10-Q
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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, 2024

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: 001-41498

THIRD HARMONIC BIO, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

 

83-4553503

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

1700 Montgomery Street, Suite 210

 

 

San Francisco, California

 

94111

(Address, including zip code of registrant’s principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (209) 727-2457

 

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

THRD

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of May 9, 2024, the registrant had 40,949,463 shares of common stock, $0.0001 par value per share, outstanding.


 

 


 

Table of Contents

Page

 

Special Note Regarding Forward-Looking Statements

1

 

Risk Factor Summary

2

 

 

 

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

69

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

 

Signatures

72

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and section 27A of the Securities Act of 1933, as amended, or the Securities Act. All statements contained in this Quarterly Report other than statements of historical fact, including but not limited to statements regarding our future results of operations and financial position, business strategy, market size, potential growth opportunities, planned nonclinical and clinical development activities and timelines, the efficacy and safety profile of THB335 or any future product candidates, potential therapeutic benefits and economic value of THB335 or any future product candidates, our ability to obtain funding for our operations necessary to complete further development and commercialization of our product candidates, use of net proceeds from our initial public offering, our ability to maintain and recognize the benefits of certain designations received by THB335 or any future product candidates, the timing and results of our ongoing and planned nonclinical studies and clinical trials, commercial collaboration with third parties, the potential impact of global business or macroeconomic conditions, including as a result of a potential temporary federal government shutdown, inflation, fluctuating interest rates, instability in the global banking system, and geopolitical conflicts, including the war in Ukraine, conflicts in the Middle East or China-Taiwan relations, on our operations, and the receipt and timing of potential regulatory designations, approvals and commercialization of THB335 or any future product candidates, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

Unless the context indicates otherwise, as used in this Quarterly Report, the terms “the Company,” “we,” “us,” and “our” refer to Third Harmonic Bio, Inc., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless otherwise noted. The mark “Third Harmonic Bio” is our registered common law trademark. This Quarterly Report contains additional trade names, trademarks and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by these other companies.

 

1


 

RISK FACTOR SUMMARY

Our business is subject to a number of risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. The principal risks and uncertainties affecting our business includes, among others, the following:

We have a limited operating history, have not completed any clinical trials beyond Phase 1, and neither THB335 nor any of our other product candidates have been approved for commercial sale. We have a history of significant net losses since our inception and expect to continue to incur significant losses for the foreseeable future.
We will need substantial additional funds to pursue our business objectives, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development programs, commercialization efforts or other operations.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or nonperformance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations, financial condition and results of operations.
We have identified a material weakness in our internal control over financial reporting. If we do not remediate the material weakness in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our common stock.
Our future performance is substantially dependent on the success of THB335 as well as our ability to identify and develop future product candidates.
Drug development is a lengthy and expensive process, and the outcome of clinical testing is inherently uncertain, and results of earlier studies and trials may not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of THB335 or any future product candidates.
Our ongoing or future clinical trials may reveal significant adverse events not seen in our nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of THB335 or any future product candidates.
We face competition from entities that have made substantial investments into the rapid development of novel treatments for allergic and inflammatory diseases, including large and specialty pharmaceutical and biotechnology companies developing novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize, if approved, product candidates may be adversely affected.
We rely, and intend to continue to rely, on third parties to conduct our clinical trials and perform all of our research and nonclinical studies. If these third parties do not satisfactorily carry out their contractual duties, fail to comply with applicable regulatory requirements or do not meet expected deadlines, our development programs may be delayed or subject to increased costs or we may be unable to obtain regulatory approval, each of which may have an adverse effect on our business, financial condition, results of operations and prospects.
If we are not able to obtain, maintain and enforce patent protection for our technologies or product candidates, development and commercialization, if approved, of THB335 or any oral future KIT inhibitor product candidates may be adversely affected.
The regulatory approval process is highly uncertain, and we may be unable to obtain, or may be delayed in obtaining, U.S. or foreign regulatory approval and, as a result, unable to commercialize THB335 or any oral future KIT inhibitor product candidates. Even if we believe our development plans are successful, regulatory authorities may not agree that they provide adequate data on safety or efficacy.
Even if we are able to commercialize THB335 or any of our oral future KIT inhibitor product candidates, such product candidate may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

THIRD HARMONIC BIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

December 31,
2023

 

 

March 31,
2024

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

269,070

 

 

$

262,826

 

Prepaid expenses and other current assets

 

 

3,376

 

 

 

2,771

 

Total current assets

 

 

272,446

 

 

 

265,597

 

Restricted cash

 

 

453

 

 

 

453

 

Property and equipment, net

 

 

169

 

 

 

157

 

Right of use asset

 

 

3,763

 

 

 

3,589

 

Other assets, noncurrent

 

 

880

 

 

 

725

 

Total assets

 

$

277,711

 

 

$

270,521

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,838

 

 

$

945

 

Accrued expenses and other current liabilities

 

 

2,835

 

 

 

2,300

 

Operating lease liability, current

 

 

745

 

 

 

773

 

Total current liabilities

 

 

5,418

 

 

 

4,018

 

Operating lease liability, noncurrent

 

 

3,208

 

 

 

3,002

 

Total liabilities

 

 

8,626

 

 

 

7,020

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value, 500,000,000 shares authorized at December 31, 2023
   and March 31, 2024;
40,104,937 and 40,252,868 shares issued and
   outstanding at December 31, 2023 and March 31, 2024, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

383,301

 

 

 

385,573

 

Accumulated deficit

 

 

(114,220

)

 

 

(122,076

)

Total stockholders’ equity

 

 

269,085

 

 

 

263,501

 

Total liabilities and stockholders’ equity

 

$

277,711

 

 

$

270,521

 

 

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

3


 

THIRD HARMONIC BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2023

 

 

2024

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

$

6,737

 

 

$

6,226

 

General and administrative

 

 

 

5,251

 

 

 

5,064

 

Total operating expenses

 

 

 

11,988

 

 

 

11,290

 

Loss from operations

 

 

 

11,988

 

 

 

11,290

 

Other income, net:

 

 

 

 

 

 

 

Interest income

 

 

 

(2,905

)

 

 

(3,433

)

Other (income) expense

 

 

 

2

 

 

 

(1

)

Total other income, net

 

 

 

(2,903

)

 

 

(3,434

)

Net loss

 

 

$

9,085

 

 

$

7,856

 

Net loss per share of common stock, basic and diluted

 

 

$

0.23

 

 

$

0.20

 

Weighted-average number of common stock outstanding, basic
   and diluted

 

 

 

39,438,572

 

 

 

40,213,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

4


 

THIRD HARMONIC BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2022

 

 

39,377,222

 

 

$

4

 

 

$

372,460

 

 

$

(83,396

)

 

$

289,068

 

 

Vesting of restricted stock

 

 

107,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,682

 

 

 

 

 

 

2,682

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,085

)

 

 

(9,085

)

 

Balance at March 31, 2023

 

 

39,484,403

 

 

$

4

 

 

$

375,142

 

 

$

(92,481

)

 

$

282,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2023

 

 

40,104,937

 

 

$

4

 

 

$

383,301

 

 

$

(114,220

)

 

 

269,085

 

 

Vesting of restricted stock

 

 

82,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,223

 

 

 

 

 

 

2,223

 

 

Exercise of stock options

 

 

65,592

 

 

 

 

 

 

49

 

 

 

 

 

 

49

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,856

)

 

 

(7,856

)

 

Balance at March 31, 2024

 

 

40,252,868

 

 

$

4

 

 

$

385,573

 

 

$

(122,076

)

 

$

263,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5


THIRD HARMONIC BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,085

)

 

$

(7,856

)

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

 

 

 

 

 

Stock-based compensation expense

 

 

2,682

 

 

 

2,223

 

Depreciation expense

 

 

3

 

 

 

12

 

Noncash operating lease expense

 

 

69

 

 

 

174

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

413

 

 

 

605

 

Other assets

 

 

155

 

 

 

155

 

Accounts payable

 

 

571

 

 

 

(893

)

Accrued expenses and other current liabilities

 

 

(1,587

)

 

 

(535

)

Operating lease liabilities

 

 

104

 

 

 

(178

)

Net cash used in operating activities

 

 

(6,675

)

 

 

(6,293

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

49

 

Net cash provided by financing activities

 

 

 

 

 

49

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(6,675

)

 

 

(6,244

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

289,318

 

 

 

269,523

 

Cash, cash equivalents and restricted cash at end of period

 

$

282,643

 

 

$

263,279

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flows:

 

 

 

 

 

 

Fixed assets recorded in accounts payable and accrued expenses

 

$

27

 

 

$

 

 

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

6


THIRD HARMONIC BIO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business

Third Harmonic Bio, Inc., or the Company, is a clinical-stage biopharmaceutical company focused on advancing the next wave of medicine for dermal, respiratory and gastrointestinal inflammatory diseases.

The Company was incorporated in 2019 as a Delaware corporation, and has two offices located in San Francisco, California and Cambridge, Massachusetts. In December 2021, the Company formed THB MS, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, which is classified as a Security Corporation in Massachusetts.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, completion and success of clinical testing, development by competitors of new technological innovations, compliance with governmental regulations, dependence on key employees and protection of proprietary technology and the ability to secure additional capital to fund operations. Development of a drug candidate requires extensive research and development and clinical testing prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate employees, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Liquidity

In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying condensed consolidated financial statements were issued.

As an emerging growth entity, the Company has devoted substantially all of its resources since inception to organizing and staffing the Company, business planning, raising capital, establishing its intellectual property portfolio, acquiring or discovering product candidates, research and development activities for an oral KIT inhibitor and other compounds, establishing arrangements with third parties for the manufacture of its product candidates and component materials, and providing general and administrative support for these operations. As a result, the Company has incurred significant operating losses and negative cash flows from operations since its inception and anticipates such losses and negative cash flows will continue for the foreseeable future.

Since its inception, the Company has funded its operations primarily with proceeds from sales of shares of its redeemable convertible preferred stock and most recently with proceeds from the IPO. The Company has incurred recurring losses since its inception, including net losses of $9.1 million and $7.9 million for the three months ended March 31, 2023 and 2024, respectively. As of March 31, 2024, the Company had an accumulated deficit of $122.1 million. To date the Company has not generated any revenues and expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these condensed consolidated financial statements, the Company expects that its existing cash and cash equivalents of $262.8 million as of March 31, 2024, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the issuance date of these condensed consolidated financial statements.

Correction of Previously Reported Interim and Annual Consolidated Financial Statements

As previously reported by the Company in its Quarterly Report on Form 10-Q for the period ended June 30, 2023, management determined that the weighted average shares outstanding, or WASO, of the Company’s common stock used in the calculation of basic and fully diluted loss per share was misstated for certain previously reported interim, year-to-date, and annual consolidated financial statements, or the previously reported periods. This resulted in the incorrect presentation of WASO and basic and fully diluted loss per share, collectively the error, on the Company’s Condensed Consolidated Statements of Operations and within the related notes thereto for the impacted previously reported periods. The cause of the error was due to clerical errors that were symptomatic to the previously disclosed material weakness related to the lack of segregation of duties, certain system limitations in our accounting software, and the overall control environment.

Management prepared a quantitative and qualitative analysis of the error in accordance with SEC Staff Accounting Bulletin Nos. 99 and 108, or SAB 99/108, and concluded the impact of the error was not material to any of the previously reported periods. As a result, and in accordance with SAB 99/108, management has corrected the error in this Quarterly Report on Form 10-Q by presenting the correct WASO and basic and fully diluted loss per share on the face of the Company’s Condensed Consolidated Statements of Operations impacted by the error. Management also plans to correct the error for any relevant future periods.

7


The correction of the error had no impact on the Company’s previously reported interim, year-to-date, or annual Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity, or Condensed Consolidated Statements of Cash Flows. With respect to the Company’s previously reported interim, year-to-date, and annual Condensed Consolidated Statements of Operations impacted by the error, the correction of the error had no impact on the Company’s previously reported net loss in any of those periods. The correction of the error was limited to correcting the presentation of WASO and basic and fully diluted loss per share.

A summary of the impact of the correction of the error on the Company’s previously reported interim, year-to-date, and annual Condensed Consolidated Statements of Operations impacted by the error that will be corrected and disclosed on a prospective basis the next time such previously reported periods and the related notes thereto are issued is, as follows:

 

 

For the three months ended March 31, 2023

 

 

As Previously Reported

 

As Corrected

 

Net loss per share of common stock, basic and diluted

$

0.40

 

$

0.23

 

Weighted-average number of common shares used in net loss per share, basic and diluted

 

22,792,781

 

 

39,438,572

 

 

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated annual financial statements for the years ended December 31, 2023, and notes thereto, which are included in the Company's Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or the SEC, on March 26, 2024. Since the date of those annual financial statements, there have been no changes to the Company’s significant accounting policies, except as noted below.

Unaudited Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting and as required by Regulation S-X, Rule 10-01. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated annual financial statements for the years ended December 31, 2022 and 2023 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation. The financial data and other information disclosed in these notes related to the three months ended March 31, 2023 and 2024 are unaudited. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 26, 2024. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, or ASU 2023-09, to enhance the transparency and decision usefulness of income tax disclosures. The enhancement will provide information to better assess how an entity's operations and related tax disclosures, including total income taxes paid, to evaluate income tax risks and opportunities. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the impact ASU No. 2023-09 will have on its condensed consolidated financial statements and related disclosures.

In November 2023, the FASB, issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, or ASU 2023-07, to improve reportable segment disclosure requirements. The amendment introduced new requirements to disclose significant segment expenses regularly provided to the Chief Operating Decision Maker, or CODM, and extend certain annual disclosures to interim periods. Entities with a single reportable segment must apply ASC 280 in its entirety, are permitted to report more than one measure of segment profit or loss under certain conditions and are required to disclose the title and position of the CODM. ASU No. 2023-07 is effective for fiscal years beginning December 15, 2023 and interim periods within fiscal years after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the impact ASU No. 2023-07 will have on its condensed consolidated financial statements and related disclosures.

8


In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements, Amendments to Remove References to the Concept Statements, or ASU 2024-02. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The amendments in this update are effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2024-02 will have on its condensed consolidated financial statements and related disclosures.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

December 31, 2023

 

Description

 

Total

 

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

 

Significant Other
Observable
Inputs (Level 2)

 

 

Significant Other
Observable
Inputs (Level 3)

 

Money market funds

 

$

140,093

 

 

$

140,093

 

 

$

 

 

$

 

U.S. treasury securities

 

$

125,841

 

 

 

125,841

 

 

 

 

 

 

 

Total financial assets

 

$

265,934

 

 

$

265,934

 

 

$

 

 

$

 

 

 

 

 

 

 

March 31, 2024

 

Description

 

Total

 

 

Quoted Prices in Active Markets for Identical
Assets (Level 1)

 

 

Significant Other
Observable
Inputs (Level 2)

 

 

Significant Other
Observable
Inputs (Level 3)

 

Money market funds

 

$

129,911

 

 

$

129,911

 

 

$

 

 

$

 

U.S. treasury securities

 

 

126,822

 

 

 

126,822

 

 

 

 

 

 

 

Total financial assets

 

$

256,733

 

 

$

256,733

 

 

$

 

 

$

 

 

As of December 31, 2023 and March 31, 2024, the Company had no financial liabilities that required fair value measurement. As of December 31, 2023 and March 31, 2024, the Company’s cash equivalents consisted of money market funds classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets for identical assets without any valuation adjustment. As of December 31, 2023 and March 31, 2024, the Company held U.S. treasury bills, which are included in cash, cash equivalents and restricted cash as their maturity is 90 days or less at acquisition and are considered Level 1 category assets as there are quoted prices in active markets.

During the year ended December 31, 2023 and the three months ended March 31, 2024, there were no transfers or reclassifications between fair value measurement levels of assets or liabilities. The carrying values of prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.

4. Property, Plant and Equipment

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

 

 

 

December 31,
2023

 

 

March 31,
2024

 

 

Leasehold improvement

 

$

109

 

 

$

109

 

 

Office furniture

 

 

44

 

 

 

44

 

 

Computer equipment

 

 

51

 

 

 

51

 

 

   Property, plant and equipment, gross

 

 

204

 

 

 

204

 

 

Less: Accumulated depreciation

 

 

(35

)

 

 

(47

)

 

       Property, plant and equipment, net

 

$

169

 

 

$

157

 

 

 

Depreciation expense was immaterial for the three months ended March 31, 2023 and 2024, which has been recorded within general and administrative expenses.

9


5. Accrued Expenses and Other Current Liabilities

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

 

 

December 31,
2023

 

 

March 31,
2024

 

Accrued research and development expenses

 

$

169

 

 

$

816

 

Employee compensation and related benefits

 

 

2,232

 

 

 

1,156

 

Professional fees

 

 

394

 

 

 

283

 

Other

 

 

40

 

 

 

45

 

Total accrued expenses and other current liabilities

 

$

2,835

 

 

$

2,300

 

 

6. Novartis Agreement

On June 28, 2019, the Company entered into a License Agreement, or the Novartis Agreement, with Novartis Pharma AG, formerly known as Novartis International Pharmaceutical Ltd, or Novartis. Pursuant to the Novartis Agreement, the Company has been granted an exclusive, worldwide, royalty-bearing, sublicensable license under specified patent rights and know-how related to two licensed compounds, to develop, make, use and sell certain products incorporating or comprising a licensed compound, including THB001 and THB335, to certain intellectual property rights owned or controlled by Novartis, or the Licensed IP, to research, develop, make, use, sell, and commercialize products containing the Licensed IP.

Under the Novartis Agreement, the Company is solely responsible for all research, development, regulatory and commercialization activities related to the Licensed IP. The Company is required to use commercially reasonable efforts to develop and seek regulatory approval for, and commercialize, at least one licensed product in each of the United States, France, Germany, Italy, Spain, the United Kingdom, and Japan.

In exchange for these rights, the Company made an upfront cash payment of $0.4 million and issued 3,449,808 shares of Series A-1 Preferred Stock with a fair value of $3.0 million to Novartis. Upon entering into the Novartis Agreement in 2019, the total initial consideration of $3.4 million transferred to Novartis was charged to expenses as research and development expense. The Company determined that the Novartis Agreement represented an asset acquisition as it did not meet the definition of a business. The Company recorded the initial consideration transferred to Novartis as research and development expense in the statement of operations because the acquired Licensed IP represented in-process research and development with no alternative future use.

In addition, under the Novartis Agreement, an anti-dilution right was issued to Novartis, in which Novartis is entitled to receive shares of Series A-1 Preferred Stock, guaranteeing them a 15% ownership interest of the fully diluted capitalization of the Company. The Company was obligated to issue additional shares of Series A-1 Preferred Stock until the Company had (1) raised aggregate cumulative proceeds of $30.0 million from sales of equity securities since its inception; or (2) issued and sold any securities that generate proceeds in excess of $30.0 million. Additionally, the Company was not obligated to issue more than 6,383,142 shares of the Series A-1 Preferred Stock to Novartis under the anti-dilution right. The Company assessed the Novartis anti-dilution right and determined that the right (i) meets the definition of a freestanding financial instrument that is not indexed to the Company’s own stock and (ii) meets the definition of a derivative and does not qualify for equity classification. The initial fair value of the anti-dilution right liability of $1.0 million was recorded as research and development expense in July 2019, as part of the initial consideration in the license agreement. The Company remeasured the liability associated with the anti-dilution right at each reporting date and at each issuance of Series A-1 Preferred Stock under the anti-dilution right. Changes in the fair value were recorded as other income and expense in the statement of operations until the anti-dilution right was satisfied in February 2021 upon the Company raising aggregate cumulative proceeds of $30.0 million in sales of equity securities. As part of the anti-dilution right, the Company issued a total of 5,970,000 shares of Series A-1 Preferred Stock to Novartis. No expense has been recognized in any periods subsequent to the satisfaction of the anti-dilution liability which was satisfied in February 2021.

Under the Novartis Agreement, the Company is obligated to make aggregate milestone payments of up to $231.7 million related to the achievement of specified development, commercialization, and sales milestones. The Company records the milestone payments as research and development expenses when the milestones occur and consideration is paid or becomes payable. As of March 31, 2024, the Company has made two development milestone payments under the Novartis Agreement totaling $1.0 million, of which $0.4 million was achieved and paid in 2019, and $0.6 million was achieved and paid in 2020, which were recorded as research and development expense. No other milestones have occurred or have been paid under the Novartis Agreement.

As part of the Novartis Agreement, the Company also agreed to pay tiered royalties based on future net sales of all products licensed under the agreement, of which the royalty percentage ranged within the single digits.

10


7. Stockholder's Equity

Common stock

As of December 31, 2023 and March 31, 2024, the Company’s Amended and Restated Certificate of Incorporation authorized the Company to issue 500,000,000 shares of common stock, with a par value of $0.0001. The voting, dividend and liquidation rights of the holders of the Company’s common stock were subject to and qualified by the rights, preferences and privileges of the holders of the redeemable convertible preferred stock.

The holders of the common stock are entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. There are not cumulative voting rights for the election of directors in the restated certificate of incorporation, which means that holders of a majority of the shares of the common stock will be able to elect all of the directors. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, or the Board, if any, subject to the preferential dividend rights of redeemable convertible preferred stock. Through March 31, 2024, no cash dividends had been declared or paid.

On September 19, 2022, the Company completed its IPO, at which time the Company issued 12,535,000 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 1,635,000 additional shares of common stock, at a public offering price of $17.00 per share. The Company received $198.2 million, net of underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were $2.3 million. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted into 21,967,316 shares of common stock.

 

Undesignated preferred stock

As of December 31, 2023 and March 31, 2024, the Company’s Amended and Restated Certificate of Incorporation authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.0001 per share. There were no undesignated preferred shares issued or outstanding as of December 31, 2023 and March 31, 2024.

8. Stock-Based Compensation

2019 Stock Incentive Plan

The Company's 2019 Stock Incentive Plan, or the 2019 Plan, provided for the Company to grant incentive stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. The 2019 Plan was administered by the Board or, at the discretion of the Board, by a committee delegated by Board. The exercise prices, vesting and other restrictions were determined at the discretion of the Board, or its committee if so delegated. The Company’s Board valued the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third party valuation specialists as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

The total number of shares of common stock that could have been issued under the 2019 Plan was 5,317,559 shares, of which 283,808 shares remained available for grant on September 19, 2022, the date that the Company's 2022 Equity Incentive Plan, or the 2022 Plan, became effective. Upon the effectiveness of the 2022 Plan, the 283,808 remaining shares available under the 2019 Plan were transferred and became available for issuance under the 2022 Plan. Shares of common stock underlying outstanding awards under the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to the shares of common stock available for issuance under the 2022 Plan.

2022 Plan

The 2022 Plan was approved by the Board and stockholders in August 2022. The 2022 Plan became effective on September 14, 2022 and replaced the Company's 2019 Plan on that date. The 2022 Plan authorizes the award of incentive stock options, or ISOs, non-qualified stock options, or NQSOs, Restricted Stock Awards, or RSAs, Stock Appreciation Rights, or SARs, Restricted Stock Units, or RSUs, performance awards and stock bonus awards. Pursuant to the 2022 Plan, ISOs may be granted only to employees.

The number of shares initially reserved for issuance under the 2022 Plan is 4,710,545 shares of common stock, which includes the 283,808 shares transferred from the 2019 Plan, and shall automatically increase on January 1 of each of 2023 through 2032 by the number of shares equal of the lesser of 5% of the aggregate number of shares of all classes of the common stock, plus the total number of shares of common stock issuable upon conversion of any preferred stock (if any) or exercise of any pre-funded warrants, as issued and outstanding as of the immediately preceding December 31, or a number as may be determined by the Board.

11


The 2022 Plan is administered by the Board or, at the discretion of the Board, by a committee of the Board. The exercise prices, vesting and other restrictions are determined at the discretion of the Board, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years.

Shares that are expired terminated, surrendered or cancelled under the 2022 Plan without having been fully exercised will be available for future awards.

Stock Options

The assumptions that the Company used to determine the grant-date fair value of stock options awarded to employees, were as follows for the three months ended March 31, 2023 and 2024:

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2024

 

Expected term (in years)

 

5.2-7.0

 

 

 

5.5-7.0

 

Expected volatility

 

85.7-87.1%

 

 

 

85.7-87.5%

 

Risk-free interest rate

 

3.6-4.2%

 

 

 

4.0-4.2%

 

Expected dividend yield

 

 

 

 

 

 

 

The following table summarizes the Company’s stock option activity since December 31, 2023:

 

 

Number of Shares

 

 

Weighted-Average
Exercise Price

 

 

 

Weighted-Average
Remaining
Contractual Term
(in years)

 

 

Aggregate Intrinsic
Value
(in thousands)

 

 

Outstanding as of December 31, 2023

 

 

3,953,149

 

 

 

$

4.16

 

 

 

 

8.7

 

 

 

$

26,906

 

 

Granted

 

 

1,441,700

 

 

 

 

10.83

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(65,592

)

 

 

 

0.75

 

 

 

 

 

 

 

 

 

 

Forfeited or cancelled

 

 

(344,108

)

 

 

 

4.20

 

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2024

 

 

4,985,149

 

 

 

$

6.13

 

 

 

 

8.5

 

 

 

$

18,493

 

 

Options vested and exercisable as of March 31, 2024

 

 

1,463,946

 

 

 

$

4.23

 

 

 

 

7.3

 

 

 

$

7,690

 

 

Options unvested as of March 31, 2024

 

 

3,521,203

 

 

 

$

6.93

 

 

 

 

9.1

 

 

 

$

10,803

 

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted-average grant-date fair value per share of stock options granted during the three months ended March 31, 2024 was $8.10. As of March 31, 2024, there was $23.5 million of unrecognized stock-based compensation expense related to unvested stock options, to be recognized over a weighted-average period of 3.0 years.

The total fair value of options vested during the three months ended March 31, 2024 was $2.0 million.

Repricing of Stock Options

On March 6, 2023, the Board approved the reduction in exercise price of certain options that had been granted under the 2019 Plan and the 2022 Plan, that have an exercise price greater than or equal to $8.61 per share, which were each repriced at an exercise price of $4.20 effective March 21, 2023. There were no changes in the vesting schedule or maturity term of the options.

Options representing 3,085,468 underlying shares were included in this repricing and the total incremental stock-based compensation expense associated with the modification of these options was $2.1 million. The incremental expense as a result of the repricing was recognized immediately for vested awards, and the incremental expense for the unvested awards will be recognized over the remaining requisite service period.

12


Restricted Common Stock Awards

The Company has granted restricted common stock awards with service and performance and service based vesting conditions to employees of the Company. Unvested shares of restricted common stock may not be sold or transferred by the holder, except for transfers for estate planning purposes in which the transferee agrees to remain bound by all restrictions set forth in the original common stock purchase agreement. These restrictions lapse over the vesting term of each award, which is typically four years. The purchase price of each share of restricted common stock was $0.0001 per share.

On August 9, 2021, the Company’s chief executive office, or CEO, purchased 1,218,836 shares of common stock at a purchase price of $1.44 per share, under the terms of a restricted common stock award granted under the 2019 Plan. These shares were purchased in exchange for a promissory note, or the Promissory Note, of $1.8 million. The shares granted include both service and performance-based vesting criteria and accrued at an interest rate of 0.76% per annum, compounded annually and were accounted for as restricted stock.

On August 22, 2022, the Company forgave the entire promissory note, including principal and accrued and unpaid interest. As a result this is considered a modification to the original awards, and the Company recognized the grant date fair value plus any incremental fair value due to the modification. The incremental cost was measured as the difference between the fair value of the award at modification date and the fair value of the original award immediately prior to modification. As a result of accounting for the modification, the Company recorded an incremental stock based compensation charge of $1.0 million, which will be recognized over the remaining requisite service period of the award from the date of the modification.

The CEO was paid a one-time special bonus of $1.9 million to offset the CEO’s tax liability as a result of the forgiveness of the promissory note, or the Tax Payment, which is subject to a three-year vesting schedule with six-month cliffs. The Company is allowed to claw-back the unvested portion of the Tax Payment in the event that the CEO’s employment is terminated before the end of the three-year vesting period, provided that the CEO’s employment is terminated by the Company other than for cause, or if the CEO resigns for a good reason (a) within 12 months following a change of control, or (b) within 3 months preceding a change in control but as to only if the separation occurs after a potential change in control. In the event the CEO’s employment is terminated, the unvested portion of the Tax Payment will accelerate and will not be subject to the claw back provision. The clawback provision will be accounted for if and when the CEO leaves under the relevant circumstances and the payment amount will be capitalized and recognized over the related service period as G&A employee salary expense.

A summary of the activity of the restricted common stock since December 31, 2023:

 

 

Number of Shares

 

 

Weighted-Average
Grant Date Fair
Value Per Share

 

Unvested at December 31, 2023

 

 

543,869

 

 

$

 

1.42

 

Granted

 

 

 

 

 

 

 

Vested

 

 

(82,339

)

 

 

 

1.38

 

Cancelled or forfeited

 

 

 

 

 

 

 

Unvested at March 31, 2024

 

 

461,530

 

 

$

 

1.42

 

The weighted-average grant-date fair value per share of restricted common stock awards granted during the three months ended March 31, 2024 was zero as no shares were granted in the period. The aggregate fair value of restricted stock awards that vested during the three months ended March 31, 2024 was $0.1 million. Stock-based compensation expense recognized for the restricted stock granted was $0.1 million for the three months ended March 31, 2024. As of March 31, 2024, there was unrecognized expense of $0.5 million related to the restricted stock, which is expected to be recognized over a weighted-average period of 1.3 years.

Stock-Based Compensation Expense

Stock-based compensation expense included in the Company’s condensed consolidated statements of operations was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2024

 

Research and development

 

$

1,018

 

 

 

$

737

 

General and administrative

 

 

1,664

 

 

 

 

1,486

 

Total stock-based compensation expense

 

$

2,682

 

 

 

$

2,223

 

 

13


9. Net Loss Per Share

The following table sets forth the computation of the Company’s basic and diluted net loss per share for the periods presented (in thousands, except share and per share amounts):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

9,085

 

 

$

7,856

 

Net loss attributable to common stockholders, basic and
   diluted

 

$

9,085

 

 

$

7,856

 

Denominator:

 

 

 

 

 

 

Weighted-average number of common shares used in net loss
   per share, basic and diluted

 

 

39,438,572

 

 

 

40,213,158

 

Net loss per share of common stock, basic and diluted

 

$

0.23

 

 

$

0.20

 

 

The Company excluded the following shares from the computation of diluted net loss per share attributable to common stockholders during the three months ended March 31, 2023 and 2024 because including them would have had an anti-dilutive effect:

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Options to purchase common stock

 

 

5,024,356

 

 

 

4,985,149

 

Unvested restricted stock

 

 

857,811

 

 

 

461,530

 

Total

 

 

5,882,167

 

 

 

5,446,679

 

 

10. Leases

Operating Leases for Office Space

In October 2022, the Company entered into an office space lease approximating 10,356 of rentable square feet, located at 130 Prospect Street in Cambridge, Massachusetts. The lease commenced on December 1, 2022 when the Company took occupancy of the space, and has an initial lease term of 63 months, expiring on February 29, 2028 with no renewal options.

Also in October 2022, the Company entered into an office space lease approximating 4,703 of rentable square feet located at 1700 Montgomery Street in San Francisco, California. The lease commenced on December 20, 2022 when the Company took occupancy of the space, and has an initial lease term of 63 months, expiring on February 20, 2028 with no renewal options.

During the three months ended March 31, 2023 and 2024, the components of operating lease cost were as follows, and are reflected in general and administrative expenses and research and development expenses, as determined by the underlying activities:

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Lease Cost:

 

 

 

 

 

 

   Operating lease cost

 

$

274

 

 

$

274

 

Total operating lease cost

 

$

274

 

 

$

274

 

Variable operating lease costs for the three months ended March 31, 2023 and 2024 were immaterial.

There was no cash paid and $0.3 million paid for amounts included in the measurement of operating lease liabilities for each of the three months ended March 31, 2023 and 2024, respectively.

14


 

Maturities of operating lease liabilities at March 31, 2024 are as follows (in thousands):

  2024 (remaining)

 

$

837

 

  2025

 

 

1,145

 

  2026

 

 

1,176

 

  2027

 

 

1,207

 

Thereafter

 

 

238

 

Total lease payments

 

 

4,603

 

    Less: interest

 

 

(828

)

      Total lease liability

 

$

3,775

 

 

11. Commitments and Contingencies

Legal Proceedings

From time to time, in the ordinary course of business, the Company is subject to litigation and regulatory examinations as well as information gathering requests, inquiries and investigations. As of December 31, 2023 and March 31, 2024, there were no litigation matters which would have a material impact on the Company’s financial results.

 

12. Related Party Transactions

Novartis

Novartis is a significant beneficial owner of the Company, holding more than 5% of the total outstanding stock of the Company, as of December 31, 2023 and March 31, 2024. The Company has an in-license agreement with Novartis, which required the Company to make an upfront payment and issue shares of Series A-1 Preferred Stock to Novartis, and further includes future milestone payments upon the occurrence of certain events and royalty payments upon future sales. Refer to Note 6.

CEO Promissory Note

On August 9, 2021, the Company entered into the Promissory Note with the CEO for an amount of $1.8 million, which was used to allow the CEO to purchase 1,218,836 shares of common stock granted in the form of a restricted stock award under the 2019 Plan. The Promissory Note had a stated interest rate of 0.76%, which was compounded annually. The entire Promissory Note, including principal and accrued and unpaid interest, was forgiven on August 22, 2022. The Company has paid the CEO a one-time special bonus of $1.9 million, which was paid to offset the CEO's tax liability as a result of the forgiveness of the Promissory Note. This is subject to a three-year vesting schedule with six-month cliffs, as well as continued employment with the company on the relevant vesting dates.

13. Employee Benefit Plans

Effective January 1, 2019, the Company adopted a 401(k) Plan for its employees, which is designed to be qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the 401(k) Plan within statutory and 401(k) Plan limits. Since inception of the plan and through the three months ended March 31, 2024, the Company has not made any contributions to the 401(k) Plan.

15


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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report.

As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth in the section titled “Risk Factors” under Part II, Item 1A below.

Overview

We are a clinical-stage biopharmaceutical company focused on advancing the next wave of medicine for dermal, respiratory, and gastrointestinal inflammatory diseases. We are developing next-generation, highly selective, oral small-molecule inhibitors of KIT, a cell surface receptor that serves as the master regulator of mast cell function and survival. Early clinical studies have demonstrated that KIT inhibition has the potential to address the treatment of a broad range of mast cell-mediated inflammatory diseases, and that a titratable, oral small molecule inhibitor may provide an attractive therapeutic profile against this target. Our initial focus is on developing an oral KIT inhibitor to treat chronic spontaneous urticaria, or CSU, with planned expansion into other mast cell-mediated inflammatory disorders, including severe asthma.

On May 15, 2024, we announced U.S. Food and Drug Administration, or FDA, clearance of our Investigational New Drug, or IND, application to initiate a first-in-human clinical trial of THB335, a potent, highly selective, oral, small molecule KIT inhibitor that is in development for the treatment of mast cell-mediated diseases, with an initial focus in CSU. We have initiated a Phase 1 single and multiple ascending doses, or SAD/MAD, clinical trial of THB335 to evaluate safety, pharmacokinetics and pharmacodynamics in healthy volunteers. The pharmacodynamic effect will be measured by reductions in serum tryptase, a biomarker of mast cell activation and correlated with clinical response in urticaria studies. We expect to report clinical results during the first half of 2025. The Phase 1 clinical trial is expected to be followed by a Phase 2 trial in CSU with planned expansion into additional mast cell-mediated disorders. We are leveraging our nonclinical and clinical experience with our first generation THB001 product candidate to prioritize speed to Phase 2 with THB335 and are initiating reproductive and chronic toxicology studies to support rapid advancement toward late-stage clinical development.

THB335 maintains the nonclinical pharmacology and selectivity profile of THB001, our first-generation product candidate, with structural modifications that are designed to functionally block the site of reactive metabolite formation to mitigate hepatotoxicity risk as well as provide a differentiated metabolic, distribution and physiochemical profile.

In July 2023, we disclosed topline results of the Phase 1b clinical trial of our first-generation oral KIT inhibitor product candidate THB001 for the treatment of chronic inducible urticaria, which we discontinued in December 2022, due to observed liver transaminitis in two of five patients enrolled. The results provided evidence of pharmacodynamic and clinical activity, with four of the five patients achieving partial or complete responses. In addition, we shared preliminary results from extensive studies of THB001 that were conducted to identify the mechanism for the observed liver toxicity, which was not predicted by nonclinical toxicology studies. These in-depth studies identified a metabolic pathway resulting in the formation of an intermediate reactive metabolite. Reactive metabolite formation has been previously implicated as a mechanistic basis for drug-induced liver injury.

Following the disclosure of topline results in July, we presented results in October 2023 from the truncated Phase 1b clinical trial of THB001 at the European Academy of Dermatology and Venereology Annual Congress during a poster session, entitled “A Phase 1b, Open-label Study in Patients with Cold Urticaria, or ColdU, Using THB001, an Orally Available, Potent and Highly Selective Small Molecule Inhibitor of Wild Type KIT Receptor Tyrosine Kinase.”

THB335

THB335, our next-generation, oral small molecule wild-type KIT inhibitor product candidate, retains the potency and selectivity profile of THB001, with structural modifications which are intended to mitigate the hepatotoxicity risk as well as provide a differentiated metabolic, distribution and physiochemical profile.

Key attributes of THB335 include:

Nanomolar potency against KIT;

16


High degree of selectivity against closest related kinases, including platelet-derived growth factor receptor and colony stimulating factor 1 receptor, as measured by biochemical assays and confirmed in cell-line viability assays;
No evidence observed to date for reactive metabolite formation as observed with THB001;
High oral bioavailability and metabolic stability;
Improved peripheral restriction compared to THB001 (decreased central nervous system penetration);
Improved solubility and reduced lipophilicity compared to THB001; and
Favorable pharmacokinetic profile with long circulating half-life.

In nonclinical studies, THB335 demonstrated dose-dependent mast cell depletion and in vitro efficacy across different tissue types, which we believe supports the ability for an oral small molecule KIT inhibitor to potentially treat a range of mast cell-mediated skin, respiratory and gastrointestinal conditions. Additionally, in nonclinical studies, we observed no evidence of reactive metabolite formation in human liver mircosomes and no evidence for induction of oxidative stress pathways in advanced culture systems, demonstrating a phenotypic distinction between our first-generation THB001 and the next-generation analog of THB335 in a human spheroid model. The in vitro and in vivo pharmacology data to date from THB335 also has demonstrated a distinct metabolic profile compared to first-generation THB001.

Leadership Team Updates

On May 15, 2024, the Company also announced the appointment and promotion of key executive leaders to the organization. Christopher J. Dinsmore, Ph.D., was appointed to Chief Scientific Officer, Dennis Dean, Ph.D., was appointed to Chief Non-Clinical Development Officer, and Jennifer Dittman was promoted to Chief Development Operations Officer.

Since our inception in 2019, we have devoted substantially all of our efforts to organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, acquiring or discovering product candidates, research and development activities for THB001, THB335 and other compounds, establishing arrangements with third parties for the manufacture of our product candidates and component materials, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from sales of shares of our redeemable convertible preferred stock and our initial public offering, or the IPO, of our common stock. Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses, and general overhead costs.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates. Our net loss was $30.8 million, and $7.9 million for the year ended December 31, 2023, and the three months ended March 31, 2024, respectively. As of March 31, 2024, we had an accumulated deficit of approximately $122.1 million. We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will increase substantially in connection with our ongoing activities, particularly if, and as, we:

advance THB335 and any oral future KIT inhibitor product candidates through nonclinical studies and clinical development;
conduct additional nonclinical studies and clinical trials for THB335 in additional potential indications;
discover and develop new product candidates;
obtain, expand, maintain, defend and enforce our intellectual property portfolio;
manufacture, or have manufactured, nonclinical, clinical and potentially commercial supplies of THB335 and any oral future KIT inhibitor product candidates;
seek regulatory approvals for THB335 and any oral future KIT inhibitor product candidates;
establish a sales, marketing and distribution infrastructure to commercialize THB335 and any oral future KIT inhibitor product candidates, if approved;
identify additional compounds or product candidates and acquire rights from third parties to those compounds or product candidates through licenses;

17


hire additional clinical, scientific and management employees, as well as administrative staff to support the growth of our business;
add operational, financial and management information systems and employees;
incur additional legal, accounting and regulatory costs associated with operating as a public company;
experience delays related to the ongoing supply chain impacts of health epidemics in the United States and in other countries in which we have planned or have active clinical trial sites and where our third-party Contract Development and Manufacturing Organizations, or CDMOs operate; and
establish licenses, collaborations or strategic partnerships.

Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures related to our research and development activities.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, which could include collaborations, strategic alliances or additional licensing arrangements. We may be unable to raise additional funds or enter into such arrangements when needed, on favorable terms, or at all. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, results of operations and financial condition, including requiring us to have to delay, reduce or eliminate product development or future commercialization efforts. The amount and timing of our future funding requirements will depend on many factors including the successful advancement of any oral future KIT inhibitor product candidates. Our ability to raise additional funds may also be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, from potential recessions, a potential temporary federal government shutdown, health epidemics, the war in Ukraine, conflict in the Middle East or China-Taiwan relations, and fluctuating interest rates and rates of inflation.

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

We oversee and manage third party CDMOs, to support the development and manufacture of any oral future KIT inhibitor product candidates for our clinical trials. The manufacturing process has readily-sourced available raw materials and straightforward scalability. We believe our current manufacturers are able to supply the upcoming clinical trials and additional CDMOs may be on-boarded at later stages of clinical and commercial development.

As of March 31, 2024, we had $262.8 million in cash and cash equivalents. We believe that our existing cash and cash equivalents, will be sufficient to fund our operations and capital expenses through at least 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See the subsection titled “Liquidity and Capital Resources.”

License Agreement with Novartis International Pharmaceutical Ltd.

On June 28, 2019, we entered into the Novartis Agreement. Pursuant to the Novartis Agreement, Novartis granted us an exclusive, worldwide, sublicensable (subject to certain requirements therein) license under specified patent rights and know-how related to three licensed compounds to develop, make, use and sell certain products incorporating or comprising a licensed compound, including THB001 and THB335, or the Licensed Products. Under the Novartis Agreement, we are solely responsible for all research, development, regulatory and commercialization activities related to the Licensed Products. We are required to use commercially reasonable efforts to develop and seek regulatory approval for, and commercialize, at least one Licensed Product in the United States, France, Germany, Italy, Spain, the United Kingdom, and Japan.

18


Pursuant to the Novartis Agreement, we made a one-time payment of $0.4 million to Novartis and agreed to issue shares of preferred stock pursuant to that certain Investment Letter dated as of June 27, 2019, or the Novartis Investment Letter. Pursuant to the Novartis Investment Letter, we have issued Novartis 5,970,000 shares of Series A-1 Preferred Stock (2,642,762 shares of common stock following the conversion of such preferred stock in connection with our IPO), consisting of shares issued as part of entering into the agreement and shares issued subsequently under the anti-dilution right included within the license agreement. Further, we are obligated to pay Novartis up to an aggregate of: (i) $31.7 million upon the achievement of certain specified development milestones for the Licensed Products and (ii) $200.0 million upon the achievement of certain specified sales and commercialization milestones with respect to the Licensed Products. We are also required to pay Novartis, on a Licensed Product-by-Licensed Product and country-by-country basis, tiered royalties in the single-digit percentage range on annual net sales of Licensed Products, subject to reduction and offset upon certain specified events. The foregoing royalty payment obligations will expire on the latest to occur of: (a) expiration of the last valid claim of the licensed patent rights that covers such Licensed Product in such country; (b) the expiration of any regulatory exclusivity for such Licensed Product in such country; and (c) ten years following the first commercial sale of such Licensed Product in such country. Upon the expiration of such royalty term in a particular country for a particular Licensed Product, the license granted to us with respect to such Licensed Product in such country will become fully paid-up, royalty-free, transferable, perpetual and irrevocable.

For a more detailed description of this agreement, see Note 6 to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report.

Results of Operations

Comparison of the three months ended March 31, 2023 and 2024

The following table summarizes our results of operations for each of the periods presented (in thousands, except percentages):

 

 

Three Months Ended March 31,

 

 

2023

 

 

2024

 

 

$ Change

 

 

% Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

6,737

 

 

$

6,226

 

 

$

(511

)

 

 

(8

%)

General and administrative

 

 

5,251

 

 

 

5,064

 

 

 

(187

)

 

 

(4

)

Total operating expenses

 

 

11,988

 

 

 

11,290

 

 

 

(698

)

 

 

(6

)

Loss from operations

 

 

11,988

 

 

 

11,290

 

 

 

(698

)

 

 

(6

)

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(2,905

)

 

 

(3,433

)

 

 

(528

)

 

 

18

 

Other (income) expense

 

 

2

 

 

 

(1

)

 

 

(3

)

 

 

(150

)

Total other (income) expense, net

 

 

(2,903

)

 

 

(3,434

)

 

 

(531

)

 

 

18

 

Net loss

 

$

9,085

 

 

$

7,856

 

 

$

(1,229

)

 

 

(14

%)

* Percentage not meaningful.

Research and Development Expenses

The following table summarizes our research and development expenses for each of the periods presented (in thousands, except percentages):

 

 

Three Months Ended March 31,

 

 

2023

 

 

2024

 

 

$ Change

 

 

% Change

 

Direct costs:

 

 

 

 

 

 

 

 

 

 

 

 

THB001

 

$

1,276

 

 

$

142

 

 

$

(1,134

)

 

 

(89

%)

Other discovery and development

 

 

2,218

 

 

 

951

 

 

 

(1,267

)

 

 

(57

)

THB335

 

 

 

 

 

1,939

 

 

 

1,939

 

 

*

 

Indirect costs:

 

 

 

 

 

 

 

 

 

 

 

 

Employee-related

 

 

2,971

 

 

 

2,972

 

 

 

1

 

 

 

 

Facilities and other

 

 

272

 

 

 

222

 

 

 

(50

)

 

 

(18

)

Total research and development expenses

 

$

6,737

 

 

$

6,226

 

 

$

(511

)

 

 

(8

%)

*Percentage not meaningful.

19


Research and development expenses decreased by $0.5 million, from $6.7 million for the three months ended March 31, 2023 to $6.2 million for the three months ended March 31, 2024, primarily due to decreased spend related to the termination of the THB001 program and discovery and development costs as the we shifted towards the clinical development of THB335.

General and Administrative Expenses

General and administrative expenses decreased by $0.2 million, from $5.3 million for the three months ended March 31, 2023 to $5.1 million for the three months ended March 31, 2024, primarily driven by decreases in non-cash stock-compensation costs.

Total Other (Income) Expense, Net

Total other income, net increased by $0.5 million, from $2.9 million for the three months ended March 31, 2023 to $3.4 million for the three months ended March 31, 2024. The increase was primarily attributable to increases in interest income associated with our money market accounts.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant losses in each period and on an aggregate basis. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates or from other sources for several years, if at all.

As of March 31, 2024, we had $262.8 million in cash and cash equivalents, and we had an accumulated deficit of approximately $122.1 million.

In October 2023, we filed a shelf registration statement on Form S-3, or the Shelf Registration Statement, which became effective in October 2023. The Shelf Registration Statement permits the offering of up to $400.0 million aggregate dollar amount of shares of our common stock or preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in one or more offerings and in any combination. In connection with the Shelf Registration Statement, we entered into an Open Market Sales AgreementSM, or the Sales Agreement, with Jefferies LLC, as the sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering amount of up to $150.0 million. The $150.0 million of common stock that may be issued and sold pursuant to the Sales Agreement is included in the $400.0 million of securities that may be issued and sold pursuant to the Shelf Registration Statement. We will pay Jefferies LLC a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock pursuant to the Sales Agreement. We have not sold any shares pursuant to the Sales Agreement and have $150.0 million remaining under the Sales Agreement.

Cash Flows

The following table provides information regarding our cash flows for each of the periods presented (in thousands):

 

Three Months Ended March 31,

 

 

2023

 

 

2024

 

Net cash used in operating activities

 

$

6,675

 

 

$

6,293

 

Net cash used in investing activities

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

 

(49

)

Net increase in cash, cash equivalents and restricted cash

 

$

6,675

 

 

$

6,244

 

 

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2023 was $6.7 million, and was primarily due to our net loss of $9.1 million, adjusted for $2.7 million non-cash stock-based compensation expense and net changes in working capital of $0.2 million.

Net cash used in operating activities for the three months ended March 31, 2024 was $6.3 million, and was primarily due to our net loss of $7.9 million, a $2.2 million stock-based compensation expense, a change in other assets of $0.2 million and net changes in working capital of $0.8 million.

20


Net Cash Used in Investing Activities

We had no investing activities for the three months ended March 31, 2023 and 2024.

Net Cash Provided by Financing Activities

We had no financing activities for the three months ended March 31, 2023. Net cash provided by financing activities for the three months ended March 31, 2024 was $0.1 million related to proceeds from the exercise of stock options.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, research and development services, compensation and related expenses and general overhead costs. We expect to continue to incur significant expenses and operating losses for the foreseeable future, including additional costs associated with operating as a public company.