The following information should be read in conjunction with the consolidated
financial statements and related notes thereto included in this Quarterly Report
on Form 10-Q (this "Report").

Except for the historical information contained in this Report, the matters
discussed herein may be deemed to be forward-looking statements that involve
risks and uncertainties. We make such forward-looking statements pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and other federal securities laws. In this Report, words such as "may,"
"expect," "anticipate," "estimate," "intend," and similar expressions (as well
as other words or expressions referencing future events, conditions or
circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from
the results discussed, projected, anticipated, or indicated in any
forward-looking statements. We caution you that forward-looking statements are
not guarantees of future performance and that our actual results of operations,
financial condition and liquidity, and the development of the industry in which
we operate may differ materially from the forward-looking statements contained
in this Report. In addition, even if our results of operations, financial
condition and liquidity, and the development of the industry in which we operate
are consistent with the forward-looking statements contained in this Report,
they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be
considered in light of factors discussed elsewhere in this Report, including
those risks identified under Item 1A., Risk Factors. In many instances, dollar
amounts contained in the narrative descriptions in the following section of this
Report are stated in approximate values, pursuant to generally accepted rounding
conventions. We caution readers not to place undue reliance on any
forward-looking statements made by us, which speak only as of the date they are
made. We disclaim any obligation, except as specifically required by law and the
rules of the U.S. Securities and Exchange Commission (the "SEC"), to publicly
update or revise any such statements to reflect any change in our expectations
or in events, conditions or circumstances on which any such statements may be
based, or that may affect the likelihood that actual results will differ from
those set forth in the forward-looking statements.

Company Overview



We are a clinical-stage biopharmaceutical company developing novel ribonucleic
acid (RNA)-modulating drug candidates, each designed to be a eukaryotic
ribosomal selective glycoside (ERSG), formulated to treat rare and ultra-rare
premature stop codon diseases. Premature stop codons are point mutations that
disrupt the stability of the impacted messenger RNA (mRNA) and the protein
synthesis from that mRNA. As a consequence, patients with premature stop codon
diseases have reduced levels of, or no, protein from a gene whose product
performs an essential function. This type of mutation accounts for some of the
most severe phenotypes across genetic diseases. Nonsense mutations have been
identified in over 1,800 rare and ultra-rare diseases. Read-through therapeutic
development is focused on increasing functional protein synthesis by enabling
the cytoplasmic ribosome to read through premature stop codons to produce
full-length proteins. As opposed to a typical gene therapy approach of targeting
a single, unique mutation in a target disease, this small molecule strategy
enables targeting an entire class of mutations across the rare disease
landscape. Our small molecule approach has the potential to address a range of
different premature stop codons in a single gene since our ERSG compounds are
targeted to the ribosomes. ELX-02, our lead investigational drug product
candidate, is a small molecule designed to restore production of full-length
functional proteins. ELX-02 is in clinical development for systemic
administration for cystic fibrosis. ELX-02 is an investigational drug that has
not been approved by any global regulatory body. We are also conducting
IND-enabling preclinical studies of ERSG compounds for autosomal dominant
polycystic kidney disease (ADPKD) and in rare inherited retinal disorders (IRDs)
by intravitreal administration with an initial focus on Usher Syndrome. Our
preclinical candidate pool consists of a library of novel ERSG drug candidates
identified based on read-through potential and cytoplasmic ribosomal
selectivity. We hold worldwide development and commercialization rights to
ELX-02 and other novel compounds in our read-through library, for all
indications, in all territories, under a license from the Technion Research and
Development Foundation Ltd. ("TRDF").

During 2019, we advanced our clinical program for ELX-02 into Phase 2 studies in
cystic fibrosis and nephropathic cystinosis. We also completed a renal
impairment study with ELX-02 in subjects with mild, moderate, and severe renal
impairment. The results from the renal impairment study provided support for
both continuing our clinical development programs and evaluating the suitability
of our ERSG library for development in additional renal diseases, including
ADPKD.

Our research and development strategy targets rare or ultra-rare diseases where
a high unmet medical need exists, a nonsense mutation-bearing patient population
is established, preclinical read-through can be established in predictive
personalized medicine models, and a defined path through Orphan Drug
development, regulatory approval, patient access and commercialization is
identified. We believe patient advocacy is an important element of patient
focused drug development, and we seek opportunities to collaborate with patient
advocacy groups throughout the discovery and development process.

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Our current clinical program for our lead investigational drug product candidate, ELX-02, includes Phase 2 studies in cystic fibrosis.



We intend to be the global leader in the application of the science of
translational read-through and the associated pathway of nonsense mediated decay
(NMD). We believe that expanding our expertise across these basic science areas
of mRNA regulation, ribosomal function, and protein translation forms a solid
foundation to support our discovery and development activities. Our ERSG
compounds modulate the activity of the ribosome, a ribonucleoprotein complex of
RNAs and proteins responsible for protein production (a process also known as
translation). These novel small molecule ERSG compounds are designed to allow
the ribosome to read-through a nonsense mutation in mRNA (which is transcribed
from the DNA sequence), to restore the translation process to produce
full-length, functional proteins and increase the amount of mRNA that would
otherwise be degraded as part of a phenomenon called nonsense mediated mRNA
decay. As our ERSG compounds target the general mechanism for protein production
in the cell, we believe they have the potential to treat numerous genetic
diseases where nonsense mutations have impaired gene function. Since nonsense
mutations may occur at different positions within a given gene, a potential
advantage of the small molecule ERSG approach is being able to use one molecule
to address a range of mutations within a given disease state. Our subcutaneously
injected ERSG molecules have the potential to be self-administered for systemic
disease and to be active across many of the body's tissues.

We believe that our library of related novel small molecules holds the potential
to be disease-modifying therapies that may change the course of numerous genetic
diseases and improve the lives of patients. Our early preclinical data in animal
models of nonsense mutations suggests that drug product candidates from our
read-through compound ERSG library may have potential beneficial effects for
each of the following diseases: cystic fibrosis, nephropathic cystinosis, ADPKD,
a variety of IRDs (including Usher Syndrome), primary ciliary dyskinesia,
mucopolysaccharidosis type 1, Duchenne muscular dystrophy and Rett syndrome, and
have demonstrated the potential for beneficial effects in multiple organs such
as the brain, eye, kidney, lungs, muscles and others. Of the novel compounds in
our ERSG Library, approximately 30 compounds have been selected, based on
read-through activity, for continued preclinical research and we anticipate
additional compounds advancing toward Investigational New Drug (IND) filings.

Our scientific manuscript titled "ELX-02 generates protein via premature stop
codon read-through without inducing native stop codon read-through protein" was
published in the August 2020 issue of the Journal of Pharmacology and
Experimental Therapeutics (JPET). This manuscript demonstrates that while ELX-02
mediates read-through of premature stop codons, the fidelity of native stop
codons found at the end of healthy transcripts is maintained. This indicates
that translation integrity is preserved with target-therapeutic exposure of
ELX-02, consistent with the favorable tolerability profile across our
preclinical and clinical data sets.

Currently, the clinical programs for our lead investigational drug candidate,
ELX-02, are focused on development for cystic fibrosis patients with diagnosed
nonsense mutations. We have completed a Phase 1 single ascending dose (SAD)
trial at sites in Israel and Belgium, a multiple ascending dose (MAD) trial in
Belgium and the United States, and a renal impairment study in the United States
with subjects having mild, moderate and severe renal impairment. The results of
the SAD study were published in Clinical Pharmacology in Drug Development in
January 2019. The results from the MAD study were presented in 2019 at both the
European Cystic Fibrosis Society clinical meeting and the North American Cystic
Fibrosis Conference (NACFC). Additionally, the results from the renal impairment
study were presented at the 2019 American Society of Nephrology (ASN) Kidney
Week in November 2019.

Our scientific review written by Professor Eitan Kerem, M.D., Senior Attending
Physician at the Hadassah CF Center in Jerusalem, Israel and Senior Medical
Consultant to Eloxx, titled "ELX-02: an investigational read-through agent for
the treatment of nonsense mutation-related genetic disease" was published in
October 2020 by the Expert Opinion on Investigational Drugs Journal. This
manuscript details the development of ELX-02 for the restoration of functional
protein in nonsense-mediated disease in support of our ongoing Phase 2 trials.

Our Phase 2 cystinosis trial involved two sequential cohorts with three
escalating doses in three patients per cohort. The first cohort enrolled three
homozygous W138X patients ages 23 to 38, with prior kidney transplants and
varying degrees of renal insufficiency. In January 2020, we announced positive
data from the first cohort of the Phase 2 study of ELX-02 in the treatment of
patients with nonsense mutation-mediated nephropathic cystinosis. The results of
the first cohort met the primary safety endpoint and the reductions in white
blood cell (WBC) cystine provided a clear indication of biologic activity in
these patients at nominal doses > 0.5 mg/kg/day. Following review of the safety
and pharmacokinetic data by an independent Safety Review Committee (SRC), the
SRC approved progressing to the second cohort that would enable enrolling
patients ages 12 and older. Due to study design limitations, patients across all
dose groups had elevated and uncontrolled pretreatment WBC cystine levels which
made it difficult to fully evaluate ELX-02-mediated WBC cystine reductions.
Therefore, we have discontinued this study and will not proceed with the second
cohort as contemplated in the original protocol. We will continue to review
these data with a panel of scientific and clinical experts to determine
appropriate modifications for a possible new study design.

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The clear indications of biologic activity in this study provide human clinical
proof of concept for ELX-02 and de-risk other clinical applications of our ERSG
library using this dosage range. These encouraging results also provide a basis
for expansion to studies of additional kidney diseases caused by nonsense
mutations, such as ADPKD.

Our Phase 2 cystic fibrosis clinical trial program for ELX-02 is being conducted
at leading global investigator sites in Europe, Israel and the United States. On
March 25, 2020, we announced that enrollment in these trials had been paused
temporarily in response to the global COVID-19 pandemic in order to avoid
unnecessary exposure in at-risk populations, to maintain the integrity of our
study data and to support global healthcare providers in their commitment to
ensure patient safety. On June 17, 2020, we announced that enrollment in our
Phase 2 clinical trial in cystic fibrosis had been resumed in Israel and Europe,
and on August 12, 2020, we announced that enrollment in our Phase 2 clinical
trial in cystic fibrosis has been resumed in the U.S. The COVID-19 pandemic
continues to evolve, and we continue to work closely with our clinical sites and
investigators. We are also evaluating additional clinical sites in other
countries where patient enrollment may be feasible. We remain committed to
completing enrollment in these Phase 2 proof of concept clinical trials and
reporting top line data in the first half of 2021, which is contingent on no
further disruptions due to the COVID-19 pandemic. Several planned Safety Review
Committee meetings have occurred and allowed dose escalation up to the top dose
level with no drug-related serious adverse events reported to date. We have had
multiple patients progressing through the four-dose escalation range. In the
U.S., the Cystic Fibrosis Foundation ("CF Foundation") is providing funding for
a portion of the trial and we have formed a joint program advisory group with
the CF Foundation focused on the development of ELX-02 for cystic fibrosis. The
Cystic Fibrosis Therapeutics Development Network ("TDN") has sanctioned the
Phase 2 study protocol, which is being conducted at TDN member sites. Additional
information about our clinical trials can be found at www.ClinicalTrials.gov
(Identifiers: NCT04126473 and NCT04135495).

Professor Eitan Kerem, M.D., former Head of the Division of Pediatrics,
Children's Hospital, Hadassah Medical Center in Israel, has joined Eloxx as a
Senior Medical Consultant. For the U.S. trial, Dr. Ahmet Uluer, Director of the
Adult Cystic Fibrosis Program at the Boston Children's Hospital/Brigham and
Women's Hospital CF Center, is the lead study investigator. The protocols have
been sanctioned by the TDN in the U.S. and the European Cystic Fibrosis Society
Clinical Trial Network (which has given our European/Israel trial a "high
priority" ranking). During October 2019, we completed an interim CMC review
meeting with the U.S. Food and Drug Administration (the "FDA") and we have
gained alignment with the agency on our manufacturing formulation and process,
which we believe will be suitable for our expected drug supply needs through
completion of our pivotal trials. The in-person European Cystic Fibrosis Society
conference in Lyon, France scheduled for June 2020 was cancelled, and we
withdrew our abstract. We presented data from two scientific abstracts at the
North American Cystic Fibrosis Virtual Conference (NACFC). The two abstracts
were also showcased in the NACFC virtual poster gallery and electronically
published as a supplement to Pediatric Pulmonology. The live sessions and
discussions took place through October 23, 2020. These virtual posters are
available to registered attendees on the NACFC online conference platform. The
preclinical study results demonstrate ELX-02's selectivity for read-through of
premature stop codons versus native stop codons and its ability to restore
production of functional CFTR in patient-derived organoids.

We believe there is a significant unmet medical need in the treatment of cystic
fibrosis patients carrying nonsense mutations on one or both alleles of the CFTR
gene. Cystic fibrosis is the most prevalent genetic disease in the western world
and there are no currently approved therapies that target the impairment
associated with Class 1 CFTR mutations. We believe that nonsense mutations may
impact a similar proportion of patients diagnosed with cystinosis. Given the
high proportion of pediatric patients in many rare orphan diseases, we intend to
apply for relevant Orphan Drug incentives in the U.S. and Europe, including the
Rare Pediatric Disease Priority Review Voucher in the U.S. Currently, the
European Medicines Agency (the "EMA") has designated ELX-02 as an orphan
medicine for the treatment of cystic fibrosis and mucopolysaccharidosis type I
(MPS I). The FDA had previously granted orphan drug designation to ELX-02 for
the treatment of nephropathic cystinosis, MPS I, and Rett syndrome, and on
August 4, 2020, we announced that the FDA has granted orphan drug designation
for ELX-02 for the treatment of cystic fibrosis. The FDA's Office of Orphan Drug
Products grants orphan status to support the development of medicines for
underserved patient populations, or rare disorders, that affect fewer than
200,000 people in the U.S. Orphan drug designation qualifies Eloxx for certain
benefits, including seven years of market exclusivity upon regulatory approval
(if received), exemption from FDA application fees, tax credits on qualified
U.S. clinical trials and eligibility for grant funding opportunities that can be
used for clinical trial costs.

We are also evaluating the suitability of our ERSG library for development in
rare renal diseases associated with nonsense mutations, such as ADPKD. ADPKD is
a relatively common inherited genetic kidney disease occurring in between one in
400 and one in 1,000 patients and is the fourth leading cause of end-stage renal
disease in the United States. Over 25% of the primary genetic changes that cause
ADPKD are nonsense mutations, where a premature stop codon in the gene leads to
a truncated, often unstable, protein. We have evaluated the three most relevant
ADPKD nonsense mutations in an in vitro read-through assay and have demonstrated
significant levels of read-through for ELX-02 and several library compounds,
which is the first step in our preclinical development toward an IND.

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We continue to progress our ERSG pipeline in IRDs, another area of high unmet
medical need, that are associated with vision loss and blindness. There are over
300 IRDs associated with nonsense mutations. We recently reported on a critical
milestone demonstrating that several of our library compounds successfully reach
retinal disorder-relevant tissue layers and can restore protein production in an
animal model. These data support that our ERSG compounds are suitable for
reaching and promoting read-through in target cells within the retina. We had
planned to present these data at the Association for Research in Vision and
Ophthalmology (ARVO) Annual Meeting in May 2020, but the meeting was cancelled
due to the global COVID-19 pandemic. As an alternative, we submitted a recorded
video presentation which became available on ARVO's website May 6, 2020. Our IRD
research also includes exploring multiple sustained release formulation
technologies, and in vitro release rates achieved to date have been consistent
with our target release profile of one to three months. Our scientific
manuscript titled "Intravitreal administration of small molecule read-through
agents demonstrate functional activity in a nonsense mutation mouse model" was
published in October 2020 by the Journal of Experimental Eye Research. This
manuscript demonstrates that multiple small molecules in our ERSG library
mediate dose-dependent read-through at the back of the eye after a single
intravitreal injection. Collectively, these manuscripts demonstrate the
wide-ranging potential of our small molecule read-through approach to rare
genetic disorders mediated by nonsense mutations; from targeted delivery for
inherited retinal disorders to systemic delivery for multi-system disorders like
cystic fibrosis.

On February 24, 2020, our Board of Directors approved a leadership and
organizational realignment aimed at supporting our efforts to improve operating
performance and concentrate development efforts on our core programs. The
organizational realignment reduced managerial layers and consolidated roles
across the organization, resulting in the elimination of 13 full-time positions
during the first quarter of 2020. We incurred a resulting one-time pre-tax
charge of $4.0 million during the first quarter of 2020.

COVID-19



The outbreak of COVID-19 and the preventative or protective actions that we, our
employees, consultants, suppliers, contract research organizations (CROs), and
other partners or governments may take may significantly disrupt our business
operations. We are diligently working to ensure that we can operate with minimal
disruption, and to mitigate the impact of the pandemic on our employees' health
and safety and that of the patients and healthcare professionals in our clinical
trials. However, given the significant uncertainty regarding the ongoing impact
of the COVID-19 outbreak, there remains a risk that we or our employees,
contractors, suppliers, and other partners may be prevented from conducting
business activities for indefinite periods of time, including due to a
substantial percentage of personnel contracting the virus or due to shutdowns
that may be requested or mandated by governmental authorities. Given the
interconnectivity of the global economy and the possible rate of future global
transmission of the virus, the full extent to which the pandemic could affect
the global economy is unknown and its impact may extend beyond the areas which
are currently known by us to be affected.

Our management and Board of Directors are focused on the operational challenges
resulting from the COVID-19 pandemic. To date, the pandemic has not had a
material adverse impact on our financial condition, and we have not had to lay
off or furlough any employees. Operations have continued even though our
clinical trials were temporarily paused. Both Phase 2 clinical trials have now
resumed. We are evaluating various alternatives to remain flexible and adapt to
changing circumstances that may arise in the near and long term. We continue to
monitor our operations, states of affairs in the regions in which we and our
business partners operate and conduct research and clinical trial activities,
and applicable government recommendations. As a result, we have made
modifications to our normal operations, including restrictions on business
travel and meetings, permitting employees to work remotely and the
implementation of COVID-19 workplace safety guidelines to screen employees and
office visitors for COVID-19 symptoms upon entering our offices. We have also
implemented one-way traffic flows, social-distanced workspaces, additional
cleaning requirements and mandatory face coverings for common spaces and
provided components of Personal Protective Equipment (PPE) for all employees
working out of our various office locations. Notwithstanding these measures, the
COVID-19 pandemic could affect the health and availability of our workforce as
well as those of the third parties we rely on. If members of our management and
other key personnel in critical functions across our organization are unable to
perform their duties or have limited availability due to COVID-19, we may not be
able to execute on our business strategy and our operations may be adversely
impacted. We may also experience limitations in employee resources, including
due to illness of employees or their families or the desire of employees to
avoid contact with individuals or large groups of people. In addition, we have
experienced and will continue to experience disruptions to our business
operations resulting from quarantines, self-isolations and travel and other
restrictions on our employees which may impact their ability to perform their
job responsibilities.

The extent and severity of the impact of the current global health crisis on our
business and clinical trials will be determined largely by the ability of
patients and prospective patients in our clinical trials to access trial sites,
the ability of personnel from our CROs to oversee the administration of our drug
in accordance with trial protocols and our ability to monitor and communicate
effectively with our CROs, staff at clinical trial sites and principal
investigators. In addition, the

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impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential advancement of our product candidates.

Critical Accounting Policies and Use of Estimates



Our management's discussion and analysis of financial condition and results of
operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States, or U.S. GAAP. The preparation of these
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the condensed consolidated financial
statements, as well as the reported expense during the reporting periods. We
monitor and analyze these items for changes in facts and circumstances, and
material changes in these estimates could occur in the future. 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. Changes in estimates are reflected in
reported results for the period in which they become known. Actual results may
differ materially from these estimates under different assumptions or
conditions.

The critical accounting policies that we believe impact significant judgments
and estimates used in the preparation of our financial statements presented in
this Report are described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our 2019 Annual Report on Form 10-K.
There have been no material changes to our critical accounting policies through
September 30, 2020, from those discussed in our Annual Report on Form 10-K filed
with the SEC on March 6, 2020.

Results of Operations



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



                                    Three Months Ended                                    Nine Months Ended
                                       September 30,                  Change                September 30,                  Change
                                    2020          2019           $             %         2020          2019            $             %
Operating expenses:
Research and development, net     $   3,231     $   6,801     $ (3,570 )

(52 ) % $ 11,308 $ 20,160 $ (8,852 ) (44 ) % General and administrative

            3,065         5,978       (2,913 )

(49 ) % 12,347 18,907 (6,560 ) (35 ) % Restructuring charges

                     -             -            -         -           3,994             -         3,994         -
Total operating expenses              6,296        12,779       (6,483 )     (51 ) %      27,649        39,067       (11,418 )     (29 ) %
Loss from operations                 (6,296 )     (12,779 )      6,483       (51 ) %     (27,649 )     (39,067 )      11,418       (29 ) %
Other expense, net                      321            96          225       234   %         801           174           627       360   %
Net loss                          $  (6,617 )   $ (12,875 )   $  6,258       (49 ) %   $ (28,450 )   $ (39,241 )   $  10,791       (27 ) %

Research and development expense



Research and development expenses were $3.2 million for the three months ended
September 30, 2020 compared to $6.8 million for the same period in 2019, a
decrease of $3.6 million. The decrease in research and development expenses was
primarily related to $2.7 million in reduced fees incurred for subcontractors,
consultants and advisors in connection with ongoing clinical trials and research
and development activities, due to delays in clinical trial enrollment resulting
from the COVID-19 pandemic, a $0.4 million decrease in stock-based compensation
and a $0.5 million decrease in salaries and other personnel-related costs due to
lower headcount during the 2020 period. Research and development expenses for
the three months ended September 30, 2020 and 2019 included non-cash stock-based
compensation expense totaling $0.3 million and $0.7 million, respectively.

Research and development expenses were $11.3 million for the nine months ended
September 30, 2020 compared to $20.2 million for the same period in 2019, a
decrease of $8.9 million. The decrease in research and development expenses was
primarily related to $7.2 million in reduced fees incurred for subcontractors,
consultants and advisors in connection with ongoing clinical trials and research
and development activities, due to delays in clinical trial enrollment resulting
from the COVID-19 pandemic, a $1.2 million decrease in stock based compensation
and a $0.4 million decrease in salaries and other personnel-related costs due to
lower headcount during the 2020 period. Research and development expenses for
the nine months ended September 30, 2020 and 2019 included non-cash stock-based
compensation expense totaling $0.8 million and $2.0 million, respectively.

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General and administrative expenses



General and administrative expenses were $3.1 million for the three months ended
September 30, 2020, compared to $6.0 million for the same period in 2019, a
decrease of $2.9 million. The decrease in general and administrative expenses
was primarily due to decreases of $0.8 million in personnel and related costs
due to a reduction in headcount and related salaries for the 2020 period, $1.1
million in stock-based compensation and $1.0 million in professional services
and other infrastructure-related costs. General and administrative expenses for
the three months ended September 30, 2020 and 2019 included non-cash stock-based
compensation expense totaling $1.1 million and $2.2 million, respectively.

General and administrative expenses were $12.3 million for the nine months ended
September 30, 2020, compared to $18.9 million for the same period in 2019, a
decrease of $6.6 million. The decrease in general and administrative expenses
was primarily due to decreases of $1.7 million in personnel and related costs
due to a reduction in headcount and related salaries for a portion of the 2020
period, $2.2 million in stock-based compensation and $2.7 million in
professional services and other infrastructure-related costs. General and
administrative expenses for the nine months ended September 30, 2020 and 2019
included non-cash stock-based compensation expense totaling $4.5 million and
$6.6 million, respectively.

Restructuring charges

Restructuring charges of $4.0 million for the nine months ended September 30,
2020 resulted from the leadership and organizational realignment during the
first quarter of 2020. The total included $1.9 million related to contract
termination and employee separation costs (primarily severance and benefits) and
$2.1 million of non-cash stock compensation, relating to accelerated vesting of
executive stock awards. There were no similar charges during the three months
ended September 30, 2020.

Other expense, net

We recorded $0.3 million in other expense, net for the three months ended September 30, 2020, compared to $0.1 million for the same period in 2019. The increase in other expense, net was primarily due to lower interest income.

We recorded $0.8 million in other expense, net for the nine months ended September 30, 2020, compared to $0.2 million for the same period in 2019. The increase in other expense, net was primarily due to lower interest income.

Liquidity and Capital Resources



Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures. To date, we have not generated revenue from sales of any
product or service.

Although the impact of the COVID-19 pandemic on clinical operations and trial
enrollment cannot fully be determined, we believe that our cash and cash
equivalents of $30.6 million at September 30, 2020, will enable us to meet the
anticipated cash needs required to reach top line Phase 2 data in cystic
fibrosis and maintain our current and planned operations through at least the
next 12 months from the issuance of this Report. Since our inception, we have
incurred significant operating losses. Our net losses were $(28.5) million for
the nine months ended September 30, 2020, and $(50.9) million for the year ended
December 31, 2019. As of September 30, 2020, we had an accumulated deficit of
$(165.5) million. To date, we have financed our operations primarily through
equity capital investments, and to a lesser extent, from loans and grants. We
have devoted substantially all of our financial resources and efforts to
research and development. We expect that it may be several years, if ever,
before we receive regulatory approval and have a product candidate ready for
commercialization. We expect to continue to incur significant expenses and
operating losses for the foreseeable future. A successful transition to
profitable operations is dependent upon achieving a level of revenue adequate to
support our cost structure. Our net losses may fluctuate significantly from
quarter to quarter and year to year. We anticipate that our expenses may
increase if, and as, we:

• advance ELX-02 and/or other product candidates further into clinical

development;

• experience additional delays in enrollment and completion of our clinical

trials due to the COVID-19 pandemic or otherwise;

• continue the preclinical development of our research programs and advance

candidates into clinical trials;




    •  pursue regulatory authorization to conduct clinical trials of additional
       product candidates;


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  • seek marketing approvals for our product candidates;


    •  establish a sales, marketing and distribution infrastructure to
       commercialize any product candidates for which we obtain marketing
       approval;


  • maintain, expand and protect our intellectual property portfolio;

• hire additional clinical, regulatory, management and scientific personnel;

• add operational, financial and management information systems and personnel;




  • acquire or in-license other product candidates and technologies; and


  • operate as a public company.


We may never achieve profitability, and unless and until we do, we will continue
to need to raise additional cash to fund our operations. On February 24, 2020,
our Board of Directors approved a leadership and organizational re-alignment,
which is expected to achieve annual cost savings of approximately $4.9 million
primarily related to salaries and benefits, with anticipated fiscal year 2020
savings of approximately $2.3 million, net of severance costs. Our cash, cash
equivalents, and marketable securities are highly liquid investments with
original maturities of one year or less at the date of purchase and consist of
cash in operating accounts and secured investments, primarily U.S. treasuries.

Management intends to fund future operations through private or public debt or
equity financing transactions and may seek additional capital through
arrangements with strategic partners or from other sources. If we are unable to
obtain adequate financing, we will evaluate alternatives which may include
reducing or deferring operating expenses, which may have a material adverse
effect on our operations and future prospects.

Principal Financing Activities



On January 30, 2019, we entered into a Loan and Security Agreement (the "Loan
Agreement") with Silicon Valley Bank ("SVB"), and WestRiver Innovation Lending
Fund VIII, L.P. (together with SVB, the "Lenders"). Pursuant to the terms and
conditions of the Loan Agreement, the Lenders extended a term loan to us of
$15.0 million.

Outstanding principal on the loan accrues interest at a floating rate equal to
the greater of (i) 5.25% per annum and (ii) the sum of 2.5% plus the prime rate,
as published in the Wall Street Journal. Interest payments are payable monthly
following the funding of the loan. On September 30, 2020, the interest rate was
5.75%. We commenced making payments on the outstanding principal balance of the
loan on February 1, 2020, which is payable in 36 equal monthly installments.
Amounts outstanding under the loan are due and payable on January 1, 2023.

In conjunction with the initial loan advance, we issued warrants (the "Warrants") to the Lenders to purchase an aggregate of 40,834 shares of our common stock at a warrant exercise price of $11.02 (subject to certain adjustments), which price was calculated using the 10-day average bid price of our common stock prior to the date of the Loan Agreement.



We may prepay the outstanding principal balance of the loans advanced by the
Lenders in whole but not in part, subject to a prepayment fee ranging from 1% to
3% of any amount prepaid, depending upon when the prepayment occurs. We will
also pay a final payment fee equal to 6% of the total loans advanced, due upon
the earlier of maturity or termination of the Loan Agreement.

Under the terms of the Loan Agreement, we granted first priority liens and
security interests in substantially all of our assets (excluding all of its
intellectual property, which is subject to a negative pledge) and a pledge by us
of the shares of one of our wholly-owned subsidiaries as collateral for the
obligations thereunder. The Loan Agreement also contains representations and
warranties by us and the Lenders and indemnification provisions in favor of the
Lenders and customary covenants (including limitations on other indebtedness,
liens, acquisitions, investments and dividends, but no financial covenants), and
events of default (including payment defaults, breaches of covenants following
any applicable cure period, a material impairment in the perfection or priority
of the Lenders' security interest in the collateral, and events relating to
bankruptcy or insolvency).

In April 2020, we entered into a loan agreement with SVB under the U.S. Small
Business Administration (the "SBA") Paycheck Protection Program (the "PPP")
pursuant to the Coronavirus Aid, Relief and Economic Security Act of 2020 (the
"CARES Act") and received loan proceeds of $0.8 million (the "PPP Loan"). We
expect to use the loan proceeds for payroll

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and other covered costs in accordance with the relevant terms and conditions of
the CARES Act. We issued a promissory note for the PPP Loan with a maturity date
of April 21, 2022 and an interest rate of 1.0% per annum. Monthly payments of
principal and interest will be due beginning on September 21, 2021, although
interest accrues from the issuance date. We may prepay the PPP Loan without
penalty or premium, and the promissory note provides for customary events of
default. A PPP loan may be partially or entirely forgiven based on employee
retention for the 24-week period starting on the loan date through October 2020,
and the use of loan proceeds for payroll or other specified costs during the
same period. Forgiveness is also based on the employer maintaining or restoring
headcount and maintaining salary levels. Forgiveness is reduced if headcount
declines or if salaries decrease. Any loan forgiveness will be made subject to
SVB approval in accordance with SBA requirements.

On June 24, 2019, we completed an underwritten public offering of 3,833,334 shares of common stock at the public offering price of $9.00 per share and received gross proceeds of approximately $34.5 million, before deducting underwriting discounts and commissions of $2.1 million and offering expenses of $0.2 million.



Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):





                                                         Nine Months Ended
                                                           September 30,
                                                        2020          2019
Net cash used in operating activities                 $ (23,498 )   $ (30,134 )
Net cash provided by (used in) investing activities      33,792       (42,603 )
Net cash (used in) provided by financing activities      (2,186 )      46,281




Our operating activities used cash of $23.5 million and $30.1 million during the
nine months ended September 30, 2020 and 2019, respectively. For the nine months
ended September 30, 2020, net cash used in operating activities resulted
primarily from our net loss of $(28.5) million and total changes in working
capital of $3.4 million partially offset by total non-cash charges of $8.3
million. Non-cash charges primarily related to $7.4 million of stock-based
compensation, $0.5 million of amortization of lease assets, and $0.4 million of
debt discount amortization. Changes in working capital were primarily related to
decreases of $1.7 million in accrued expenses, $1.2 million in accounts payable,
$0.3 million in operating lease liabilities, and an increase of $0.1 million in
prepaid expenses and other assets. For the nine months ended September 30, 2019,
net cash used in operating activities resulted primarily from our net loss of
$(39.2) million partially offset by total non-cash charges of $9.2 million and
total changes in working capital of $0.1 million. Non-cash charges primarily
related to $8.6 million of stock-based compensation, $0.3 million of
amortization of lease assets, $0.4 million of debt discount amortization and
$0.1 million of depreciation expense, offset by $0.2 million of discount
amortization on our investments. Changes in working capital were primarily
related to an increase in prepaid expenses and other current assets of $0.2
million and advances from collaboration partners of $0.4 million related to the
achievement of a milestone in connection with the CF Foundation funding
commitment for our cystic fibrosis development program in the U.S.



Our investing activities provided cash of $33.8 million and used cash of $42.6
million during the nine months ended September 30, 2020 and 2019, respectively.
For the nine months ended September 30, 2020, cash provided by investing
activities was primarily related to $33.8 million of proceeds from maturities of
marketable securities. For the nine months ended September 30, 2019, cash used
in investing activities consisted primarily of $56.0 million in purchases of
marketable securities, offset by $13.5 million of proceeds from maturities of
marketable securities.



Our financing activities used cash of $2.2 million during the nine months ended
September 30, 2020 and provided cash of $46.3 million during the nine months
ended September 30, 2019. For the nine months ended September 30, 2020, net cash
used in financing activities consisted primarily of $3.3 million in term loan
principal repayments, offset by $0.8 million received from the PPP Loan and $0.4
million in advances received from collaboration partners. For the nine months
ended September 30, 2019, net cash provided by financing activities resulted
primarily from net proceeds of $32.7 million from sales of common stock and the
issuance of debt of $15.0 million in January 2019 offset by $1.2 million of
taxes paid upon the vesting of restricted stock units and $0.3 million of debt
issuance costs.



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Equity Sales Agreement



In November 2018, we entered into an Equity Distribution Agreement (the
"Agreement") with Citigroup Global Markets Inc. and Cantor Fitzgerald & Co.
(collectively, the "Sales Agents"), pursuant to which we may sell and issue
shares of our common stock up to an aggregate of $50 million through the Sales
Agents. The shares were offered pursuant to a registered shelf offering. For the
year ended December 31, 2018, under the Agreement, we sold 201,100 shares of
common stock and received net proceeds of $2.2 million. In January 2019, we sold
35,362 shares of common stock and received net proceeds of $0.7 million.

Off-Balance Sheet Arrangements



During the periods presented, we did not have, and we do not have,
any off-balance sheet arrangements, as such term is defined under Item 303 of
Regulation S-K, that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenue or
expense, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.



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