PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended September 30, 2021, reflect a significant increase in cash and total assets, primarily due to two public stock offerings during the year, despite widening net losses driven by increased R&D and contingent consideration revaluation [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets significantly increased to **$263.5 million**, driven by cash and marketable securities, while total liabilities rose to **$46.9 million** due to contingent consideration, and stockholders' equity grew to **$216.6 million** from stock offerings | Balance Sheet Highlights (In thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $53,602 | $22,063 | | Marketable securities (Short & Long-term) | $190,015 | $32,068 | | Total current assets | $205,782 | $57,493 | | **Total assets** | **$263,494** | **$70,784** | | **Liabilities & Equity** | | | | Total current liabilities | $17,839 | $14,874 | | Long-term debt, net | $0 | $10,653 | | Contingent consideration | $26,200 | $4,061 | | **Total liabilities** | **$46,913** | **$33,134** | | **Total stockholders' equity** | **$216,581** | **$37,650** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the nine months ended September 30, 2021, revenue slightly increased to **$5.3 million**, but total expenses surged to **$72.1 million** due to higher R&D and contingent consideration revaluation, resulting in a net loss of **$68.1 million** | Statement of Operations (In thousands, except per share data) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total revenue | $5,260 | $4,902 | | Research and development | $29,711 | $20,382 | | General and administrative | $16,676 | $15,632 | | Revaluation of contingent consideration | $22,139 | $2,393 | | Total costs and expenses | $72,090 | $42,254 | | Loss from operations | ($66,830) | ($37,352) | | **Net loss** | **($68,061)** | **($37,842)** | | **Net loss per share, basic and diluted** | **($1.23)** | **($0.90)** | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased from **$37.7 million** to **$216.6 million** by September 30, 2021, primarily driven by **$238.2 million** in net proceeds from two public stock offerings, partially offset by a **$68.1 million** net loss - The company completed two public offerings in 2021, raising net proceeds of **$103.3 million** in January and **$134.9 million** in June, significantly bolstering stockholders' equity[16](index=16&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, operating activities used **$35.1 million**, investing activities used **$158.5 million**, and financing activities provided **$225.1 million** from stock offerings, leading to a **$31.5 million** net increase in cash | Cash Flow Summary (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,059) | ($29,776) | | Net cash provided by (used in) investing activities | ($158,456) | $8,692 | | Net cash provided by financing activities | $225,054 | $10,543 | | **Net increase (decrease) in cash** | **$31,539** | **($10,541)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Key notes highlight the company's strong liquidity, sufficient for over 12 months, and detail the **$22.1 million** increase in contingent consideration, **$238.2 million** raised from stock offerings, full debt repayment, and settled legal proceedings - The company believes its existing cash, cash equivalents, and marketable securities of **$243.6 million** are sufficient to fund operations for more than 12 months from the report's issuance date[22](index=22&type=chunk)[24](index=24&type=chunk) - The contingent consideration liability increased by **$22.1 million** during the first nine months of 2021 due to updated assumptions on success probability and future sales for zunsemetinib and ATI-1777 after positive Phase 2a clinical trial results[38](index=38&type=chunk) - In July 2021, the company fully repaid the **$11.0 million** outstanding under its Loan and Security Agreement with Silicon Valley Bank, for a total payment of **$11.7 million** including interest and fees[47](index=47&type=chunk) - The company settled a securities class action lawsuit for **$2.65 million** and a stockholder derivative action for **$425 thousand**, both expected to be covered by insurance[89](index=89&type=chunk)[94](index=94&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's focus as a clinical-stage biopharmaceutical company, highlighting positive Phase 2a results for zunsemetinib and ATI-1777, increased R&D spending, a significant contingent consideration charge, and strengthened liquidity from public offerings [Overview and Clinical Programs](index=35&type=section&id=Overview%20and%20Clinical%20Programs) The company focuses on developing drug candidates for immuno-inflammatory diseases, with lead candidates zunsemetinib and ATI-1777 showing positive Phase 2a results and planned advancement to Phase 2b trials, alongside preclinical programs - **Zunsemetinib (ATI-450):** Following positive Phase 2a results in moderate to severe rheumatoid arthritis, the company intends to progress to a Phase 2b trial in Q4 2021 and expand into trials for psoriatic arthritis and hidradenitis suppurativa[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - **ATI-1777:** The Phase 2a trial for moderate to severe atopic dermatitis met its primary endpoint with high statistical significance (p<0.001), with a Phase 2b trial planned for the first half of 2022[114](index=114&type=chunk)[115](index=115&type=chunk) - **ATI-2138:** An IND was submitted in October 2021 for this ITJ inhibitor for psoriasis, with plans for a first-in-human Phase 1 trial if allowed[116](index=116&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Total revenue slightly increased to **$5.3 million**, while R&D expenses rose by **$9.3 million** to **$29.7 million**, and a significant **$22.1 million** charge was recorded for contingent consideration revaluation due to positive clinical trial outcomes | R&D Expenses by Program (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Zunsemetinib | $12,532 | $4,925 | | ATI-1777 | $1,894 | $2,553 | | ATI-2138 | $3,330 | $1,753 | | Other & Personnel | $9,955 | $9,351 | | **Total R&D Expenses** | **$29,711** | **$20,382** | - The increase in zunsemetinib expenses was primarily due to costs for drug product manufacturing and clinical development activities for upcoming Phase 2b and Phase 2 trials[160](index=160&type=chunk) - The revaluation of contingent consideration increased by **$19.7 million** year-over-year, driven by updated success probabilities and sales estimates for zunsemetinib and ATI-1777 after positive Phase 2a trial results[175](index=175&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity was significantly strengthened to **$243.6 million** in cash and marketable securities by two public offerings raising **$238.2 million**, enabling full debt repayment and ensuring over 12 months of operational funding - The company raised net proceeds of **$103.3 million** from a public offering in January 2021 and **$134.9 million** from another in June 2021[179](index=179&type=chunk)[180](index=180&type=chunk) - The company repaid its **$11.0 million** term loan with SVB in full in July 2021 for a total payment of **$11.7 million**[182](index=182&type=chunk) - Management believes existing cash, cash equivalents, and marketable securities are sufficient to fund operating and capital expenditure requirements for more than 12 months from the date of the report[194](index=194&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its investment portfolio, but due to its short-term, low-risk nature, a significant impact from rate changes is not expected, and debt-related interest rate risk was eliminated upon loan repayment - The company's primary market risk is interest rate sensitivity on its investment portfolio, but due to its short-term, low-risk nature, a significant impact from rate changes is not expected[201](index=201&type=chunk) - Interest rate risk from debt was eliminated when the company repaid its Loan and Security Agreement with SVB in full in July 2021[202](index=202&type=chunk) [Item 4. Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[207](index=207&type=chunk) - No changes occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[207](index=207&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) The company reached settlement agreements for the Consolidated Securities Action and Consolidated Derivative Action, both preliminarily approved in August 2021, with financial obligations expected to be covered by insurance - In June 2021, the company agreed to settle the Consolidated Securities Action related to its former product ESKATA, with preliminary court approval in August 2021 and final approval pending[212](index=212&type=chunk) - The company also agreed to settle the Consolidated Derivative Action in June 2021, involving policy implementation and attorneys' fees, with preliminary court approval in August 2021[217](index=217&type=chunk) - The company expects the financial obligations for both settlements to be within the limits of its insurance coverage[212](index=212&type=chunk)[217](index=217&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - Risk factors have not changed materially from those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities during the reporting period[219](index=219&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the company's articles of incorporation, bylaws, and certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's analysis, market risk, and internal controls [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial position strengthened significantly due to public offerings, increasing cash and assets, despite continued operating losses from a non-cash contingent consideration charge [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $113,447 | $22,063 | | Total marketable securities | $152,730 | $32,068 | | **Total Assets** | **$288,046** | **$70,784** | | **Liabilities & Equity** | | | | Contingent consideration | $25,300 | $4,061 | | Total liabilities | $54,231 | $33,134 | | Total stockholders' equity | $233,815 | $37,650 | | **Total Liabilities and Stockholders' Equity** | **$288,046** | **$70,784** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section outlines the company's revenues, expenses, and net loss over specified periods Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,824 | $2,046 | $3,601 | $3,453 | | Research and development | $7,897 | $6,466 | $15,735 | $14,142 | | Revaluation of contingent consideration | $4,800 | $— | $21,239 | $1,767 | | Loss from operations | $(18,006) | $(11,381) | $(46,535) | $(26,887) | | **Net loss** | **$(18,161)** | **$(11,597)** | **$(46,915)** | **$(27,183)** | | **Net loss per share** | **$(0.34)** | **$(0.28)** | **$(0.90)** | **$(0.65)** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(24,453) | $(17,626) | | Net cash (used in) provided by investing activities | $(120,784) | $3,455 | | Net cash provided by financing activities | $236,621 | $10,821 | | **Net increase (decrease) in cash** | **$91,384** | **$(3,350)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides additional details and explanations for the figures presented in the financial statements - The company believes its existing cash, cash equivalents, and marketable securities of **$266.2 million** are sufficient to fund its operating and capital expenditure requirements for more than 12 months from the issuance date of the financial statements[21](index=21&type=chunk)[23](index=23&type=chunk) - The contingent consideration liability increased by **$21.2 million** during the first six months of 2021, reaching **$25.3 million**. This was due to updated assumptions on the probability of success and future sales levels following positive Phase 2a clinical trial results for ATI-450 and ATI-1777[37](index=37&type=chunk)[82](index=82&type=chunk) - The company significantly boosted its liquidity through two public offerings in 2021: a January offering raised **$103.3 million** in net proceeds, and a June offering raised **$134.9 million** in net proceeds[55](index=55&type=chunk)[56](index=56&type=chunk) - In June 2021, the company agreed to settle a securities class action and a stockholder derivative action. It accrued liabilities of **$2.65 million** and **$425,000**, respectively, which are expected to be covered by insurance[92](index=92&type=chunk)[95](index=95&type=chunk) - As a subsequent event in July 2021, the company repaid its **$11.0 million** term loan with Silicon Valley Bank (SVB) in full, for a total payment of **$11.7 million** including interest and fees[98](index=98&type=chunk)[46](index=46&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's drug pipeline and positive clinical trial results, noting a wider net loss due to contingent consideration revaluation, while liquidity significantly improved from public offerings [Drug Pipeline and Development Programs](index=31&type=section&id=Drug%20Pipeline%20and%20Development%20Programs) This section details the company's ongoing drug development initiatives and clinical trial progress - **ATI-450 (Oral MK2 Inhibitor):** Following a successful Phase 2a trial in moderate to severe rheumatoid arthritis that demonstrated durable clinical activity, the company plans to initiate a Phase 2b trial in Q4 2021. Development is also planned for hidradenitis suppurativa and psoriatic arthritis[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - **ATI-1777 (Topical JAK 1/3 Inhibitor):** The Phase 2a trial in moderate to severe atopic dermatitis met its primary endpoint with high statistical significance (**p<0.001**), showing a **74.4% reduction in mEASI score**. A Phase 2b trial is planned[113](index=113&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - **ATI-2138 (Oral ITJ Inhibitor):** The company is developing ATI-2138 for T-cell mediated autoimmune diseases like psoriasis and/or inflammatory bowel disease and expects to submit an IND in the second half of 2021[117](index=117&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, expenses, and net loss trends Comparison of Operating Results (in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,824 | $2,046 | $3,601 | $3,453 | | R&D Expenses | $7,897 | $6,466 | $15,735 | $14,142 | | G&A Expenses | $5,870 | $5,572 | $10,697 | $11,773 | | Revaluation of contingent consideration | $4,800 | $— | $21,239 | $1,767 | | **Net Loss** | **$(18,161)** | **$(11,597)** | **$(46,915)** | **$(27,183)** | - The increase in net loss for the three and six months ended June 30, 2021 was primarily driven by charges of **$4.8 million** and **$21.2 million**, respectively, for the revaluation of contingent consideration. This was a result of positive clinical trial outcomes for ATI-450 and ATI-1777, which increased the probability of future milestone payments[168](index=168&type=chunk)[169](index=169&type=chunk) - R&D expenses increased by **$1.4 million** in Q2 2021 compared to Q2 2020, mainly due to costs for ATI-450 clinical trial preparations and development activities for ATI-2138[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and funding sources - As of June 30, 2021, the company had **$266.2 million** in cash, cash equivalents, and marketable securities[173](index=173&type=chunk) - Net cash provided by financing activities was **$236.6 million** for the first six months of 2021, primarily from two public offerings that raised net proceeds of **$103.3 million** (January) and **$134.9 million** (June)[174](index=174&type=chunk)[175](index=175&type=chunk)[187](index=187&type=chunk) - Management believes that existing cash, cash equivalents, and marketable securities are sufficient to fund operating and capital requirements for more than 12 months from the filing date of this report[190](index=190&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its short-term, low-risk cash and marketable securities - The company's main market risk is interest rate sensitivity for its cash and marketable securities, but due to the short-term, low-risk profile of the portfolio, a **10% change in rates** is not expected to be material[197](index=197&type=chunk) [Item 4. Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[204](index=204&type=chunk) - No changes occurred during the fiscal quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[204](index=204&type=chunk) [PART II. OTHER INFORMATION](index=60&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and filed exhibits [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) The company reached agreements in June 2021 to settle a Securities Class Action and a Stockholder Derivative Action, with expected financial obligations covered by insurance and subject to court approval - In June 2021, the company agreed to settle the Consolidated Securities Action. The settlement is subject to court approval, and the company expects its financial obligation to be within its insurance coverage limits[210](index=210&type=chunk)[92](index=92&type=chunk) - In June 2021, the company also agreed to settle the Consolidated Derivative Action. The terms include implementing certain policies and paying attorneys' fees, which are expected to be covered by insurance. This settlement is also subject to court approval[213](index=213&type=chunk)[95](index=95&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to its risk factors from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - Risk factors have not changed materially from those described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[214](index=214&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds for the period - None reported[214](index=214&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications required by the Sarbanes-Oxley Act - The report includes a list of filed exhibits, such as corporate governance documents and officer certifications (Sections 302 and 906 of the Sarbanes-Oxley Act)[216](index=216&type=chunk)

Table of Contents 7 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |----------------------------------------------------------------------------------------------|----------------------------------------------| | | | | ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |----------------------------------------------------------------------------------------------|----------------------------------------------| | | | | For th ...