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ASSEMBLY BIOSCIENCES, INC.

(ASMB)
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08/31Assembly Biosciences : Building Beyond Hepatitis B/D
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08/31Transcript : Assembly Biosciences, Inc. - Special Call
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08/24Assembly Biosciences to Host Webcast on August 31, 2022, Introducing Two New Research Programs Targeting Recurrent HSV-2 Infection and Transplant-Associated Herpesvirus Diseases
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ASSEMBLY BIOSCIENCES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/09/2022 | 04:21pm EDT
The condensed consolidated financial statements and this Management's Discussion
and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2021 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, both of which are
contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 filed with the U.S. Securities and Exchange Commission on
March 11, 2022 (2021 Annual Report). In addition to historical information, this
discussion and analysis contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
expressed or implied in any forward-looking statements as a result of various
factors, including those set forth under "Part I. Item 1A. Risk Factors" in our
2021 Annual Report and "Part II. Item 1A. Risk Factors" in this report.

Overview

We are a clinical-stage biotechnology company focused on discovery and development of innovative therapeutics targeting hepatitis B virus (HBV) and other viral diseases.


The World Health Organization (WHO) estimates that 296 million people worldwide
are chronically infected with HBV as of 2019. Our research and development
organizations are pursuing multiple drug candidates designed to inhibit the HBV
replication cycle and block the generation of covalently closed circular DNA
(cccDNA), with the aim of discovering and developing finite and curative
therapies for patients with chronic HBV infection. We have discovered several
novel core inhibitors, which are small molecules that directly target and
allosterically modulate the HBV core protein in a way that affects assembly and
stability of HBV nucleocapsids and we are currently advancing an early-stage
program evaluating a novel small molecule approach to inhibit entry for HBV and
hepatitis delta virus (HDV). HDV is estimated to impact approximately 5% of
those chronically infected with HBV, or approximately 12 million people. In
addition, our research organization is working on discovering and developing a
novel, small molecule interferon-? receptor (IFNAR) agonist designed to
selectively activate the interferon-? pathway within the liver and offer the
convenience of oral dosing.

While we continue our efforts to develop finite and curative therapies for
patients with chronic HBV and improved chronic therapy for HDV infection, our
research organization is advancing early-stage programs evaluating two
additional undisclosed virus targets. These targets, which we currently expect
to disclose in the third quarter of 2022, were selected to leverage the deep
antiviral expertise and experience of our research and development organizations
against diseases with significant unmet medical need.

The ongoing COVID-19 pandemic and its broad, global impacts, including supply
chain disruptions, have impacted certain aspects of our business, including
where and how our employees work in its labs and offices and how and when our
nonclinical and clinical studies are conducted. Early in the pandemic, our
clinical and nonclinical studies were largely unaffected, but as the pandemic
has continued, its impacts have increased. Certain nonclinical animal studies
and shipping of compounds necessary for our research programs have each been
delayed, and conduct of a clinical study in China (Study 203), which is
currently in the process of being closed, has been impacted by the shutdowns
occurring in the first half of 2022 in China.

We rely on contract research organizations (CROs), some of which are in China
and India. While these CROs have experienced pandemic-related impacts from time
to time. In addition to the Company's CROs in China and India, the Company also
contracts with a CRO in Ukraine, which shut down operations due to Russia's
invasion of Ukraine. Though this CRO has resumed operations, we have reallocated
certain work to other global CROs incase it shuts down again.

As previously announced, in January 2021, we wound down our Microbiome program
to prioritize and focus our resources on our virology programs. Our Microbiome
program had been developing a novel class of oral live microbial biotherapeutics
candidates designed to treat disorders associated with the microbiome.

Recent Developments


On July 19, 2022, our Board of Directors approved a strategic plan (the Plan)
to: (1) discontinue development of our first-generation core inhibitor,
vebicorvir (VBR), based on review of interim on-treatment efficacy data from
on-going triple combination studies that do not support additional clinical
studies; (2) advance our next-generation core inhibitors, ABI-H3733 (3733) and
ABI-4334 (4334), in clinical studies; and (3) prioritize research activities,
including our HBV/HDV entry inhibitor and IFNAR agonist programs, as well as two
additional undisclosed viral

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targets. The Plan included a reduction of our workforce by 30 employees, resulting in a total of approximately 70 remaining employees. Implementation of the Plan is expected to preserve capital while appropriately resourcing the advancement of 3733, 4334 and our novel research pipeline and to optimize manufacturing of all candidates.

Our Primary Focus: Targeting HBV Core Protein to Achieve a Cure


HBV is a DNA virus that infects hepatocytes and establishes a reservoir of
cccDNA, a unique viral DNA moiety that resides in the cell nucleus of
HBV-infected hepatocytes and is associated with viral persistence and chronic
infection. No currently approved oral therapies target cccDNA activity directly,
which makes molecules that can modulate cccDNA generation or disrupt its
function highly sought in the HBV field. As a result, most of our HBV research
and development efforts to date have focused on discovering and developing
compounds targeting the core protein, a viral protein involved in numerous
aspects of the HBV replication cycle, including the generation of HBV cccDNA.
Through our research efforts, we have discovered several chemically distinct
series of small molecule core inhibitors that directly target and allosterically
inhibit core protein functions.

Vebicorvir


VBR, is licensed from Indiana University. The conduct of our initial Phase 2
studies, Study 201, 202 and 211, is complete. In Study 201 and 202, VBR
administered with NrtI therapy demonstrated a favorable safety profile and led
to greater viral suppression of both HBV DNA and viral pgRNA than NrtI therapy
alone. However, patients who stopped therapy in Study 211 did not achieve
sustained virologic response as all patients relapsed, meaning they had
detectable HBV off therapy, and the dual combination therapy of VBR + NrtI was
insufficient to cure chronic HBV infection in the studied population.

At the American Association for the Study of Liver Diseases (AASLD) Annual
Meeting in November 2021 (AASLD 2021), we presented additional follow-up data
from Study 211 demonstrating that patients had increases of HBV DNA and pgRNA
after discontinuation of VBR despite continued NrtI treatment, further
supporting that core inhibitors deepen viral suppression in combination with
NrtIs. At the EASL International Liver CongressTM in June 2022 (EASL 2022), we
presented additional VBR data related to the correlation between deeper
virologic suppression and fibrosis-4 index in treatment naïve patients with
HBeAg positive chronic HBV infection, an evaluation of the drug-drug interaction
profile of VBR and an evaluation of the disposition and mass balance recovery of
VBR in rats and humans.

Based on discussions with leading viral hepatitis experts, global regulatory
discussions and feedback, and, with respect to the China territory, discussions
and agreement with our collaboration partner, BeiGene, Ltd. (BeiGene), in early
2021, we decided to not move forward with the global registrational studies for
VBR as a chronic suppressive therapy (CST) in combination with NrtI. The
decision was made to focus on the greatest unmet medical need of patients, which
lies predominantly in cure, rather than CST. As a result, we began to focus our
efforts with VBR in combination with NrtI and additional mechanisms targeting
finite and curative combination therapy.

We currently have three Phase 2 triple combination studies involving VBR
ongoing, two of which have been terminated early. These studies are detailed
below. See "-Multi-Drug Combination Studies." In July 2022, we announced that we
have discontinued further clinical development of VBR based on review of interim
on-treatment efficacy from two triple combination studies.

Next Generation Core Inhibitors

In connection with our discontinuation of the development of VBR, we have prioritized clinical development of the next-generation core inhibitors, 3733 and 4334.


ABI-H3733

Our first of two next-generation core inhibitor product candidates, 3733, was
internally discovered and developed. The chemical scaffold of 3733 is novel and
distinct from each of 4334 and both of our discontinued core inhibitor product
candidates, VBR and ABI-H2158 (2158).

In 2020, we initiated and completed a Phase 1a clinical study of 3733 to
evaluate safety, tolerability and pharmacokinetics (PK) following single
ascending dose and multiple ascending dose administration in healthy subjects in
New Zealand. Preliminary data indicate that 3733 was generally well-tolerated
and had favorable PK. Results detailing 3733's safety and PK from this study
were presented in a poster presentation at AASLD 2021.

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In June 2022, we initiated a randomized, multi-center, double-blind and placebo-controlled Phase 1b trial of 3733 evaluating the safety, PK and antiviral activity of 3733 in adults with chronic HBV (cHBV) infection. Initial data from this study are anticipated in the second half of 2022.

In addition, at EASL 2021, we presented observations on 3733's enhanced potency and target coverage for both antiviral activity and inhibition of cccDNA generation as compared to VBR and 2158. At EASL 2022, we presented 3733's improved PK profile resulting from new formulation activities.

ABI-4334


In mid-2021, we announced the selection of 4334, our other next-generation core
inhibitor product candidate. As with all of our core inhibitor product
candidates nominated after VBR, 4334 was internally discovered and developed. In
addition, the chemical scaffold of 4334 is also novel and distinct from each of
VBR, 3733 and 2158.

We nominated 4334 based on a preclinical target drug profile that indicates
enhanced target coverage and potency to prevent both formation of new virus and
cccDNA, which is responsible for maintaining the HBV viral reservoir. We believe
that 4334 has a best-in-class preclinical profile, with single-digit nanomolar
potency against the production of new virus and the formation of cccDNA.
Preclinically to date, 4334 has also demonstrated pan-genotypic activity, an
improved resistance profile and a favorable safety profile. Preclinical
characterization of 4334 was shared in a poster presentation at AASLD in
November 2021. At EASL 2022, we presented preclinical data demonstrating that
4334 promotes formation of empty capsids and prevents cccDNA formation by
disrupting incoming capsids.

Our preclinical work on 4334 is ongoing, with the aim of completing nonclinical
studies to support regulatory filings for clinical studies and initiating a
Phase 1a clinical study in the second half of 2022 to evaluate safety,
tolerability, and PK following single ascending dose and multiple ascending dose
administrations in healthy participants.

ABI-H2158


In September 2021, we discontinued development of 2158 following the observation
of elevated alanine transaminase levels in the Phase 2 clinical study consistent
with drug-induced hepatotoxicity.

Multi-Drug Combination Studies


We believe that core inhibitors and NrtI will be central to finite and curative
therapies for chronic HBV infection. Therefore, as we have continued to develop
and advance our current and future next-generation core inhibitors through
clinical studies, we initiated multi-drug combination studies in parallel that
add additional drugs (or compounds) with nonoverlapping mechanisms of action to
the first-generation core inhibitor + NrtI antiviral backbone. We currently have
three ongoing triple combination studies with VBR, two of which have been
discontinued early, as described in more detail below.

Our first triple combination study, Study 204, is being conducted pursuant to a
Clinical Trial Agreement with Arbutus Biopharma Corporation (Arbutus Biopharma)
and consists of a randomized, multi-center, open-label Phase 2 clinical study to
explore the safety, PK and antiviral activity of the triple combination of VBR,
NrtI and AB-729 (Arbutus Biopharma's investigational RNAi candidate) compared to
the double combinations of VBR + NrtI and AB-729 + NrtI in virologically
suppressed patients. This clinical study initiated in the first quarter of 2021
and completed enrollment in February 2022. Our second triple combination study,
Study 203, was designed to evaluate VBR and NrtI in combination with interferon
in treatment-naïve HBeAg positive subjects. This study was also initiated in the
first quarter of 2021 and completed enrollment in March 2022.

The interim data from Study 204 and Study 203 indicate that the triple
combinations do not show a benefit in multiple key viral parameters compared to
the dual combinations without VBR in either study and informed our decision to
discontinue further development of VBR. We announced the early termination of
Study 203 in July 2022. In consultation with Arbutus Biopharma, our two
companies intend to continue Study 204 and evaluate the primary endpoints of
safety and tolerability of the combination regimen.

Our third triple combination study was initiated in April 2022 pursuant to a
Clinical Trial Collaboration Agreement with Antios Therapeutics, Inc. (Antios)
to evaluate ATI-2173, Antios's investigational proprietary active site
polymerase inhibitor nucleotide (ASPIN), VBR and tenofovir disoproxil fumarate,
an NrtI. This multi-center, double-blinded, placebo-controlled study was
designed to explore the safety, PK and antiviral activity of this all-oral
triple combination. This study, which was expected to enroll ten treatment-naïve
or off-treatment HBeAg negative or positive patients in a 12-week treatment
study, was initiated in April 2022. On May 18, 2022, we were notified by Antios
that ATI-2173, Antios's ASPIN, had been placed on clinical hold by the FDA
following submission of a

                                       19
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safety report involving a patient who received a triple combination of the VBR + ATI-2173 + NrtI. Effective May 20, 2022, because of the clinical hold, we terminated the Clinical Trial Collaboration Agreement and Antios, as the sponsor, is closing the study.


Study 204 and Study 203 both experienced enrollment delays due to the ongoing
COVID-19 pandemic, and conduct of Study 203 has been impacted by the
COVID-related shutdowns occurring in the first half of 2022 in China. The
pandemic has impacted patients and study sites through patient screening delays,
travel restrictions and hesitancy to travel to study sites. The pandemic has
also impacted our vendors, as our central laboratories have been unable to meet
their contractual obligations, and our vendors have experienced staffing
constraints and supply chain challenges as they seek to obtain lab kits,
reagents and other items necessary to enroll patients in our studies. Enrollment
for both of these studies was completed in the first quarter of 2022, and we do
not believe these delays will impact the data readouts for the ongoing Study
204.

Beyond Core Inhibitors

In addition to the development and advancement of our core inhibitor portfolio
and our current and future multi-drug combination studies, our research and
development team is working on discovering and developing small molecules to
inhibit HBV and HDV viral entry and small molecule interferon-? receptor (IFNAR)
agonists, to complement our HBV cure strategy.

HBV/HDV Entry Inhibitor


In March 2022, we announced our new research program focused on a novel, orally
bioavailable small molecule approach to inhibit entry of HBV and HDV. While HDV
is less well known in the U.S., it is a significant and serious health problem
with inadequate treatment in many parts of Europe, Africa, the Middle East, East
Asia and parts of South America. HDV is a "satellite virus," because it can only
infect people (1) that are already infected with HBV or (2) at the same time as
a person is infected with HBV. HDV is known to accelerate disease progression
and increase the incidence of liver cirrhosis and liver cancer, which results in
higher morbidity and mortality rates than HBV alone. The current standard of
care treatment for HDV off-label pegylated interferon injected weekly or, in
some regions, a large, complex molecule that requires daily injections. Our
research team has identified a potential opportunity to develop a safe and
effective oral small molecule, which could significantly improve convenience and
potentially enhance treatment uptake and diagnosis rates. Based on current
progress, our research team's aim is to nominate a product candidate for
development in the first half of 2023.

IFNAR


In July 2022, we introduced our new research program advancing a novel, small
molecule IFNAR agonist designed to selectively activate the interferon-? pathway
within the liver and offer the convenience of oral dosing. Interferon-? (IFN-?)
is a subcutaneous injectable therapy approved for HBV that has demonstrated
functional cure of HBV in some HBV patients, but its poor tolerability profile
significantly limits its use. Substantial side effects include flu-like
symptoms, cytopenias, serious depression and psychiatric effects. In addition,
multiple contraindications limit its use, and it requires weekly injections that
result in systemic exposure for up to a year.

By focusing exposure on the liver, our investigational IFNAR agonist program
aims to engage interferon-?'s validated antiviral and immune modulatory
mechanisms, retaining the efficacy of IFN-? while reducing systemic exposure to
improve tolerability.

cccDNA Disruptors

In November 2020, we entered into an exclusive, two-year collaboration and
option agreement with Door Pharmaceuticals, LLC (Door Pharma) focused on the
development of a novel class of HBV inhibitors, which we terminated in May 2022.
The termination will be effective September 2022. Prior to the termination of
collaboration with Door Pharma, we worked with Door Pharma on identifying cccDNA
disruptors aimed at inhibiting different intra-nuclear steps in the viral
replication cycle that complement the activity of our core inhibitors.

We terminated this collaboration to focus resources on our other internal HBV programs and programs targeting other viruses.

Additional Antiviral Opportunities

In addition to our work toward developing finite and curative therapies for patients with chronic HBV infection, our research organization is advancing early-stage programs evaluating two additional undisclosed virus targets. These

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targets were selected to leverage the deep antiviral expertise and experience of
our research and development organizations against diseases with significant
unmet medical need.

We expect to disclose more information regarding these discovery programs on additional viral targets in the third quarter of 2022.

Operations


We currently have corporate and administrative offices and research laboratory
space in South San Francisco, California as well as registrational offices in
China.

Since our inception, we have had no revenue from product sales and have funded
our operations principally through debt financings prior to our initial public
offering in 2010 and through equity financings and collaborations since then.
Our operations to date have been primarily limited to organizing and staffing
our company, licensing our product candidates, discovering and developing our
product candidates, maintaining and improving our patent portfolio and raising
capital.

We have generated significant losses to date, and we expect to continue to
generate losses as we develop our product candidates. As of June 30, 2022, we
had an accumulated deficit of $679.0 million. Because we do not generate revenue
from any of our product candidates, our losses will continue as we further
develop and seek regulatory approval for, and commercialize, our product
candidates. As a result, our operating losses are likely to be substantial over
the next several years as we continue the development of our product candidates
and thereafter if none are approved or successfully launched. We are unable to
predict the extent of any future losses or when we will become profitable, if at
all.

The COVID-19 pandemic resulted in substantially all of our U.S.-based
non-research employees working from their homes beginning in mid-March 2020. In
addition, we took the additional step of requiring all of our employees be fully
vaccinated against COVID-19. As government restrictions have relaxed, our
employees began returning to the office during the first quarter of 2022. We
have adopted a hybrid working model, which allows our employees flexibility
regarding when and how frequently to return to the office.

There has not been any significant interruption to date of essential activities
at our offices, including work in our laboratories with proper protections and
procedures in place. While we have experienced some shipping delays or shortages
of personal protective equipment (PPE) that are important to maintaining normal
workflows in our laboratories, we have been able to continue our critical
research activities through schedule shifts, use of PPE on-hand and reallocation
of certain resources that allow our employees to practice "social distancing"
and comply with applicable laws. Early in the pandemic, our clinical and
nonclinical studies were largely unaffected, but as the pandemic has continued,
its impacts have increased. Certain nonclinical animal studies and shipping of
compounds necessary for our research programs have each been delayed, and
conduct of Study 203, which is currently in the process of being closed, has
been impacted by the shutdowns occurring in the first half of 2022 in China.

We continually work with our CROs and other vendors to ensure, to the extent
possible, that services are provided in a timely manner while also identifying
alternative vendors and strategies to utilize in the event that COVID- or third
party-related delays threaten our ability to meet our timelines. However, some
of our CROs are in China and India, and these CROs have experienced
pandemic-related impacts from time to time. We cannot currently predict the
specific extent, duration or full impact the COVID-19 pandemic will have on our
ongoing and planned research efforts, clinical studies and other business
operations. We continue to monitor the situation regularly for additional
potential delays, or modifications to our ongoing and planned studies and, if
circumstances warrant, we may adjust our budget and operating plan.

Critical Accounting Estimates


Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP). The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses.

We evaluate our estimates and judgments, including those related to research and
development expense and accruals and stock-based compensation, on an ongoing
basis. We base our estimates on historical experience and on various other
factors that we believe are 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 from these estimates under different assumptions or conditions.

                                       21
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Our critical accounting policies and significant estimates are detailed in our
2021 Annual Report. Our critical accounting policies and significant estimates
have not changed from those previously disclosed in our 2021 Annual Report.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

Research and Development Expense

The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages):

                                      Three Months Ended June 30,             $ Change            % Change
                                       2022                 2021            2022 vs. 2021       2022 vs. 2021
External expenses:
VBR                               $        1,385       $        4,142      $        (2,757 )               (67 %)
2158                                         264                2,171               (1,907 )               (88 %)
3733                                       2,259                  196                2,063                1053 %
4334                                       2,143                  760                1,383                 182 %
Research and discovery                     2,404                1,551                  853                  55 %
Total external expenses                    8,455                8,820                 (365 )                (4 %)
Employee and contractor-related
expenses                                   8,013                6,506                1,507                  23 %
Facility and other expenses                1,324                1,423                  (99 )                (7 %)
Total research and development
expenses                          $       17,792       $       16,749      $         1,043                   6 %


Research and development expenses were $17.8 million for the three months ended
June 30, 2022 compared to $16.7 million for the same period in 2021. The
increase was primarily driven by external expenses generated from the
advancement of 3733, 4334 and our research discovery program. In addition,
employee and contractor-related expenses increased by $1.5 million primarily due
to increases in salary and benefits as well as accrued severance benefits
related to an executive officer associated with the reorganization announced in
July 2022. These increases were partially offset by a decrease in VBR's external
expenses due to the termination of Studies 211 and 205 as well as costs under
two of our Phase 2 triple combination studies being shared with collaboration
partners. The remaining offset relates to a decrease in 2158's external expenses
due to the termination of the program.

General and Administrative Expense

The following table summarizes the period-over-period changes in our general and administrative expenses (in thousands, except for percentages):

                                         Three Months Ended June 30,           $ Change            % Change
                                          2022                2021          

2022 vs. 2021 2022 vs. 2021 General and administrative expenses $ 6,781 $ 6,917 $ (136 )

                (2 %)


General and administrative expense consists primarily of salaries, consulting
fees and other related costs, professional fees for legal services, accounting
and tax services, insurance and travel expenses, as well as stock-based
compensation expense associated with equity awards to our employees and
directors.

General and administrative expenses were comparable with $6.8 million during the
three months ended June 30, 2022 and $6.9 million for the same period in 2021.
The impact to salaries and benefits associated with the termination of an
executive officer as part of the reorganization announced in July 2022 was
offset by a reduction in salaries and benefits due to employee turnover.

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Comparison of the Six Months Ended June 30, 2022 and 2021

Research and Development Expense

The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages):

                                      Six Months Ended June 30,             $ Change            % Change
                                      2022                2021            2022 vs. 2021       2022 vs. 2021
External expenses:
VBR                               $       3,306       $       9,710      $        (6,404 )               (66 %)
2158                                      1,165               4,557               (3,392 )               (74 %)
3733                                      3,454                 604                2,850                 472 %
4334                                      3,400               1,318                2,082                 158 %
Microbiome                                    -                 488                 (488 )              (100 %)
Research and discovery                    4,491               2,699                1,792                  66 %
Total external expenses                  15,816              19,376               (3,560 )               (18 %)
Employee and contractor-related
expenses                                 16,198              11,402                4,796                  42 %
Facility and other expenses               2,983               4,525               (1,542 )               (34 %)
Total research and development
expenses                          $      34,997       $      35,303      $          (306 )                (1 %)


Research and development expenses were $35.0 million for the six months ended
June 30, 2022 compared to $35.3 million for the same period in 2021. Decreases
in external expenses of $3.6 million and facility and other expenses of $1.5
million were materially offset by increases in employee and contractor-related
expenses of $4.8 million. The decrease in external expenses was due to the
termination of Studies 211 and 205, the termination of the 2158 and the
Microbiome program as well as cost savings from sharing costs with our
collaboration partners under two of our Phase 2 triple combination studies with
VBR. This was partially offset by external expenses generated from the
advancement of 3733, 4334 and our research discovery program. The decrease in
facility and other expenses of $1.5 million was primarily attributable to asset
impairment and other charges incurred in connection with the wind-down of the
Microbiome program announced in January 2021. The increase in employee and
contractor-related expenses of $4.8 million was primarily due to the reversal of
$4.1 million of previously recognized stock-based compensation expense related
to forfeited awards of terminated employees during the six months ended June 30,
2021, of which $2.7 million resulted from the wind-down of our Microbiome
program, as well as increases in salaries and benefits primarily due to accrued
severance benefits to an executive officer associated with the reorganization
announced in July 2022.

General and Administrative Expense

The following table summarizes the period-over-period changes in our general and administrative expenses (in thousands, except for percentages):

                                          Six Months Ended June 30,            $ Change            % Change
                                          2022                2021          

2022 vs. 2021 2022 vs. 2021 General and administrative expenses $ 12,738 $ 15,621 $ (2,883 )

               (18 %)


General and administrative expenses were $12.7 million for the six months ended
June 30, 2022 compared to $15.6 million for the same period in 2021. The
decrease in general and administrative expenses primarily relates to a decrease
in stock-based compensation expense of $1.4 million due to a decrease in the
grant date fair value of recent option grants. We also experienced decreases of
$0.6 million in facility-related expenses primarily due to termination of lease
agreements related to the wind-down of the Microbiome program in 2021, $0.5
million in professional fees primarily due to decreases in legal expenses and
$0.4 million in recruitment expenses due to hiring of fewer employees during six
months ended June 30, 2022 compared to the same period in 2021. The impact to
salaries and benefits associated with the termination of an executive officer as
part of the reorganization announced in July 2022 was offset by a reduction in
salaries and benefits due to employee turnover.

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Liquidity and Capital Resources

Sources of Liquidity


As a result of our significant research and development expenditures and the
lack of any FDA-approved products to generate product sales revenue, we have not
been profitable and have generated operating losses since we were incorporated
in October 2005. We have funded our operations through June 30, 2022 principally
through equity financings, raising an aggregate of $604.6 million in net
proceeds, and strategic collaborations, raising an aggregate of $90.0 million
through upfront payments.

Cash Flows for the Six Months Ended June 30, 2022 and 2021

The following table summarizes our cash flow activities (in thousands):

                                Six Months Ended June 30,
Cash (used in) provided by:       2022               2021
Operating activities          $     (45,387 )     $  (55,152 )
Investing activities                 42,646           14,929
Financing activities                    177           40,296


Net Cash from Operating Activities


Net cash used in operating activities was $45.4 million for the six months ended
June 30, 2022. This was primarily due to our $47.6 million net loss, adjusted
for $3.0 million recognized for stock-based compensation expense.

Net cash used in operating activities was $55.2 million for the six months ended
June 30, 2021. This was primarily due to our $50.8 million net loss and a
decrease of $7.6 million in other accrued expenses due to payment of our 2020
annual bonuses and accrued severances associated with the wind-down of our
Microbiome program. These were partially offset by a $1.6 million loss on
disposal of property and equipment associated with the wind-down of our
Microbiome program during the six months ended June 30, 2021.

Net Cash from Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2022 was $42.6 million due to proceeds from sales and maturities of marketable securities, net of purchases.


Net cash provided by investing activities for the six months ended June 30, 2021
was $14.9 million. This was due to proceeds of $17.2 million from sales and
maturities of marketable securities, net of purchases, offset by our purchase of
leased equipment for $3.1 million that we then sold for $0.9 million in
connection with the wind-down of the Microbiome program.

Net Cash from Financing Activities

Cash flows from financing activities were not significant for the six months ended June 30, 2022.

Net cash provided by financing activities for the six months ended June 30, 2021 was $40.2 million resulting from the sale of 7,449,901 shares of our common stock under the 2020 ATM.

Funding Requirements


We will need to obtain substantial additional funding in connection with our
continuing operations. If we are unable to raise capital when needed or on
attractive terms, we could be forced to delay, reduce or eliminate our research
and development programs or future commercialization efforts.

We monitor our cash needs and the status of the capital markets on a continuous
basis. From time to time, we opportunistically raise capital and have done so
numerous times since our initial public offering by issuing equity securities,
most recently in November 2021. We expect to continue to raise capital when and
as needed and at the time and in the manner most advantageous to us.

                                       24
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We expect that our existing cash, cash equivalents and marketable securities
will enable us to fund our operating expenses and capital expenditure
requirements for at least the next twelve months. There were no material changes
in our commitments under the contractual obligations disclosed in our 2021
Annual Report. Since our inception, we have not engaged in any off-balance sheet
arrangements as defined in Item 303(a)(4) of Regulation S-K.

Our future capital requirements will depend on many factors, including:

• our ability to successfully execute our Plan, including reducing the size

of our organization to align with the Plan;

• the scope, progress, results and costs of our ongoing drug discovery,

nonclinical development, laboratory testing and clinical studies of our

product candidates and any additional clinical studies we may conduct in

the future;

• the extent to which we further acquire or in-license other product

        candidates and technologies;


    •   our ability to manufacture, and to contract with third parties to

manufacture, adequate supplies of our product candidates for our clinical

studies and any eventual commercialization;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs of preparing, filing and prosecuting patent applications in the

United States and abroad, maintaining and enforcing our intellectual

        property rights and defending intellectual property-related claims; and


    •   our ability to establish and maintain collaborations on favorable terms,

if at all.



Identifying potential product candidates and conducting nonclinical testing and
clinical studies is a time-consuming, expensive and uncertain process that takes
years to complete, and we may never generate the necessary data or results
required to obtain marketing approval and achieve product sales. In addition,
our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will likely be derived from sales of medicines that
we do not expect to be commercially available for years, if at all. Accordingly,
we will need to continue to rely on additional financings to achieve our
business objectives. Adequate additional financings may not be available to us
on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances and licensing arrangements. We
do not have any committed external source of funds. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely
affect the rights of our common stockholders. Debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or
licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.

                                       25

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© Edgar Online, source Glimpses

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