PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Forte Biosciences, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2023, detailing financial position, operational results, cash flows, and significant subsequent events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2023, reflects a decrease in total assets driven by reduced cash and an increase in liabilities and accumulated deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $20,438 | $41,100 | | Short-term investments | $9,987 | $0 | | Total current assets | $30,747 | $41,511 | | **Total assets** | **$31,184** | **$41,997** | | **Liabilities & Equity** | | | | Total current liabilities | $6,300 | $3,179 | | Accumulated deficit | $(102,693) | $(87,044) | | Total stockholders' equity | $24,884 | $38,818 | | **Total liabilities and stockholders' equity** | **$31,184** | **$41,997** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show no revenue and a significant increase in operating expenses, primarily R&D costs, leading to a higher net loss for both the quarter and six-month periods ended June 30, 2023 Statement of Operations Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $7,139 | $1,034 | $11,926 | $1,727 | | General and administrative | $1,895 | $1,986 | $3,963 | $3,807 | | **Total operating expenses** | **$9,034** | **$3,020** | **$15,889** | **$5,534** | | **Net loss** | **$(8,896)** | **$(3,035)** | **$(15,649)** | **$(5,602)** | | Net loss per share | $(0.42) | $(0.21) | $(0.74) | $(0.38) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate a substantial increase in net cash used in operating activities and significant cash outflow for investing activities, resulting in a notable decrease in cash and cash equivalents for the six months ended June 30, 2023 Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,679) | $(3,352) | | Net cash used in investing activities | $(9,965) | $0 | | Net cash used in financing activities | $(18) | $(144) | | **Net decrease in cash and cash equivalents** | **$(20,662)** | **$(3,496)** | | Cash and cash equivalents — end of period | $20,438 | $38,548 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's business focus on the FB-102 program, liquidity position, ongoing legal proceedings, and a significant subsequent **$25 million** private placement - The company is focused on developing its FB-102 program for autoimmune diseases like GvHD and plans to advance it into the clinic in **2024**[19](index=19&type=chunk) - Management believes its cash and cash equivalents of **$20.4 million** as of June 30, 2023, are sufficient to fund operations for at least **12 months** from the filing date[22](index=22&type=chunk) - The company is involved in two legal proceedings with stockholder Camac Fund LP, one regarding access to company records and another alleging breach of fiduciary duties by the Board related to a July 2023 private placement[57](index=57&type=chunk)[58](index=58&type=chunk) - On July 31, 2023, the company closed a private placement, raising gross proceeds of approximately **$25 million** through the sale of common stock and pre-funded warrants[83](index=83&type=chunk)[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic focus on advancing its FB-102 program, analyzes the significant increase in R&D expenses, and details the liquidity position, including the impact of a recent **$25 million** private placement [Overview](index=19&type=section&id=MD%26A%20Overview) This overview details Forte Biosciences' focus on advancing its FB-102 product candidate for autoimmune diseases, its cash position as of June 30, 2023, and the impact of a subsequent **$25 million** private placement and restricted ATM facility - The company is advancing its product candidate, FB-102, a CD122 antagonist, for autoimmune indications including GvHD, vitiligo, and alopecia areata[91](index=91&type=chunk) - On July 31, 2023, the company raised gross proceeds of approximately **$25 million** through a private placement of common stock and pre-funded warrants[100](index=100&type=chunk) - The company's ATM facility is currently restricted, limiting its ability to access additional funding from the sale of securities under its Form S-3 registration statement[99](index=99&type=chunk) [Results of Operations](index=22&type=section&id=MD%26A%20Results%20of%20Operations) Results of operations indicate a significant increase in R&D expenses, primarily due to FB-102 program development, while general and administrative expenses remained stable and other income rose due to higher interest income Change in Operating Expenses (in thousands) | Expense Category | Q2 2023 vs Q2 2022 | Six Months 2023 vs 2022 | | :--- | :--- | :--- | | Research and development | +$6,105 | +$10,199 | | General and administrative | -$91 | +$156 | - The increase in R&D expenses for the six months ended June 30, 2023, was driven by a **$5.4 million** increase in manufacturing costs and a **$4.1 million** increase in preclinical expenses for the FB-102 program[114](index=114&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=MD%26A%20Liquidity%20and%20Capital%20Resources) This section details the company's history of operating losses and accumulated deficit, its cash and investment position as of June 30, 2023, and management's assessment of liquidity, including the impact of a subsequent **$25 million** private placement - The company had cash, cash equivalents, and short-term investments of approximately **$30.4 million** as of June 30, 2023[121](index=121&type=chunk) - Management believes existing cash will be sufficient to fund operations for at least **12 months** from the filing date of the Form 10-Q, not including the proceeds from the July 2023 Private Placement[121](index=121&type=chunk) - The company raised gross proceeds of approximately **$25 million** in a private placement that closed on July 31, 2023[124](index=124&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Forte Biosciences is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Forte Biosciences is not required to provide quantitative and qualitative disclosures about market risk[138](index=138&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness in internal control over income tax provision review, for which remediation steps are underway - Management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over the review of the annual income tax provision[139](index=139&type=chunk) - The company is taking steps to remediate the material weakness, including augmenting third-party tax accounting review and strengthening its internal review process[141](index=141&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in two legal proceedings with stockholder Camac Fund LP concerning access to records and alleged breach of fiduciary duties related to a July 2023 private placement and annual meeting timing - In November 2022, stockholder Camac Fund LP filed a "Books and Records Action" in the Delaware Court of Chancery seeking access to certain company records[145](index=145&type=chunk) - On August 10, 2023, Camac Fund LP filed a new complaint against the Board of Directors, alleging breach of fiduciary duties related to the July 2023 private placement and the scheduling of the annual meeting[146](index=146&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks, including the company's dependence on its single preclinical product candidate FB-102, substantial capital requirements, uncertainties of clinical development, reliance on third parties, intellectual property concerns, internal control weaknesses, and litigation risks - The company's business is almost entirely dependent on the success of developing its single product candidate, FB-102, which is in the early preclinical stage and may not be successful[149](index=149&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) - The company will require significant additional capital to fund operations and complete the development of FB-102; failure to obtain financing could force a halt to development[165](index=165&type=chunk) - The company relies on third parties for preclinical studies and manufacturing and plans to do so for future clinical trials; failure to perform satisfactorily could delay or prevent development and commercialization[325](index=325&type=chunk)[330](index=330&type=chunk) - A material weakness has been identified in the company's internal control over financial reporting related to the review of its annual income tax provision, which could affect the ability to report financial results accurately and timely[359](index=359&type=chunk)[361](index=361&type=chunk) - The company faces litigation risk, including from a stockholder related to a recent private placement, which could be costly and divert management's attention[343](index=343&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities beyond those disclosed in its August 1, 2023 Form 8-K, detailing the July 2023 private placement - There have been no unregistered sales of securities other than those previously disclosed on the Form 8-K filed August 1, 2023[368](index=368&type=chunk) [Defaults Upon Senior Securities](index=75&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - None[369](index=369&type=chunk) [Mine Safety Disclosures](index=75&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported - None[370](index=370&type=chunk) [Other Information](index=75&type=section&id=Item%205.%20Other%20Information) No other information was reported - None[371](index=371&type=chunk) [Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including an amendment to the Preferred Stock Rights Agreement, officer certifications, and Inline XBRL data files

OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or f ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Forte Biosciences is a biopharmaceutical company advancing its preclinical product candidate, FB-102, for broad autoimmune applications amidst a competitive and highly regulated industry [Overview](index=5&type=section&id=Overview) - Forte Biosciences, Inc. is a biopharmaceutical company advancing FB-102, a proprietary therapeutic molecule, through preclinical trials for broad autoimmune applications[13](index=13&type=chunk) - FB-102 targets indications such as graft-versus-host disease (GvHD), vitiligo, and alopecia areata (AA), which have multi-billion dollar market sizes[13](index=13&type=chunk) - The company expects FB-102 to enter clinical trials in late 2023 or early 2024[20](index=20&type=chunk) - As of December 31, 2022, Forte had **$41.1 million in cash and cash equivalents**[21](index=21&type=chunk) [Product Candidate (FB-102) and Target Indications](index=5&type=section&id=Product%20Candidate%20(FB-102)%20and%20Target%20Indications) - FB-102 is an antagonist of autoimmune disease pathways with potential for durable response, targeting GvHD, vitiligo, and AA[13](index=13&type=chunk) - GvHD is a complication of allogeneic HSCT, affecting 30-70% of patients, with a global treatment market estimated at **$1.6 billion in 2021**, projected to reach **$2.8 billion by 2027**[14](index=14&type=chunk)[15](index=15&type=chunk) - Vitiligo affects 2 million people in the U.S., with a global treatment market estimated at **$1.2 billion in 2018**, projected to reach **$1.9 billion by 2026**[16](index=16&type=chunk)[17](index=17&type=chunk) - Alopecia Areata (AA) affects 700,000 people in the US, with a global treatment market estimated at **$2.7 billion in 2020**, projected to reach **$4.9 billion by 2028**[18](index=18&type=chunk)[19](index=19&type=chunk) - There is a significant unmet need for safe and effective therapies in these indications, as existing treatments like JAK inhibitors carry black box warnings[14](index=14&type=chunk)[16](index=16&type=chunk)[18](index=18&type=chunk)[20](index=20&type=chunk) [Manufacturing and Supply](index=5&type=section&id=Manufacturing%20and%20Supply) - Forte outsources FB-102 manufacturing to third-party CMOs and preclinical testing to CROs[22](index=22&type=chunk) - Reliance on a limited number of suppliers for critical raw materials and services poses a risk of supply interruption, which could harm manufacturing and preclinical development[22](index=22&type=chunk) [Competition](index=6&type=section&id=Competition) - The biotechnology and pharmaceutical industries are highly competitive, characterized by rapidly advancing technologies[24](index=24&type=chunk) - Key competitive factors include efficacy, safety profile, administration method, cost, promotional activity, and intellectual property protection[24](index=24&type=chunk) - Competitors include major pharmaceutical and biotechnology companies, academic institutions, and government agencies, many with greater financial resources and expertise[25](index=25&type=chunk)[26](index=26&type=chunk) [Intellectual Property](index=6&type=section&id=Intellectual%20Property) - Forte terminated its exclusive license agreement with DHHS for Gram-negative bacteria compositions effective April 2, 2022[27](index=27&type=chunk) - The company owns one US patent for Gram-positive and Gram-negative bacteria combinations (expiring 2039), which is not material to the FB-102 program[28](index=28&type=chunk) - Forte owns four pending US patent applications related to the FB-102 program, with estimated expiration dates between 2043 and 2044[28](index=28&type=chunk) [Government Regulation](index=6&type=section&id=Government%20Regulation) - Drug and biological products are extensively regulated by government authorities in the U.S. and other countries, covering research, development, testing, manufacturing, approval, labeling, marketing, and post-approval monitoring[29](index=29&type=chunk) - Obtaining regulatory approvals is a lengthy, expensive process, and non-compliance can lead to severe sanctions, including refusal of approval, withdrawal of approval, fines, and criminal penalties[30](index=30&type=chunk) [United States Biological Product Development](index=6&type=section&id=United%20States%20Biological%20Product%20Development) - Forte's product candidates require FDA approval through a Biologic License Application (BLA) process[31](index=31&type=chunk) - The process involves extensive preclinical studies, an effective Investigational New Drug (IND) application, IRB approval, human clinical trials (Phase 1, 2, 3), BLA submission and review, and pre-approval inspections of manufacturing facilities for cGMP compliance[31](index=31&type=chunk)[36](index=36&type=chunk) [Preclinical Studies and IND](index=7&type=section&id=Preclinical%20Studies%20and%20IND) - Preclinical studies involve laboratory and animal testing to assess safety and therapeutic rationale, conducted under GLP regulations[32](index=32&type=chunk) - An IND application, including preclinical results and clinical study plans, must become effective (typically after 30 days unless FDA raises concerns) before human clinical trials can begin[33](index=33&type=chunk) [Clinical Trials](index=7&type=section&id=Clinical%20Trials) - Clinical trials involve administering investigational products to humans under qualified investigators, adhering to GCP requirements and IRB approval, with informed consent from participants[34](index=34&type=chunk) - Trials are typically conducted in three phases: Phase 1 (safety, metabolism, pharmacologic action in small groups), Phase 2 (dose determination, preliminary efficacy in disease-affected patients), and Phase 3 (demonstrate effectiveness, safety, overall benefit/risk in large patient populations)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - Post-approval (Phase 4) trials may be conducted to gain additional experience or as a condition of BLA approval[38](index=38&type=chunk) - Clinical trials can be suspended or terminated by the FDA, sponsor, or IRB due to health risks, non-compliance, or other factors[40](index=40&type=chunk) [FDA Review Process](index=8&type=section&id=FDA%20Review%20Process) - After clinical trials, a BLA is submitted to the FDA with preclinical and clinical data, proposed labeling, and manufacturing information to prove safety, purity, and potency[42](index=42&type=chunk) - The FDA reviews the BLA, conducts pre-approval inspections of manufacturing facilities for cGMP compliance, and may refer applications to advisory committees[45](index=45&type=chunk)[46](index=46&type=chunk) - Approval results in an approval letter, while deficiencies lead to a Complete Response Letter requiring additional data or studies[46](index=46&type=chunk) [Pediatric Information](index=9&type=section&id=Pediatric%20Information) - Under PREA, BLAs must include pediatric safety and efficacy data for relevant subpopulations, or a justification for deferral/waiver[47](index=47&type=chunk) - Sponsors must submit an initial Pediatric Study Plan (PSP) for new active ingredients, indications, or dosage forms, which requires FDA agreement[47](index=47&type=chunk) [Post-marketing Requirements](index=9&type=section&id=Post-marketing%20Requirements) - Approved products are subject to ongoing FDA regulation, including monitoring, adverse event reporting, promotion/advertising compliance (e.g., no off-label promotion), and potential BLA supplements for modifications[48](index=48&type=chunk) - The FDA may require a Risk Evaluation and Mitigation Strategy (REMS) to ensure safe product use, which can include medication guides, communication plans, or restricted distribution[49](index=49&type=chunk) - Manufacturers must comply with cGMP regulations, register establishments with the FDA, and are subject to periodic unannounced inspections[50](index=50&type=chunk)[51](index=51&type=chunk) [Other Regulatory Matters](index=10&type=section&id=Other%20Regulatory%20Matters) - Post-approval activities are also regulated by other U.S. authorities like CMS, Department of Justice, and state/local governments[53](index=53&type=chunk) [Other Healthcare Laws](index=10&type=section&id=Other%20Healthcare%20Laws) - Biopharmaceutical manufacturers are subject to federal and state healthcare laws, including anti-kickback, anti-self-referral, false claims, transparency (Physician Payments Sunshine Act), pricing reporting, and data privacy (HIPAA) laws[54](index=54&type=chunk) - Violations can lead to significant administrative, civil, and criminal penalties, fines, exclusion from government healthcare programs, and reputational harm[55](index=55&type=chunk) [Current and Future Healthcare Reform Legislation](index=10&type=section&id=Current%20and%20Future%20Healthcare%20Reform%20Legislation) - Healthcare reform legislation, such as the Affordable Care Act (ACA) and the Inflation Reduction Act of 2022, aims to reduce healthcare costs and may impact drug pricing, coverage, and profitability[56](index=56&type=chunk)[57](index=57&type=chunk)[60](index=60&type=chunk) - The Inflation Reduction Act of 2022 allows federal negotiation of drug prices, imposes inflation rebates, and redesigns Medicare Part D, with uncertain impacts on the pharmaceutical industry[60](index=60&type=chunk) - State-level legislation is also increasing to control pharmaceutical product pricing and transparency[61](index=61&type=chunk) [Packaging and Distribution in the United States](index=11&type=section&id=Packaging%20and%20Distribution%20in%20the%20United%20States) - Pharmaceutical products are subject to child-resistant packaging requirements and extensive record-keeping, licensing, storage, and security regulations for distribution[62](index=62&type=chunk)[63](index=63&type=chunk) - Non-compliance can lead to legal/regulatory actions, fines, product recalls, and withdrawal of approvals[64](index=64&type=chunk) [Other U.S. Environmental, Health and Safety Laws and Regulations](index=12&type=section&id=Other%20U.S.%20Environmental%2C%20Health%20and%20Safety%20Laws%20and%20Regulations) - Forte is subject to environmental, health, and safety laws governing hazardous materials and waste, with potential liability for contamination or injury[66](index=66&type=chunk) - The company maintains workers' compensation insurance but does not have environmental liability or toxic tort claims insurance[67](index=67&type=chunk) [U.S. Patent-Term Restoration and Marketing Exclusivity](index=12&type=section&id=U.S.%20Patent-Term%20Restoration%20and%20Marketing%20Exclusivity) - U.S. patents may be eligible for up to five years of patent term extension under the Hatch-Waxman Amendments to compensate for time lost during FDA review[69](index=69&type=chunk) - The Biologics Price Competition and Innovation Act (BPCI Act) created an abbreviated approval pathway for biosimilar products, granting reference biological products 12 years of data exclusivity[70](index=70&type=chunk)[72](index=72&type=chunk) - Pediatric exclusivity, if granted, adds six months to existing regulatory exclusivity periods[73](index=73&type=chunk) [Rest of the World Regulation](index=13&type=section&id=Rest%20of%20the%20World%20Regulation) - Regulatory requirements for clinical trials, product licensing, pricing, and reimbursement vary significantly outside the U.S., including in the European Union[74](index=74&type=chunk) - Failure to comply with foreign regulations can lead to fines, withdrawal of approvals, product recalls, and criminal prosecution[75](index=75&type=chunk) [Additional Laws and Regulations Governing International Operations](index=13&type=section&id=Additional%20Laws%20and%20Regulations%20Governing%20International%20Operations) - Expanding international operations subjects Forte to laws like the Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign officials and requires accurate accounting[76](index=76&type=chunk) - Compliance with FCPA is complex and expensive, especially in the pharmaceutical industry where government-owned hospitals and doctors are considered foreign officials[77](index=77&type=chunk) - Failure to comply with international business practice laws can result in substantial civil and criminal penalties, and suspension from government contracting[79](index=79&type=chunk) [Coverage and Reimbursement](index=13&type=section&id=Coverage%20and%20Reimbursement) - Commercial success of approved products depends on coverage and adequate reimbursement from third-party payors (government, commercial insurers, managed healthcare organizations)[81](index=81&type=chunk) - There is no uniform policy in the U.S., requiring separate negotiations with each payor, which is time-consuming and costly[81](index=81&type=chunk) - Increasing cost containment measures and changes in reimbursement rates can adversely affect product marketability and pricing[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Foreign countries often require pricing approval, and prices in the EU tend to be significantly lower than in the U.S.[85](index=85&type=chunk) [Employees and Human Capital](index=14&type=section&id=Employees%20and%20Human%20Capital) - As of March 24, 2023, Forte had **6 full-time employees**, primarily in R&D, manufacturing, and administration[86](index=86&type=chunk) - The company's human capital objectives include identifying, recruiting, retaining, incentivizing, and integrating employees, advisors, and consultants[87](index=87&type=chunk) [Corporate Information and History](index=14&type=section&id=Corporate%20Information%20and%20History) - Forte completed a business combination with Tocagen, Inc. on June 15, 2020, with Forte as the surviving entity[88](index=88&type=chunk) - Forte was privately held and incorporated in Delaware on May 3, 2017[88](index=88&type=chunk) - The company's principal executive office is in Dallas, Texas[89](index=89&type=chunk) [Item 1A. Risk Factors.](index=15&type=section&id=Item%201A.%20Risk%20Factors.) Forte Biosciences faces significant risks from its early-stage, single product candidate development, including clinical uncertainty, capital needs, intense competition, regulatory hurdles, and reliance on third parties [Risks related to Forte's business, technology and industry](index=16&type=section&id=Risks%20related%20to%20Forte's%20business%2C%20technology%20and%20industry) - Forte's business is almost entirely dependent on the success of FB-102, having discontinued its previous lead product candidate, FB-401, due to a failed Phase 2 clinical trial[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - The company has no approved products, a limited operating history, and has incurred net losses in every year since inception, with an accumulated deficit of **$87.0 million** as of December 31, 2022[98](index=98&type=chunk)[99](index=99&type=chunk)[102](index=102&type=chunk) - Forte will require additional capital to fund operations and FB-102 development; current cash (**$41.1 million** as of Dec 31, 2022) is sufficient for at least 12 months, but further funding is uncertain[105](index=105&type=chunk) - Clinical development is lengthy, expensive, and uncertain, with high attrition rates; positive early preclinical results are not predictive of later clinical trial success[95](index=95&type=chunk)[114](index=114&type=chunk)[120](index=120&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Undesirable side effects from FB-102 could delay or prevent regulatory approval, limit commercial profile, or lead to significant negative consequences post-marketing[120](index=120&type=chunk)[122](index=122&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - Estimates of target patient populations for FB-102 may be inaccurate, potentially limiting market opportunities and profitability[129](index=129&type=chunk)[130](index=130&type=chunk) - Forte faces significant competition from companies with greater financial, technical, and marketing resources[131](index=131&type=chunk)[132](index=132&type=chunk) - Market acceptance of FB-102, if approved, is uncertain and depends on efficacy, safety, convenience, physician/patient willingness, pricing, and reimbursement[133](index=133&type=chunk)[134](index=134&type=chunk) - The COVID-19 pandemic or other public health threats could adversely impact operations, preclinical studies, and financial results[136](index=136&type=chunk) - Forte needs to grow its organization and manage this growth effectively, relying substantially on third-party organizations, advisors, and consultants[137](index=137&type=chunk)[138](index=138&type=chunk) - Loss of key management personnel or failure to recruit skilled personnel could impair product development[142](index=142&type=chunk)[143](index=143&type=chunk) - Internal computer systems or those of third parties are vulnerable to security breaches, potentially disrupting operations or leading to data loss and liability[144](index=144&type=chunk) - Employees, contractors, and partners may engage in misconduct, including non-compliance with regulatory standards, leading to significant losses and reputational harm[146](index=146&type=chunk)[147](index=147&type=chunk) [Risks related to government regulation](index=30&type=section&id=Risks%20related%20to%20government%20regulation) - Forte's ability to commercialize FB-102 is highly uncertain and dependent on successful completion of preclinical studies, clinical trials, regulatory approvals, and establishing manufacturing and commercial operations[160](index=160&type=chunk)[161](index=161&type=chunk) - Changes in the legal and regulatory environment, including FDA regulations, labeling laws, and consumer protection, could limit business activities or increase costs[163](index=163&type=chunk)[164](index=164&type=chunk) - Inadequate funding or staffing disruptions at regulatory agencies (FDA, SEC) could delay product review and approval[165](index=165&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) - Relationships with healthcare providers and third-party payors are subject to federal and state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), with potential for significant penalties and reputational harm[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign approval processes can be different, lengthy, and costly[175](index=175&type=chunk)[176](index=176&type=chunk) - Delays or failure to obtain regulatory approvals for FB-102 would materially impair Forte's ability to generate revenue[178](index=178&type=chunk)[184](index=184&type=chunk) - Post-marketing, Forte will be subject to ongoing regulatory compliance, including cGMP and GCP, and potential FDA actions like labeling changes, post-marketing studies, or product withdrawal[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - International operations expose Forte to anti-bribery (FCPA), export control, trade sanctions, and import laws, with violations leading to substantial penalties[195](index=195&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Risks related to Forte's intellectual property](index=38&type=section&id=Risks%20related%20to%20Forte's%20intellectual%20property) - Forte's success depends on obtaining and maintaining patent protection for FB-102 and other technologies; there is no assurance that patent applications will issue or be enforceable[201](index=201&type=chunk)[202](index=202&type=chunk)[204](index=204&type=chunk) - The scope of patent protection may be insufficient, or patents may be lost, allowing competitors to commercialize similar products[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) - Patents may be challenged, invalidated, or circumvented by third parties, leading to loss of exclusivity or inability to commercialize products[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - Patent terms may be inadequate to protect competitive position due to the long development and regulatory review periods[210](index=210&type=chunk)[227](index=227&type=chunk) - Failure to obtain patent term extension or data exclusivity could materially harm the business[228](index=228&type=chunk) - Forte may face claims challenging inventorship of its patents or other intellectual property, leading to litigation and potential loss of rights[229](index=229&type=chunk) - Inability to protect trade secrets and proprietary rights globally, or their lawful obtainment by competitors, would harm Forte's competitive position[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - Third-party claims of intellectual property infringement could prevent or delay commercialization of FB-102, leading to substantial litigation expenses, damages, or licensing obligations[238](index=238&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - Forte filed a petition for post-grant review of U.S. Patent No. 11,278,505, owned by the University of Massachusetts, which claims broad autoimmune technologies[239](index=239&type=chunk) [Risks related to Forte's reliance on third parties](index=47&type=section&id=Risks%20related%20to%20Forte's%20reliance%20on%20third%20parties) - Forte relies on third parties (investigators, CROs, CMOs) for preclinical studies, clinical trials, and manufacturing, reducing control over these activities and increasing risks of delays or unsatisfactory performance[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk) - Failure of third-party manufacturers to comply with cGMP regulations or meet specifications could delay or prevent development and commercialization[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) - Third-party collaborations carry risks, including discretion over efforts, non-performance, competition, and potential termination, which could impact funding and development timelines[256](index=256&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - Inability to maintain existing collaborations or enter new ones on favorable terms could force Forte to curtail development or undertake costly activities independently[261](index=261&type=chunk) [General Risks](index=50&type=section&id=General%20Risks) - The market price of Forte's common stock is highly volatile; a significant decline (e.g., **82% drop** after FB-401 trial failure) can occur, and class action securities litigation is a risk[262](index=262&type=chunk)[265](index=265&type=chunk) - Unstable market and economic conditions, including disruptions in financial services, could adversely affect Forte's business, financing ability, and stock price[155](index=155&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk)[267](index=267&type=chunk) - Complying with public company laws and regulations (e.g., Sarbanes-Oxley Act) incurs significant costs and demands on management[268](index=268&type=chunk) - Anti-takeover provisions in charter documents and Delaware law, including a shareholders' rights plan, could make an acquisition more difficult and prevent changes in management[269](index=269&type=chunk)[270](index=270&type=chunk) - Forte does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of stockholder gain[273](index=273&type=chunk) - Future sales of common stock by existing stockholders could cause the stock price to decline[274](index=274&type=chunk) - Forte has broad discretion in using proceeds from capital raising efforts, which may not align with stockholder preferences or increase investment value[276](index=276&type=chunk) - Forte identified a material weakness in its internal control over financial reporting related to the review of its annual income tax provision, which could impair accurate financial reporting[277](index=277&type=chunk)[279](index=279&type=chunk) [Item 1B. Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[286](index=286&type=chunk) [Item 2. Properties](index=55&type=section&id=Item%202.%20Properties) Forte Biosciences leases adequate office space in Dallas, Texas, under a cancellable agreement - Forte entered into a cancellable lease agreement for office space in Dallas, Texas, in December 2021[287](index=287&type=chunk) - The company believes its existing facilities are adequate and suitable for current business requirements[287](index=287&type=chunk) [Item 3. Legal Proceedings](index=55&type=section&id=Item%203.%20Legal%20Proceedings) Forte Biosciences is defending against a pending stockholder complaint filed in November 2022 seeking access to company books and records - A stockholder filed a complaint in November 2022 in the Delaware Court of Chancery to access company books and records and seek attorney fees[451](index=451&type=chunk) - The legal action is pending, and Forte Biosciences intends to vigorously defend against it[451](index=451&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Forte Biosciences, Inc - Mine Safety Disclosures are not applicable to the registrant[289](index=289&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Forte's common stock trades on Nasdaq under 'FBRX', with 229 stockholders as of March 2023, and the company has never paid cash dividends - Forte's common stock began trading on the Nasdaq Capital Market under the ticker symbol 'FBRX' on June 16, 2020[292](index=292&type=chunk) - As of March 24, 2023, there were **229 registered stockholders** of record[293](index=293&type=chunk) - The company has never declared or paid cash dividends and intends to retain all available funds and future earnings for business operations[294](index=294&type=chunk) - No repurchases of common stock were made during the year ended December 31, 2022[297](index=297&type=chunk) - No sales of unregistered securities occurred during the year ended December 31, 2022[298](index=298&type=chunk) [Item 6. Reserved](index=56&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information - Item 6 is reserved[299](index=299&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Forte Biosciences, a preclinical biopharmaceutical company, reported a **$13.9 million net loss** in 2022, driven by reduced R&D, and holds **$41.1 million in cash** for at least 12 months of operations [Overview](index=57&type=section&id=Overview) - Forte Biosciences is a biopharmaceutical company focused on advancing its product candidate, FB-102, through preclinical trials for autoimmune applications like GvHD, vitiligo, and AA[301](index=301&type=chunk) - As of December 31, 2022, the company had **$41.1 million in cash and cash equivalents**[305](index=305&type=chunk) - Forte's common stock is publicly traded on the Nasdaq Capital Market under FBRX[305](index=305&type=chunk) - The company has an 'at-the-market' (ATM) equity offering program but has reached its current sales limit under Form S-3, restricting further sales[306](index=306&type=chunk) [Intellectual Property](index=57&type=section&id=Intellectual%20Property) - Forte terminated its exclusive license agreement with DHHS for Gram-negative bacteria compositions effective April 2, 2022[307](index=307&type=chunk)[308](index=308&type=chunk) - The company owns one US patent (expiring 2039) not material to FB-102, and four pending US patent applications related to FB-102 (expiring 2043-2044)[309](index=309&type=chunk) [COVID-19](index=58&type=section&id=COVID-19) - The COVID-19 pandemic has resulted in significant economic disruption and may adversely affect Forte's operations, financial condition, and liquidity[310](index=310&type=chunk) - The full extent, consequences, and duration of the pandemic's impact remain unpredictable[310](index=310&type=chunk) [Components of Operating Results](index=58&type=section&id=Components%20of%20Operating%20Results) - Forte has no approved products and has not generated revenue from product sales; future revenue is expected from product sales, royalties, license fees, or milestones from collaborations[311](index=311&type=chunk) - Research and development costs are expensed as incurred, including salaries, preclinical studies, clinical trials, and drug manufacturing[312](index=312&type=chunk) - General and administrative expenses include professional fees, personnel expenses, and costs associated with being a publicly traded company[315](index=315&type=chunk) - Other expenses, net, consist of foreign exchange losses and franchise taxes, offset by interest income[316](index=316&type=chunk) [Critical Accounting Policies, Significant Judgments and Use of Estimates](index=59&type=section&id=Critical%20Accounting%20Policies%2C%20Significant%20Judgments%20and%20Use%20of%20Estimates) - The preparation of financial statements requires management to make estimates and assumptions, particularly for research and development expenses and stock-based compensation[317](index=317&type=chunk)[319](index=319&type=chunk) - Stock-based compensation is measured at grant-date fair value using the Black-Scholes option pricing model, with assumptions for expected term, volatility, risk-free interest rate, and dividend yield[320](index=320&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) - The volatility input is subjective and requires significant analysis and judgment, as the company has limited historical data[323](index=323&type=chunk)[325](index=325&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) Consolidated Statements of Operations (in thousands) | Operating Expenses | 2022 ($) | 2021 ($) | Change ($) | |:-------------------|:---------|:---------|:-----------| | Research and development | 5,594 | 13,853 | (8,259) | | General and administrative | 8,302 | 7,633 | 669 |\ | Total operating expenses | 13,896 | 21,486 | (7,590) | | Other income (expenses), net | 17 | (222) | 239 | | Net Loss | (13,879) | (21,708) | (7,829) | - Research and development expenses decreased by **$8.3 million** in 2022 (YoY), primarily due to a **$3.7 million** decrease in manufacturing, **$3.1 million** decrease in preclinical/clinical expenses (FB-401 termination), **$0.9 million** decrease in payroll, and **$0.6 million** decrease in other expenses[329](index=329&type=chunk) - General and administrative expenses increased by **$0.7 million** in 2022 (YoY), mainly due to an increase in legal expenses[331](index=331&type=chunk) - Other income (expenses), net, improved by **$0.239 million** in 2022 (YoY), driven by a **$150 thousand** increase in interest income, **$52 thousand** reduction in foreign currency losses, and **$37 thousand** reduction in franchise taxes[332](index=332&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) - Forte has no product sales revenue, has never been profitable, and incurred a net loss of **$13.9 million** in 2022, with an accumulated deficit of **$87.0 million**[333](index=333&type=chunk) - As of December 31, 2022, cash and cash equivalents were **$41.1 million**, believed to be sufficient for at least 12 months of operations[336](index=336&type=chunk) - The company issued **6.1 million shares** of common stock for gross proceeds of approximately **$7.7 million** under its ATM Facility from July 1 to December 31, 2022[335](index=335&type=chunk) - Forte will require additional capital to fund future operations and the development of FB-102, with future capital requirements being difficult to forecast[337](index=337&type=chunk) [Summary Consolidated Statements of Cash Flows](index=62&type=section&id=Summary%20Consolidated%20Statements%20of%20Cash%20Flows) Summary Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2022 ($) | 2021 ($) | |:-------------------|:---------|:---------| | Operating activities | (8,185) | (16,677) | | Financing activities | 7,241 | (44) | | Net decrease in cash | (944) | (16,721) | - Net cash used in operating activities decreased from **$16.7 million** in 2021 to **$8.2 million** in 2022, primarily due to a lower net loss and changes in operating assets and liabilities[343](index=343&type=chunk)[344](index=344&type=chunk) - Net cash provided by financing activities was **$7.2 million** in 2022, mainly from the sale of common stock under the ATM Facility, a significant increase from **$44 thousand** used in 2021[345](index=345&type=chunk)[346](index=346&type=chunk) [Indemnification](index=62&type=section&id=Indemnification) - Forte indemnifies its officers and directors as permitted by Delaware law, believing the fair value of these rights is minimal and has not recorded any liabilities[347](index=347&type=chunk) [Contractual Obligations](index=62&type=section&id=Contractual%20Obligations) - Information on contractual obligations is referenced to Note 4 of the Consolidated Financial Statements[348](index=348&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Forte Biosciences is not required to provide quantitative and qualitative disclosures about market risk - Forte Biosciences is a smaller reporting company and is not required to provide disclosures about market risk[349](index=349&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=63&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The financial statements and supplementary data are included starting on page F-1 of this Annual Report on Form 10-K - The financial statements and supplementary data are included after the Signatures page, starting on page F-1[350](index=350&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=63&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Forte Biosciences reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[351](index=351&type=chunk) [Item 9A. Controls and Procedures](index=63&type=section&id=Item%209A.%20Controls%20and%20Procedures) Forte's disclosure controls were ineffective as of December 31, 2022, due to a material weakness in income tax provision review, though financial statements are deemed fair [Evaluation of Disclosure Controls and Procedures](index=63&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2022[353](index=353&type=chunk) - Conclusion: Disclosure controls and procedures were not effective due to a material weakness in the review of the annual income tax provision[353](index=353&type=chunk) - Notwithstanding the material weakness, management believes the consolidated financial statements fairly represent the company's financial condition[354](index=354&type=chunk) [Material Weakness in Internal Control over Financial Reporting](index=63&type=section&id=Material%20Weakness%20in%20Internal%20Control%20over%20Financial%20Reporting) - A material weakness is a deficiency that creates a reasonable possibility of a material misstatement in financial statements not being prevented or detected timely[355](index=355&type=chunk) - A material weakness was identified in controls related to the review of the annual income tax provision prepared by a third-party firm, specifically regarding the completeness and accuracy of deferred income taxes[356](index=356&type=chunk) [Material Weakness Remediation](index=63&type=section&id=Material%20Weakness%20Remediation) - Forte plans to remediate the material weakness by augmenting staff and third-party resources for tax accounting review, strengthening the review process, and implementing additional procedures[357](index=357&type=chunk) - The company cannot assure investors that these measures will significantly improve or remediate the identified material weakness[357](index=357&type=chunk) [Changes in Internal Control over Financial Reporting](index=64&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - Except for the material weakness described, there were no other changes in internal control over financial reporting during the fiscal quarter ended December 31, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting[360](index=360&type=chunk) [Attestation Report of the Registered Public Accounting Firm](index=64&type=section&id=Attestation%20Report%20of%20the%20Registered%20Public%20Accounting%20Firm) - As a smaller reporting company and non-accelerated filer, Forte is not required to provide an attestation report on its internal control over financial reporting from its independent registered public accounting firm[361](index=361&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=64&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) - Management believes disclosure controls and internal control over financial reporting provide reasonable assurance but acknowledge inherent limitations, meaning they may not prevent all errors or fraud[362](index=362&type=chunk) - Control systems are subject to resource constraints, human judgment errors, circumvention by individuals or collusion, and management override[362](index=362&type=chunk) [Item 9B. Other Information](index=64&type=section&id=Item%209B.%20Other%20Information) This item contains no additional information - There is no other information to disclose under this item[363](index=363&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=64&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Forte Biosciences, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[364](index=364&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=65&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance, including the Code of Conduct, is incorporated by reference from the company's Definitive Proxy Statement - Information for this item is incorporated by reference from the Definitive Proxy Statement for the Annual Meeting of Stockholders[366](index=366&type=chunk) - The company has adopted a Business and Ethics Code of Conduct, available on its website, applicable to officers, directors, and employees[366](index=366&type=chunk) [Item 11. Executive Compensation](index=65&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's Definitive Proxy Statement - Information for this item is incorporated by reference from the Definitive Proxy Statement[367](index=367&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=65&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's Definitive Proxy Statement - Information for this item is incorporated by reference from the Definitive Proxy Statement[368](index=368&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=65&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Definitive Proxy Statement - Information for this item is incorporated by reference from the Definitive Proxy Statement[369](index=369&type=chunk) [Item 14. Principal Accounting Fees and Services](index=65&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's Definitive Proxy Statement - Information for this item is incorporated by reference from the Definitive Proxy Statement[370](index=370&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=66&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists exhibits and financial statement schedules, with certain documents incorporated by reference and schedules omitted if information is elsewhere or not applicable - This item lists documents filed as part of the Annual Report, including exhibits incorporated by reference[373](index=373&type=chunk) - Financial statements and supplementary data are included after the Signatures page[375](index=375&type=chunk) - Financial Statement Schedules are omitted because the required information is included in the financial statements or notes, or they are not applicable[375](index=375&type=chunk) [Item 16. Form 10-K Summary](index=69&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has elected not to include a Form 10-K Summary - The company has elected not to include a summary for Form 10-K[381](index=381&type=chunk)

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Forte Biosciences, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Forte Biosciences, Inc.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, balance sheet components, commitments, equity changes, stock-based compensation, and related party transactions for the periods ended September 30, 2022, and December 31, 2021 [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2030,%202022%20(unaudited)%20and%20December%2031,%202021) Presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2022 (unaudited) | Dec 31, 2021 | | :-------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $44,048 | $42,044 | | Total current assets | $44,594 | $42,520 | | Total assets | $45,128 | $43,306 | | Total current liabilities | $2,293 | $1,758 | | Additional paid-in capital | $124,981 | $114,698 | | Accumulated deficit | $(82,167) | $(73,165) | | Total stockholders' equity | $42,835 | $41,548 | | Total liabilities, convertible preferred stock and stockholders' equity | $45,128 | $43,306 | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Nine%20months%20ended%20September%2030,%202022%20and%202021%20(unaudited)) Details the company's revenues, expenses, and net loss over specific interim periods Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $1,379 | $5,656 | $3,106 | $12,501 | | General and administrative | $2,044 | $2,043 | $5,851 | $5,686 | | Total operating expenses | $3,423 | $7,699 | $8,957 | $18,187 | | Loss from operations | $(3,423) | $(7,699) | $(8,957) | $(18,187) | | Other income (expense), net | $23 | $(52) | $(45) | $(180) | | Net loss | $(3,400) | $(7,751) | $(9,002) | $(18,367) | - Net loss for the three months ended September 30, 2022, **decreased by $4.351 million** (from $7.751 million to $3.400 million) compared to the same period in 2021[99](index=99&type=chunk) - For the nine months ended September 30, 2022, net loss **decreased by $9.365 million** (from $18.367 million to $9.002 million) compared to the same period in 2021[100](index=100&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20months%20ended%20September%2030,%202022%20and%202021%20(unaudited)) Outlines changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands, except share data) | Metric | Balance — December 31, 2021 | Balance — September 30, 2022 | | :------------------------------------------------------------------- | :-------------------------- | :--------------------------- | | Common Shares | 14,754,447 | 21,000,069 | | Common Stock Amount | $15 | $21 | | Additional Paid-in Capital | $114,698 | $124,981 | | Accumulated Deficit | $(73,165) | $(82,167) | | Total Stockholders' Equity | $41,548 | $42,835 | | Issuance of common stock through public equity offering, net of costs | N/A | 6,142,158 shares, $7,122 | | Stock-based compensation (9 months) | N/A | $3,155 | | Net loss (9 months) | N/A | $(9,002) | - The company issued **6,142,158 shares of common stock** through a public equity offering (ATM Facility) from July 1, 2022, through September 30, 2022, generating gross proceeds of approximately **$7.7 million** and net proceeds of **$7.122 million** after $595,000 in offering costs[14](index=14&type=chunk)[59](index=59&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20months%20ended%20September%2030,%202022%20and%202021%20(unaudited)) Reports the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,292) | $(13,095) | | Net cash provided by financing activities | $7,296 | $(5) | | Net increase (decrease) in cash and cash equivalents | $2,004 | $(13,100) | | Cash and cash equivalents — beginning of period | $42,044 | $58,765 | | Cash and cash equivalents — end of period | $44,048 | $45,665 | - Net cash used in operating activities significantly **decreased from $13.1 million in 2021 to $5.3 million in 2022**, primarily due to a lower net loss and non-cash adjustments[17](index=17&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) - Financing activities **provided $7.3 million in 2022**, mainly from common stock issuance, a substantial increase from a net use of $5 thousand in 2021[17](index=17&type=chunk)[115](index=115&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and additional information supporting the condensed consolidated financial statements [1. Organization and Description of Business](index=7&type=section&id=1.%20Organization%20and%20Description%20of%20Business) Describes the company's primary business activities, development programs, and financial outlook - Forte Biosciences, Inc. is a biopharmaceutical company focused on developing its **FB-102 program for autoimmune diseases**, currently in preclinical development[19](index=19&type=chunk) - The company has incurred an accumulated deficit of **$82.2 million** as of September 30, 2022, and used **$5.3 million** in operating activities during the nine months ended September 30, 2022, with management expecting to continue incurring losses[21](index=21&type=chunk) - As of September 30, 2022, the company had **$44.0 million in cash and cash equivalents**, which are believed to be sufficient to fund operations for at least 12 months from the 10-Q filing date[23](index=23&type=chunk) [2. Summary of Significant Accounting Policies](index=8&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in conformity with GAAP and include all normal and recurring adjustments for fair presentation, with interim results not indicative of full-year results[27](index=27&type=chunk)[28](index=28&type=chunk) - Cash and cash equivalents include money market funds and deposits with commercial banks, defined as highly liquid investments with original maturities of **90 days or less**[31](index=31&type=chunk) - Research and development costs are expensed as incurred, including salaries, preclinical studies, clinical trials, and drug manufacturing, with non-refundable advance payments deferred and expensed when goods or services are received or performed[38](index=38&type=chunk)[39](index=39&type=chunk) [3. Balance Sheet Components](index=11&type=section&id=3.%20Balance%20Sheet%20Components) Provides detailed breakdowns of specific asset and liability accounts on the balance sheet Prepaid Expenses and Other Current Assets (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------------- | :----------- | :----------- | | Prepaid insurance | $427 | $387 | | Other | $119 | $89 | | Total prepaid expenses and other current assets | $546 | $476 | Accrued Liabilities (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------------- | :----------- | :----------- | | Accrued legal and professional fees | $150 | $75 | | Accrued compensation | $642 | $681 | | Accrued manufacturing and clinical expenses | $276 | $40 | | Other | $34 | $16 | | Total accrued liabilities | $1,102 | $812 | [4. Commitments and Contingencies](index=11&type=section&id=4.%20Commitments%20and%20Contingencies) Details the company's contractual obligations and potential future liabilities - The company terminated its exclusive license agreement with the Department of Health and Human Services (DHHS) effective **April 2, 2022**, without meeting any milestones[53](index=53&type=chunk) - Estimated remaining commitments for preclinical services as of September 30, 2022, were approximately **$134,000**[57](index=57&type=chunk) [5. Equity](index=12&type=section&id=5.%20Equity) Discusses changes in the company's equity structure, including stock offerings and rights plans - From July 1, 2022, through September 30, 2022, the company issued **6.1 million shares of common stock** under an 'at-the-market' (ATM) equity offering program, generating approximately **$7.7 million** in gross proceeds[59](index=59&type=chunk) - On July 11, 2022, the company authorized a Rights Plan, distributing one right for each outstanding common stock share, exercisable under certain conditions (e.g., **10% beneficial ownership acquisition**) at **$16.00** per one one-thousandth of a preferred share, with rights expiring on **July 12, 2023**, or upon redemption or exchange[60](index=60&type=chunk)[61](index=61&type=chunk) [6. Stock-Based Compensation](index=13&type=section&id=6.%20Stock-Based%20Compensation) Explains the company's equity incentive plans and the accounting for stock-based awards - The company operates under the **2020 Inducement Equity Incentive Plan** (115,000 shares available) and the **2021 Equity Incentive Plan** (1,370,554 shares available after a June 2022 amendment adding 1,500,000 shares)[65](index=65&type=chunk)[66](index=66&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $327 | $522 | $993 | $1,191 | | General and administrative | $579 | $951 | $2,162 | $1,785 | | Total | $906 | $1,473 | $3,155 | $2,976 | - As of September 30, 2022, unrecognized stock-based compensation expense related to service conditions was **$7.1 million**, to be recognized over a weighted-average period of **2.35 years**, with an additional **$233,000** unrecognized for performance-based awards[78](index=78&type=chunk) [7. Related Party Transactions](index=15&type=section&id=7.%20Related%20Party%20Transactions) Discloses transactions between the company and its related parties, such as board members - Two board members received **$4 thousand** for scientific consulting services during the three months ended September 30, 2022, and **$16 thousand** for the nine months ended September 30, 2022[79](index=79&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Forte Biosciences, Inc.'s financial condition and results of operations, highlighting the company's focus on the FB-102 program, liquidity, and the factors influencing its operating expenses and future capital needs; it also discusses the impact of the COVID-19 pandemic and the company's intellectual property strategy [Overview](index=16&type=section&id=Overview) Provides a high-level summary of the company's business, financial position, and strategic focus - Forte Biosciences is a biopharmaceutical company focused on developing its **FB-102 program for autoimmune diseases**, with **$44.0 million** in cash and cash equivalents as of September 30, 2022[84](index=84&type=chunk) - The company has an 'at-the-market' (ATM) equity offering program allowing it to sell up to **$25.0 million** of common stock, having issued **6.1 million shares** for **$7.7 million** gross proceeds from July 1 to September 30, 2022[85](index=85&type=chunk)[87](index=87&type=chunk) [Intellectual Property](index=17&type=section&id=Intellectual%20Property) Discusses the company's intellectual property assets and licensing agreements - Forte terminated its exclusive license agreement with the DHHS effective **April 2, 2022**[88](index=88&type=chunk) - The company owns one US patent for administering Gram-positive and Gram-negative bacteria for skin conditions, with an estimated expiration date of **2039**, though this patent is not material to the FB-102 program[89](index=89&type=chunk) [COVID-19](index=17&type=section&id=COVID-19) Addresses the ongoing impact of the COVID-19 pandemic on the company's operations and financial condition - The company is actively monitoring the impact of COVID-19 on its financial condition, liquidity, operations, suppliers, industry, and workforce, acknowledging the full extent and duration of the pandemic's impact cannot currently be predicted[90](index=90&type=chunk) [Components of Operating Results](index=17&type=section&id=Components%20of%20Operating%20Results) Explains the key drivers and categories of the company's revenues and expenses - The company has no approved products or active development, thus no revenue from product sales, with future revenue expected to fluctuate based on collaborations, license fees, and milestones[91](index=91&type=chunk) - Research and development costs are expensed as incurred, including salaries, preclinical studies, clinical trials, and drug manufacturing, with costs for FB-401 wind-down and property write-offs incurred in 2021[92](index=92&type=chunk) - General and administrative expenses primarily cover professional fees (legal, auditing, tax, consulting), personnel, travel, and public company costs (Sarbanes-Oxley compliance, D&O insurance)[96](index=96&type=chunk) [Critical Accounting Policies and Estimates](index=18&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Highlights the accounting policies and estimates that require significant management judgment - There have been no significant changes to the company's critical accounting policies, significant judgments, and estimates during the nine months ended September 30, 2022[98](index=98&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Analyzes the company's financial performance, including changes in expenses and net loss, over specific periods Operating Expenses Comparison (in thousands) | Operating Expenses | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | | Research and development | $1,379 | $5,656 | $(4,277) | | General and administrative | $2,044 | $2,043 | $1 | | Total operating expenses | $3,423 | $7,699 | $(4,276) | | Other income (expense), net | $23 | $(52) | $75 | | Net Loss | $(3,400) | $(7,751) | $(4,351) | Operating Expenses Comparison (in thousands) | Operating Expenses | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | | Research and development | $3,106 | $12,501 | $(9,395) | | General and administrative | $5,851 | $5,686 | $165 | | Total operating expenses | $8,957 | $18,187 | $(9,230) | | Other income (expense), net | $(45) | $(180) | $135 | | Net Loss | $(9,002) | $(18,367) | $(9,365) | - Research and development expenses **decreased by $4.3 million** for the three months and **$9.4 million** for the nine months ended September 30, 2022, primarily due to reduced manufacturing, preclinical/clinical expenses (following FB-401 termination), and lower payroll[99](index=99&type=chunk)[102](index=102&type=chunk) - General and administrative expenses remained flat for the three months but **increased by $0.2 million** for the nine months ended September 30, 2022, mainly due to higher stock-based compensation expenses[103](index=103&type=chunk)[104](index=104&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet its short-term and long-term financial obligations and fund future operations - The company has never been profitable, with a net loss of **$9.0 million** for the nine months ended September 30, 2022, and an accumulated deficit of **$82.2 million**; cash and cash equivalents were **$44.0 million** as of September 30, 2022, expected to fund operations for at least 12 months[105](index=105&type=chunk) - Future capital requirements are uncertain and depend on preclinical/clinical study progress, strategic alliances, regulatory approvals, hiring, intellectual property costs, and manufacturing, with dilution from equity offerings or restrictive covenants from debt financing being potential risks[109](index=109&type=chunk)[110](index=110&type=chunk) Summary of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(5,292) | $(13,095) | | Financing activities | $7,296 | $(5) | | Net increase (decrease) in cash and cash equivalents | $2,004 | $(13,100) | [Off-Balance Sheet Arrangements](index=21&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of material off-balance sheet transactions or variable interest entities - The company has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities[116](index=116&type=chunk) [Contractual Obligations](index=21&type=section&id=Contractual%20Obligations) Refers to detailed information on the company's binding financial commitments - Contractual obligations are detailed in Note 4 to the Condensed Consolidated Financial Statements[117](index=117&type=chunk) [Recent Accounting Standards](index=21&type=section&id=Recent%20Accounting%20Standards) References disclosures regarding newly adopted or pending accounting pronouncements - Information on recent accounting standards is provided in Note 2 to the Condensed Consolidated Financial Statements[118](index=118&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Forte Biosciences, Inc. is not required to provide quantitative and qualitative disclosures about market risk - Forte Biosciences, Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[120](index=120&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=22&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Assesses the effectiveness of the company's controls designed to ensure timely and accurate public disclosures - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective at a reasonable assurance level** as of September 30, 2022[121](index=121&type=chunk) [Changes in Internal Control over Financial Reporting](index=22&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) Reports on any material modifications to the company's internal controls impacting financial reporting - There has been **no material change** in internal control over financial reporting during the quarter ended September 30, 2022, with the company monitoring the impact of the COVID-19 pandemic on internal controls[122](index=122&type=chunk) [PART II. OTHER INFORMATION](index=22&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional legal, risk, and administrative information not covered in the financial statements [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Forte Biosciences, Inc. is not currently a party to any material pending litigation or other material legal proceedings, though it may become involved in various claims from time to time - The company is not currently a party to any material pending litigation or other material legal proceeding[125](index=125&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially and adversely affect Forte Biosciences, Inc.'s business, financial condition, results of operations, and future growth prospects; these risks are categorized into those related to the company's business, technology, and industry; government regulation; intellectual property; reliance on third parties; and general risks [Risks related to Forte's business, technology and industry](index=24&type=section&id=Risks%20related%20to%20Forte's%20business,%20technology%20and%20industry) Highlights inherent risks associated with the company's core operations, product development, and competitive landscape - Forte's business is almost entirely dependent on the success of developing **FB-102**, which is currently in preclinical development and may not be successful, especially after discontinuing the FB-401 program[127](index=127&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk) - The company has a limited operating history and has incurred net losses since inception, with an accumulated deficit of **$82.2 million** as of September 30, 2022, and anticipates continued losses[128](index=128&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[148](index=148&type=chunk) - Forte will require additional capital to fund operations, and failure to obtain necessary financing could delay or prevent the development and commercialization of FB-102 or future product candidates[129](index=129&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[157](index=157&type=chunk) - Clinical development is a lengthy, expensive, and uncertain process; delays or failures in trials, or the emergence of significant adverse events, could inhibit regulatory approval or market acceptance[129](index=129&type=chunk)[130](index=130&type=chunk)[162](index=162&type=chunk)[166](index=166&type=chunk)[170](index=170&type=chunk)[175](index=175&type=chunk) - The company faces significant competition from major pharmaceutical and biotechnology companies with greater resources, which could adversely affect its operating results[187](index=187&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - The COVID-19 pandemic and other public health threats may cause significant national and global economic disruption, adversely affecting the company's operations, preclinical studies, and financial results[136](index=136&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Forte relies on key management personnel and must recruit additional highly skilled personnel; the loss of such individuals or failure to manage growth effectively could impair its ability to develop new products[197](index=197&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) [Risks related to government regulation](index=38&type=section&id=Risks%20related%20to%20government%20regulation) Addresses potential adverse impacts from evolving regulatory frameworks, compliance requirements, and agency oversight - Forte is in early development for FB-102 and requires significant additional preclinical and clinical development before seeking regulatory approval, which is a lengthy, expensive, and uncertain process[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - Changes in the legal and regulatory environment, including FDA regulations, labeling laws, and consumer protection laws, could limit business activities, increase costs, or reduce demand for product candidates[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - Inadequate funding or staffing disruptions at regulatory agencies (FDA, SEC) could delay product review and approval, negatively impacting the business[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - Relationships with healthcare providers and third-party payors are subject to federal and state healthcare fraud and abuse laws, false claims laws, and privacy laws, exposing the company to significant penalties for non-compliance[235](index=235&type=chunk)[236](index=236&type=chunk)[238](index=238&type=chunk)[240](index=240&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign approval processes can be more complex and time-consuming, potentially limiting market potential[216](index=216&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk) - If FB-102 or future product candidates cause undesirable side effects, it could delay or prevent regulatory approval, limit commercialization, or result in market withdrawal and penalties[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) - Ongoing regulatory compliance obligations, including cGMP and GCP requirements, will incur significant expense, and failure to comply could lead to labeling restrictions, market withdrawal, and penalties[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) - Expanding international operations subjects the company to the FCPA and similar anti-bribery laws, as well as export controls and trade sanctions, which could limit foreign market competition and incur liability for violations[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) [Risks related to Forte's intellectual property](index=49&type=section&id=Risks%20related%20to%20Forte's%20intellectual%20property) Examines challenges in securing, maintaining, and enforcing patent protection and trade secrets - Forte's success depends on obtaining and maintaining patent protection for its product candidates; failure to do so could allow competitors to commercialize similar products, adversely affecting its business[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[286](index=286&type=chunk) - The scope, validity, and enforceability of patent rights are highly uncertain and subject to litigation and challenges, which could narrow or invalidate Forte's patents, limiting its ability to prevent competition[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - Patent terms may be inadequate to protect competitive position due to the lengthy development and regulatory review process, potentially leading to patent expiration before or shortly after commercialization[316](index=316&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk) - Forte relies on trade secrets and confidentiality agreements to protect unpatented know-how; failure to protect this information due to breaches or independent development by competitors would harm its competitive position[321](index=321&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) - Third-party claims of intellectual property infringement or misappropriation could prevent or delay development and commercialization, leading to substantial litigation expenses, damages, or the need for costly licenses[330](index=330&type=chunk)[331](index=331&type=chunk)[333](index=333&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk) - Litigation to protect or enforce patents is expensive, time-consuming, and may be unsuccessful, potentially leading to invalidation of patents, monetary damages, or diversion of management resources[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk) [Risks related to Forte's reliance on third parties](index=59&type=section&id=Risks%20related%20to%20Forte's%20reliance%20on%20third%20parties) Discusses vulnerabilities arising from dependence on external partners for research, manufacturing, and clinical activities - Forte relies on third parties (CROs, CMOs) for preclinical studies, clinical trials, and manufacturing; their unsatisfactory performance, failure to meet deadlines, or non-compliance with regulations could delay or impair development and commercialization efforts[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk) - Reliance on third-party manufacturers increases risks related to quality, quantity, cost, and timely supply of product candidates, potentially leading to delays, disruptions, or termination of studies[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk) - Unsuccessful collaborations or termination of agreements with third parties could result in loss of funding, delayed development, and difficulty attracting new partners, adversely affecting the business[353](index=353&type=chunk)[354](index=354&type=chunk)[356](index=356&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) [General Risks](index=63&type=section&id=General%20Risks) Covers broad risks including market volatility, economic conditions, corporate governance, and stock performance - The market price of Forte's common stock is expected to be volatile, influenced by factors such as strategic decisions, regulatory approvals, clinical trial results, competition, and general market conditions; past volatility, like the **82% drop** after FB-401 trial results, indicates this risk[361](index=361&type=chunk)[362](index=362&type=chunk)[364](index=364&type=chunk) - Unstable market and economic conditions, including global credit and financial market volatility, military conflicts, and sanctions, may adversely affect Forte's business, financial condition, and stock price, making financing more difficult and costly[224](index=224&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk) - Complying with public company laws and regulations (e.g., Sarbanes-Oxley Act) incurs significant legal, accounting, and other expenses, and demands substantial management time, potentially making it difficult to attract and retain qualified directors and officers[371](index=371&type=chunk) - Anti-takeover provisions in charter documents, Delaware law, and the adopted shareholders' rights plan could make an acquisition more difficult and may prevent stockholders from replacing management, even if an offer is beneficial[372](index=372&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) - Forte does not anticipate paying cash dividends in the foreseeable future, meaning capital appreciation is the sole source of gain for stockholders[377](index=377&type=chunk) - Future sales of common stock by existing stockholders could cause the stock price to decline, and a lack of equity research analyst coverage or unfavorable reports could also negatively impact stock price and trading volume[378](index=378&type=chunk)[380](index=380&type=chunk) - Failure to maintain proper and effective internal controls could impair the ability to produce accurate financial statements, leading to a decline in stock price and potential sanctions[382](index=382&type=chunk)[383](index=383&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report[387](index=387&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[388](index=388&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section confirms that there are no mine safety disclosures to report - There are no mine safety disclosures to report[389](index=389&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) This section details the approval and adoption of new change in control and severance agreements for executive officers, outlining the benefits provided under various termination scenarios [Severance Agreements](index=68&type=section&id=Severance%20Agreements) Outlines the terms and benefits of executive severance and change in control agreements - On November 10, 2022, the board approved new change in control and severance agreements for executive officers, superseding prior arrangements[390](index=390&type=chunk) - For termination without cause or for good reason outside a Change in Control (CIC) Period, executives receive **12-18 months base salary**, **100-150% target bonus**, and **12-18 months COBRA coverage**; the CEO also gets **12 months accelerated equity vesting**[392](index=392&type=chunk) - For termination without cause or for good reason during a CIC Period, executives receive **150-200% base salary**, **150-200% target bonus**, **18-24 months COBRA coverage**, and **100% accelerated equity vesting**[393](index=393&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the form of change in control and severance agreement, certifications from executive officers, and XBRL-related documents - Key exhibits include the Form of Change in Control and Severance Agreement (10.1), Certifications of Principal Executive and Financial Officers (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[397](index=397&type=chunk) [SIGNATURES](index=70&type=section&id=SIGNATURES) Confirms the official endorsement and submission of the report by authorized company officers [SIGNATURES](index=70&type=section&id=SIGNATURES) The report is duly signed on behalf of Forte Biosciences, Inc. by Paul Wagner, Ph.D., Chief Executive Officer, and Antony Riley, Chief Financial Officer, on November 14, 2022 - The report was signed by Paul Wagner, Ph.D., Chief Executive Officer, and Antony Riley, Chief Financial Officer, on **November 14, 2022**[403](index=403&type=chunk)

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Forte Biosciences, Inc. presents unaudited condensed consolidated financial statements and notes for periods ended June 30, 2022, and December 31, 2021 [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric (in thousands) | June 30, 2022 (unaudited) | December 31, 2021 | | :-------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $38,548 | $42,044 | | Total current assets | $38,846 | $42,520 | | Total assets | $39,720 | $43,306 | | Total current liabilities | $1,513 | $1,758 | | Total stockholders' equity | $38,207 | $41,548 | | Total liabilities, convertible preferred stock and stockholders' equity | $39,720 | $43,306 | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $1,034 | $3,523 | $1,727 | $6,845 | | General and administrative | $1,986 | $2,224 | $3,807 | $3,643 | | Total operating expenses | $3,020 | $5,747 | $5,534 | $10,488 | | Loss from operations | $(3,020) | $(5,747) | $(5,534) | $(10,488) | | Other expenses, net | $(15) | $(65) | $(68) | $(128) | | Net loss | $(3,035) | $(5,812) | $(5,602) | $(10,616) | [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric (in thousands, except share data) | Balance — December 31, 2021 | Balance — June 30, 2022 | | :--------------------------------------- | :-------------------------- | :---------------------- | | Common Shares Outstanding | 14,754,447 | 14,761,261 | | Common Stock Amount | $15 | $15 | | Additional Paid-in Capital | $114,698 | $116,959 | | Accumulated Deficit | $(73,165) | $(78,767) | | Total Stockholders' Equity | $41,548 | $38,207 | - The company's accumulated deficit increased from **$73,165 thousand** at December 31, 2021, to **$78,767 thousand** at June 30, 2022, reflecting ongoing net losses [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,352) | $(7,968) | | Net cash used in financing activities | $(144) | $(2) | | Net decrease in cash and cash equivalents | $(3,496) | $(7,970) | | Cash and cash equivalents — beginning of period | $42,044 | $58,765 | | Cash and cash equivalents — end of period | $38,548 | $50,795 | - Net cash used in operating activities significantly decreased from **$7,968 thousand** in 2021 to **$3,352 thousand** in 2022, primarily due to a lower net loss and higher stock-based compensation expense[18](index=18&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization and Description of Business](index=7&type=section&id=1.%20Organization%20and%20Description%20of%20Business) - Forte Biosciences, Inc. is a biopharmaceutical company focused on developing its FB-102 program for autoimmune diseases, currently in preclinical development[21](index=21&type=chunk)[87](index=87&type=chunk) - The company was incorporated in Delaware on May 3, 2017, and merged with Tocagen, Inc. on June 15, 2020, with its common stock trading on Nasdaq under 'FBRX'[22](index=22&type=chunk) - The company has incurred losses and negative cash flows from operations since inception, with an accumulated deficit of **$78.8 million** as of June 30, 2022[23](index=23&type=chunk) - Management believes existing cash and cash equivalents of **$38.5 million** as of June 30, 2022, will fund operations for at least 12 months, but additional capital will be needed[25](index=25&type=chunk)[26](index=26&type=chunk) - The COVID-19 pandemic continues to pose risks to the company's operations, financial condition, and liquidity, with the full extent of impact remaining unpredictable[28](index=28&type=chunk)[93](index=93&type=chunk) [2. Summary of Significant Accounting Policies](index=8&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The unaudited condensed consolidated financial statements are prepared in conformity with GAAP and SEC rules, including all normal and recurring adjustments[29](index=29&type=chunk)[30](index=30&type=chunk) - Cash and cash equivalents include money market funds and deposits with commercial banks, defined as highly liquid investments with original maturities of 90 days or less[33](index=33&type=chunk) - Fair value measurements are categorized into a three-level hierarchy, with **$34.9 million** in money market funds classified as Level 1 as of June 30, 2022, and December 31, 2021[34](index=34&type=chunk)[35](index=35&type=chunk)[38](index=38&type=chunk) - Research and development costs, including salaries, preclinical studies, clinical trials, and drug manufacturing, are expensed as incurred[40](index=40&type=chunk)[41](index=41&type=chunk) - Comprehensive loss equals net loss for the periods presented, as there were no other comprehensive income (loss) items[43](index=43&type=chunk) - Diluted net loss per share excludes unexercised stock options, warrants, and restricted stock units due to their anti-dilutive effect[45](index=45&type=chunk) | Common Stock Equivalents | Three and Six Months Ended June 30, 2022 | Three and Six Months Ended June 30, 2021 | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Options | 2,338,736 | 1,395,904 | | Restricted stock units | 258,851 | 15,000 | | Warrants | 4,434 | 1,017,550 | | Total | 2,602,021 | 2,428,454 | - The company is evaluating ASU 2020-06, which eliminates certain accounting models for convertible instruments, but does not expect a material impact on its financial statements[47](index=47&type=chunk) [3. Balance Sheet Components](index=11&type=section&id=3.%20Balance%20Sheet%20Components) | Prepaid Expenses and Other Current Assets (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------------------------- | :------------ | :---------------- | | Prepaid insurance | $204 | $387 | | Other | $94 | $89 | | Total | $298 | $476 | | Other Assets (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Prepaid insurance | $570 | $667 | | Prepaid offering costs | $291 | $106 | | Other | $13 | $13 | | Total | $874 | $786 | | Accrued Liabilities (in thousands) | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------ | :---------------- | | Accrued legal and professional fees | $102 | $75 | | Accrued compensation | $454 | $681 | | Accrued manufacturing and clinical expenses | $208 | $40 | | Other | $51 | $16 | | Total | $815 | $812 | [4. Commitments and Contingencies](index=11&type=section&id=4.%20Commitments%20and%20Contingencies) - The company's cash accounts significantly exceed federally insured limits, indicating a concentration of credit risk[53](index=53&type=chunk) - The exclusive license agreement with DHHS for patent rights related to dermatological diseases was terminated effective April 2, 2022, without meeting any milestones[55](index=55&type=chunk) | Minimum Royalty Expenses (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Minimum royalty expenses | $0 | $25 | $25 | $50 | - The company has month-to-month lease agreements for office and laboratory space, with total rent expense of **$3,000** for the three months and **$6,000** for the six months ended June 30, 2022[57](index=57&type=chunk) - Estimated remaining commitments for preclinical services as of June 30, 2022, were approximately **$199,000**[59](index=59&type=chunk) [5. Equity](index=12&type=section&id=5.%20Equity) - Warrants to purchase 978,858 shares, 760,572 shares, and 1,013,116 shares of common stock were exercised on a cashless basis in February 2021, June 2021, and September 2021, respectively, resulting in the issuance of 673,463, 560,402, and 655,409 shares[60](index=60&type=chunk) - As of June 30, 2022, **4,434 warrants** to purchase common stock at **$140.25 per share** remained outstanding[60](index=60&type=chunk) - The company filed a shelf registration statement on Form S-3 in June 2021 to raise up to **$300 million** in additional capital, incurring **$106,000** in offering costs[61](index=61&type=chunk) - An 'at-the-market' (ATM) equity offering program was established on March 31, 2022, allowing the sale of up to **$25.0 million** in common stock, with **$7.0 million** sold from July 1, 2022, through August 12, 2022[62](index=62&type=chunk)[90](index=90&type=chunk) [6. Stock-Based Compensation](index=12&type=section&id=6.%20Stock-Based%20Compensation) - The 2018 Equity Incentive Plan was suspended post-Merger, and the 2017 Equity Incentive Plan was terminated and replaced by the 2021 Equity Incentive Plan in May 2021[63](index=63&type=chunk)[67](index=67&type=chunk) - The 2021 Plan was amended in June 2022 to increase available shares for grant by **1,500,000**, totaling **1,361,736 shares** available as of June 30, 2022[67](index=67&type=chunk) | Stock Option Valuation Assumption | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Fair value of common stock | $1.28 | $1.49 | | Risk-free interest rate | 3.06% | 2.25% | | Dividend yield | 0.00% | 0.00% | | Expected term of options (years) | 5.78 | 5.88 | | Volatility | 71.45% | 68.57% | - The weighted average grant-date fair value of stock options decreased significantly from **$23.40** (3 months) and **$23.29** (6 months) in 2021 to **$0.82** (3 months) and **$0.92** (6 months) in 2022[73](index=73&type=chunk) | Stock Option Activity (Six Months Ended June 30, 2022) | Number of Shares Outstanding | Weighted Average Exercise Price | | :----------------------------------------------------- | :--------------------------- | :------------------------------ | | Balances at December 31, 2021 | 1,281,396 | $18.18 | | Granted | 1,149,166 | $1.49 | | Exercised | (1,098) | $1.06 | | Cancelled/Forfeited | (90,728) | $31.80 | | Balances at June 30, 2022 | 2,338,736 | $9.46 | - A change in accounting estimate for performance-based restricted stock units resulted in a **$158,000** expense reversal in Q1 2022; **258,851 RSUs** remained outstanding at June 30, 2022[75](index=75&type=chunk)[76](index=76&type=chunk) - The 2017 Employee Stock Purchase Plan (ESPP) was reactivated in May 2021, with **170,978 shares** available for future issuance as of June 30, 2022. **5,716 shares** were issued under the ESPP during the six months ended June 30, 2022[76](index=76&type=chunk)[78](index=78&type=chunk) | Stock-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $380 | $364 | $666 | $668 | | General and administrative | $814 | $644 | $1,583 | $835 | | Total | $1,194 | $1,008 | $2,249 | $1,503 | - Unrecognized stock-based compensation expense related to stock options with service conditions was **$8.0 million** as of June 30, 2022, to be recognized over **2.56 years**[79](index=79&type=chunk) [7. Related Party Transactions](index=15&type=section&id=7.%20Related%20Party%20Transactions) - Two board members received cash payments of **$5,000** and **$7,000** for scientific consulting services during Q1 and Q2 2022, respectively, with the latter remaining outstanding as of June 30, 2022[80](index=80&type=chunk) - There were no related party transactions during the three and six months ended June 30, 2021[80](index=80&type=chunk) [8. Subsequent Events](index=15&type=section&id=8.%20Subsequent%20Events) - On July 11, 2022, the Board adopted a Rights Plan, declaring a dividend distribution of one right per common stock share to protect stockholders from coercive takeover tactics[81](index=81&type=chunk)[82](index=82&type=chunk) - The Rights Plan imposes a significant penalty on any person or group acquiring **10% or more** (or **20%** for certain institutional investors) of common stock without Board approval[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Forte Biosciences, Inc.'s financial condition, operations, FB-102 program, capital, and COVID-19 impact [Overview](index=16&type=section&id=Overview) - Forte Biosciences is a biopharmaceutical company focused on developing its FB-102 program for autoimmune diseases, with **$38.5 million** in cash and cash equivalents as of June 30, 2022[87](index=87&type=chunk) - The company filed a shelf registration statement in June 2021 to raise up to **$300 million** and established an 'at-the-market' (ATM) equity offering program in March 2022 for up to **$25.0 million**[88](index=88&type=chunk)[89](index=89&type=chunk) - As of August 12, 2022, the company had issued **5.6 million shares** for gross proceeds of approximately **$7.0 million** under the ATM Facility[90](index=90&type=chunk) [Intellectual Property](index=17&type=section&id=Intellectual%20Property) - Forte terminated its exclusive license agreement with the DHHS for **12 patents** related to dermatological diseases effective April 2, 2022[91](index=91&type=chunk) - The company owns one US patent for administering a combination of Gram-positive and Gram-negative bacteria for skin conditions, expiring in 2039, which is not material to the FB-102 program[92](index=92&type=chunk) [COVID-19](index=17&type=section&id=COVID-19) - The COVID-19 pandemic continues to cause significant national and global economic disruption, potentially affecting Forte's operations, financial condition, liquidity, and workforce[93](index=93&type=chunk) - The full extent, consequences, and duration of the pandemic's impact on the company remain unpredictable[93](index=93&type=chunk) [Components of Operating Results](index=17&type=section&id=Components%20of%20Operating%20Results) - Forte has no approved products or active development, thus no revenue from product sales. Future revenue is uncertain and may come from product sales, royalties, license fees, or milestones[94](index=94&type=chunk) - Research and development costs are expensed as incurred, including salaries, preclinical studies, clinical trials, and drug manufacturing. These costs are expected to increase with the development of FB-102[95](index=95&type=chunk)[98](index=98&type=chunk) - General and administrative expenses primarily cover professional fees, personnel, and public company costs, and are expected to increase as infrastructure for FB-102 development is built[99](index=99&type=chunk) - Other expense, net, includes foreign exchange gains/losses and franchise taxes, partially offset by interest earned on cash[100](index=100&type=chunk) [Critical Accounting Policies and Estimates](index=18&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no significant changes to critical accounting policies, judgments, and estimates during the six months ended June 30, 2022[101](index=101&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :----------- | | Research and development | $1,034 | $3,523 | $(2,489) | | General and administrative | $1,986 | $2,224 | $(238) | | Total operating expenses | $3,020 | $5,747 | $(2,727) | | Net Loss | $3,035 | $5,812 | $(2,777) | | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :----------- | | Research and development | $1,727 | $6,845 | $(5,118) | | General and administrative | $3,807 | $3,643 | $164 | | Total operating expenses | $5,534 | $10,488 | $(4,954) | | Net Loss | $5,602 | $10,616 | $(5,014) | - Research and development expenses decreased by **$2.5 million** (QoQ) and **$5.1 million** (YoY) primarily due to the termination of the FB-401 program, reduced manufacturing, preclinical/clinical expenses, and lower payroll[105](index=105&type=chunk)[106](index=106&type=chunk) - General and administrative expenses decreased by **$0.2 million** (QoQ) due to lower legal/professional fees, but increased by **$0.2 million** (YoY) primarily due to higher stock-based compensation[108](index=108&type=chunk)[109](index=109&type=chunk) - Other expenses, net, decreased for both periods due to reduced foreign currency transaction and remeasurement losses[111](index=111&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) - Forte has never been profitable, incurring a net loss of **$5.6 million** for the six months ended June 30, 2022, and an accumulated deficit of **$78.8 million**[112](index=112&type=chunk) - The company had **$38.5 million** in cash and cash equivalents as of June 30, 2022, expected to fund operations for at least 12 months[112](index=112&type=chunk) - Future capital requirements are uncertain and depend on factors like preclinical/clinical study progress, strategic alliances, regulatory approvals, hiring, intellectual property costs, and manufacturing[116](index=116&type=chunk) - Raising additional funds through equity may dilute stockholders, while debt financing may impose restrictive covenants. Global economic conditions and geopolitical conflicts could adversely impact fundraising[117](index=117&type=chunk) [Cash Flow Summary](index=21&type=section&id=Cash%20Flow%20Summary) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(3,352) | $(7,968) | | Financing activities | $(144) | $(2) | | Net decrease in cash and cash equivalents | $(3,496) | $(7,970) | - Net cash used in operating activities for the six months ended June 30, 2022, was **$3.4 million**, primarily from a **$5.6 million** net loss offset by **$2.2 million** in non-cash stock-based compensation[120](index=120&type=chunk) - Net cash used in financing activities for the six months ended June 30, 2022, was **$144,000**, mainly due to **$156,000** in deferred financing costs, partially offset by **$12,000** from stock option exercises and ESPP[122](index=122&type=chunk) [Off-Balance Sheet Arrangements](index=21&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has not entered into any off-balance sheet arrangements and does not hold any variable interest entities[123](index=123&type=chunk) [Contractual Obligations](index=21&type=section&id=Contractual%20Obligations) - Contractual obligations are detailed in Note 4 to the Condensed Consolidated Financial Statements[124](index=124&type=chunk) [Recent Accounting Standards](index=21&type=section&id=Recent%20Accounting%20Standards) - Information on recent accounting standards is provided in Note 2 to the Condensed Consolidated Financial Statements[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Forte Biosciences, Inc., as a smaller reporting company, is exempt from market risk disclosures - Forte Biosciences is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[127](index=127&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2022. No material changes to internal control over financial reporting occurred during the quarter, despite remote work due to COVID-19 [Evaluation of Disclosure Controls and Procedures](index=22&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[128](index=128&type=chunk) [Changes in Internal Control over Financial Reporting](index=22&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[129](index=129&type=chunk) - The company has not experienced any material impact to internal controls despite employees working remotely due to the COVID-19 pandemic[129](index=129&type=chunk) [PART II. OTHER INFORMATION](index=22&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Forte Biosciences, Inc. is not currently involved in any material pending legal proceedings - The company is not currently involved in any material pending litigation or other material legal proceedings[132](index=132&type=chunk) - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs and diversion of management resources[132](index=132&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to Forte Biosciences, Inc.'s business, covering FB-102 development, capital, competition, and IP [Risks related to Forte's business, technology and industry](index=24&type=section&id=Risks%20related%20to%20Forte's%20business,%20technology%20and%20industry) - Forte's business is almost entirely dependent on the success of developing FB-102, which is currently in preclinical development and may not be successful[134](index=134&type=chunk)[146](index=146&type=chunk) - Results from early preclinical studies may not be predictive of later-stage studies or clinical trials, and the FDA may require additional testing[135](index=135&type=chunk)[147](index=147&type=chunk) - The company has a limited operating history and no approved products, making it difficult to evaluate its technology and predict future performance[135](index=135&type=chunk)[151](index=151&type=chunk) - Forte has incurred net losses since inception (**$78.8 million** accumulated deficit as of June 30, 2022) and anticipates continued losses as it develops FB-102[135](index=135&type=chunk)[155](index=155&type=chunk) - Additional capital will be required to fund operations and complete development of FB-102, with no assurance of available funding on acceptable terms[136](index=136&type=chunk)[159](index=159&type=chunk) - Clinical development is a lengthy, expensive, and uncertain process, with potential for delays, increased costs, or inability to complete development[136](index=136&type=chunk)[170](index=170&type=chunk) - Planned preclinical studies or future clinical trials may reveal significant adverse events, potentially inhibiting regulatory approval or market acceptance[137](index=137&type=chunk)[177](index=177&type=chunk) - The market opportunities for FB-102 may be limited, and estimates of target patient populations could be inaccurate[139](index=139&type=chunk)[192](index=192&type=chunk) - Forte faces significant competition from major pharmaceutical and biotechnology companies with greater resources[194](index=194&type=chunk)[195](index=195&type=chunk) - Even if approved, FB-102 may fail to achieve market acceptance due to factors like efficacy, safety, convenience, pricing, and reimbursement[199](index=199&type=chunk)[200](index=200&type=chunk) - The COVID-19 pandemic and other public health threats could adversely impact Forte's business operations and financial results[143](index=143&type=chunk)[201](index=201&type=chunk) - Forte will need to grow its organization and may experience difficulties in managing this growth, including recruiting and retaining skilled personnel[204](index=204&type=chunk)[211](index=211&type=chunk) - Forte's internal computer systems and those of third parties are vulnerable to damage from viruses and unauthorized access, potentially disrupting operations[214](index=214&type=chunk)[215](index=215&type=chunk) - Employees, contractors, and partners may engage in misconduct, including noncompliance with regulatory standards, leading to significant losses or penalties[218](index=218&type=chunk)[219](index=219&type=chunk) - Comprehensive tax reform legislation could adversely affect Forte's business and financial condition[228](index=228&type=chunk) - The ability to use net operating losses (NOLs) and research and development credits may be limited by ownership changes or failure to generate future taxable income[229](index=229&type=chunk)[230](index=230&type=chunk) - Unstable market and economic conditions, including geopolitical conflicts, may adversely affect Forte's business, financial condition, and stock price[231](index=231&type=chunk)[232](index=232&type=chunk) [Risks related to Forte's intellectual property](index=49&type=section&id=Risks%20related%20to%20Forte's%20intellectual%20property) - Forte's success depends on obtaining and maintaining patent protection for its product candidates; failure to do so could allow competitors to commercialize similar products[290](index=290&type=chunk)[291](index=291&type=chunk) - The scope of patent protection may not be broad enough, or future patents could be lost, adversely affecting the ability to prevent competitors[295](index=295&type=chunk)[297](index=297&type=chunk) - Future patents may be challenged, narrowed, circumvented, or invalidated by third parties, leading to loss of exclusivity or inability to commercialize products[298](index=298&type=chunk)[299](index=299&type=chunk) - Patent terms may be inadequate to protect competitive position, as patents could expire before or shortly after product commercialization[323](index=323&type=chunk) - Failure to obtain patent term extension or data exclusivity for FB-102 could materially harm the business by allowing competitors to enter the market sooner[324](index=324&type=chunk)[326](index=326&type=chunk) - Forte may be subject to claims challenging the inventorship of its patents and other intellectual property, potentially leading to loss of rights or costly litigation[327](index=327&type=chunk) - Inability to protect the confidentiality of trade secrets could harm Forte's business and competitive position, as trade secrets are difficult to protect and monitor[328](index=328&type=chunk)[330](index=330&type=chunk) - Third-party claims of intellectual property infringement or misappropriation could prevent or delay the development and commercialization of Forte's product candidates[335](index=335&type=chunk)[339](index=339&type=chunk) - Litigation to protect or enforce patents and other intellectual property rights can be expensive, time-consuming, and potentially unsuccessful[344](index=344&type=chunk)[346](index=346&type=chunk) - Intellectual property rights have limitations and may not adequately protect Forte's business or maintain its competitive advantage against similar products or technologies[347](index=347&type=chunk)[348](index=348&type=chunk) [Risks related to Forte's reliance on third parties](index=59&type=section&id=Risks%20related%20to%20Forte's%20reliance%20on%20third%20parties) - Forte relies on third parties (investigators, CROs, CMOs) for preclinical studies and future clinical trials, which reduces control and poses risks of unsatisfactory performance or delays[350](index=350&type=chunk)[351](index=351&type=chunk)[353](index=353&type=chunk) - Reliance on third-party manufacturers for product candidates increases the risk of insufficient quality or quantity, or unacceptable costs, potentially delaying development or commercialization[356](index=356&type=chunk)[357](index=357&type=chunk) - Third-party manufacturers may fail to comply with cGMP regulations, leading to sanctions, delays, or withdrawal of approvals, severely impacting product supply[359](index=359&type=chunk)[360](index=360&type=chunk) - If collaborations are not maintained or new relationships are not successful, Forte's business could be adversely affected due to limited internal capabilities for product development, sales, marketing, and distribution[361](index=361&type=chunk)[362](index=362&type=chunk) [General Risks](index=62&type=section&id=General%20Risks) - The market price of Forte's common stock is expected to be volatile, as demonstrated by an **82% decline** following unfavorable FB-401 clinical trial results in September 2021[367](index=367&type=chunk)[368](index=368&type=chunk) - Unstable market and economic conditions, including geopolitical events, may have serious adverse consequences on Forte's business, financial condition, and stock price[374](index=374&type=chunk) - Complying with public company laws and regulations (e.g., Sarbanes-Oxley Act) will incur significant costs and demands on management, potentially affecting investor confidence[375](index=375&type=chunk) - Anti-takeover provisions in charter documents and Delaware law, including the recently adopted shareholders' rights plan, could make an acquisition more difficult[377](index=377&type=chunk)[378](index=378&type=chunk) - Forte does not anticipate paying cash dividends in the foreseeable future, meaning capital appreciation is the sole source of gain for stockholders[380](index=380&type=chunk) - Future sales of shares by existing stockholders could cause Forte's stock price to decline[382](index=382&type=chunk) - If equity research analysts do not publish research or publish unfavorable reports, Forte's stock price and trading volume could decline[383](index=383&type=chunk) - Forte has broad discretion in the use of proceeds from capital raising efforts, which may not align with stockholders' expectations or increase investment value[384](index=384&type=chunk) - Failure to maintain proper and effective internal controls could impair the ability to produce accurate financial statements on a timely basis, leading to stock price decline or regulatory sanctions[385](index=385&type=chunk)[386](index=386&type=chunk) - As a smaller reporting company, Forte benefits from reduced disclosure and governance requirements, which might make its common stock less attractive to some investors[388](index=388&type=chunk) - Principal stockholders and management own a significant percentage of stock, allowing them to exert significant control over matters subject to stockholder approval[389](index=389&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - There were no unregistered sales of equity securities or use of proceeds to report[390](index=390&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities[391](index=391&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures are reported - There are no mine safety disclosures[392](index=392&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) No other information is reported - There is no other information to report[394](index=394&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various agreements and executive certifications - Exhibits include Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock, Preferred Stock Rights Agreement, Offer Letter for Hubert Chen, M.D., Amended and Restated Non-Employee Director Compensation Policy, and At Market Issuance Sales Agreement[396](index=396&type=chunk) - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906 are also filed[396](index=396&type=chunk) [SIGNATURES](index=68&type=section&id=SIGNATURES) [SIGNATURES](index=68&type=section&id=SIGNATURES) The report was signed by Paul Wagner, Ph.D., CEO, and Antony Riley, CFO, on August 15, 2022 - The report was signed by Paul Wagner, Ph.D., Chief Executive Officer, and Antony Riley, Chief Financial Officer, on August 15, 2022[403](index=403&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38052 FORTE BIOSCIENCES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 26-1243872 (State or other jurisdic ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 sep For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-38052 FORTE BIOSCIENCES, INC. (Exact name of Registrant as specified in its Charter) Delaware 26-1243872 (State or other jurisdic ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38052 | --- | --- | |-------------------------------------------------------------------------------------------------------- ...

Financial Performance - Forte Biosciences reported a net loss of $5.812 million for Q2 2021, a decrease of $28.949 million compared to a net loss of $34.761 million in Q2 2020[118]. - Total operating expenses for Q2 2021 were $5.747 million, down from $34.754 million in Q2 2020, reflecting a decrease of $29.007 million[118]. - The net loss for the six months ended June 30, 2021, was approximately $10.6 million, with an accumulated deficit of about $62.1 million as of the same date[127]. - Net cash used in operating activities for the six months ended June 30, 2021, was $8.0 million, compared to $6.9 million for the same period in 2020[142]. Research and Development - Research and development expenses increased to $3.523 million in Q2 2021 from $1.937 million in Q2 2020, an increase of $1.586 million[118]. - The company anticipates significant increases in research and development expenses as it continues to advance the FB-401 program through clinical trials[135]. - The company recognized an expense of $32.1 million for in-process research and development assets acquired during the merger with Tocagen[112]. - Research and development expenses increased to $3.5 million for Q2 2021, up from $1.9 million in Q2 2020, representing an increase of approximately 84.2%[121]. Clinical Trials - The company completed a Phase 1/2a study of FB-401, showing nearly 80% improvement in atopic dermatitis (AD) disease activity in pediatric subjects[100]. - In the Phase 1/2a trial, 90% of pediatric patients achieved at least a 50% improvement in disease activity, with 70% achieving a 75% improvement[100]. - Forte initiated a multicenter, placebo-controlled clinical trial of FB-401 in September 2020, enrolling 154 subjects, with preliminary results expected in Q3 2021[101]. Revenue and Funding - The company has not generated any revenue from product sales and expects future revenue to fluctuate based on collaborations and licensing agreements[106]. - The company has not generated any revenue from product sales or out-licensing and does not expect to do so until regulatory approval is obtained[134]. - The company raised net cash proceeds of approximately $19.4 million in connection with the Merger, along with an additional $4.6 million from a stock issuance[128]. - Forte incurred $44,000 in offering costs related to a shelf registration statement effective in June 2021, allowing for the potential to raise up to $300 million[96]. Expenses - General and administrative expenses for Q2 2021 were $2.224 million, an increase of $1.464 million compared to $0.760 million in Q2 2020[118]. - General and administrative expenses rose to $2.2 million for Q2 2021, compared to $0.8 million in Q2 2020, marking a 175% increase[122]. - The company expects general and administrative expenses to increase substantially due to staff expansion and higher compliance costs associated with being a public company[124]. Cash Position - Cash and cash equivalents were approximately $50.8 million as of June 30, 2021, expected to fund operations for at least 12 months[133]. Off-Balance Sheet Arrangements - The company has not entered into any off-balance sheet arrangements and does not have holdings in variable interest entities[145].

Forte Biosciences, Inc. (NASDAQ:FBRX) Q1 2021 Earnings Conference Call May 10, 2021 4:30 PM ET Company Participants Paul Wagner - CEO Dan Birch - CMO Tony Riley - CFO Conference Call Participants Mohit Bansal - Citigroup Kumar Raja - Brookline Capital Markets Michael Higgins - Ladenburg Thalmann Kalpit Patel - B. Riley Operator Welcome to Forte Biosciences First Quarter 2021 Conference Call. My name is David and I will be the operator for this call. On the call are Paul Wagner, Chairman and Chief Executive ...