 12-week study period. Blood samples for target engagement, and exploratory biomarkers for inflammation and neurodegeneration will be taken and analyzed. Participant-focused clinical outcomes will also be assessed.

COVID-19 Impact

The COVID-19 pandemic and resulting global disruptions have adversely affected our business and operations, including, but not limited to, the operations of third parties upon whom we rely. The effects of executive and similar government orders, shelter-in-place orders and our work-from-home policies may negatively impact our productivity and disrupt our business. Although the impacts of COVID-19 have not been material to-date, we have experienced delays in certain preclinical studies and resulting delays in data collection and have also experienced inefficiencies in planning and executing trials due to our limited ability to conduct meetings with key third parties. In addition, in response to public health directives and orders, we have ceased all non-essential business travel and implemented optional work-from-home policies for all of our employees, resulting in limited business development and investor relations activities. The magnitude of such effects which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial and credit markets. We have utilized a range of financing methods to fund our operations in the past; however, current conditions in the financial and credit markets may limit the availability of funding or increase the cost of funding. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect our liquidity and capital resources in the future.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2021, as compared to those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020 filed by the Company with the SEC on March 31, 2021.

27


RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table provides comparative unaudited results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

 

 

 

For the Three Months

Ended March 31,

 

 

 

 

 

 

 

2021

 

 

2020

 

 

$ Variance

 

Operating expenses: