Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR o 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: 001-41696 | --- | --- | --- | |----------------------------------------------------|------------- ...

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Core Insights - ACELYRIN, INC. announced positive results from its global Phase 2b/3 clinical trial of izokibep for psoriatic arthritis, which will be presented at the 2024 European Alliance of Associations for Rheumatology Congress [1] Company Overview - ACELYRIN, INC. is a late-stage clinical biopharma company based in Los Angeles, focused on developing transformative medicines, with operations also in the San Francisco Bay area [6] - The company has two late-stage clinical programs: izokibep for psoriatic arthritis and hidradenitis suppurativa, and lonigutamab for thyroid eye disease [6] Clinical Trial Details - The Phase 2b/3 clinical trial (NCT05623345) involved 351 adult patients with active psoriatic arthritis, randomized across four treatment arms [2] - Izokibep was administered subcutaneously at doses of 160 mg weekly, 160 mg every two weeks, and 80 mg every four weeks, compared to a placebo [2] Product Information - Izokibep is designed to inhibit IL-17A, a mechanism validated for treating psoriatic arthritis and other immune-mediated diseases [1][5] - The small protein therapeutic has a high potency and tight binding affinity, potentially allowing for robust tissue penetration and extended half-life due to its albumin binding domain [5] Disease Context - Psoriatic arthritis is a chronic immune-mediated inflammatory disease affecting approximately 30% of the 125 million people with psoriasis globally, highlighting a significant unmet need for effective therapies [4]

Financial Performance - Net loss for the first quarter of 2024 was $34,973,000, significantly reduced from a net loss of $176,450,000 in the first quarter of 2023, representing an improvement of approximately 80%[20] - The Company incurred a net loss of $35.0 million for the three months ended March 31, 2024, compared to a net loss of $176.5 million for the same period in 2023, reflecting a significant reduction in losses[34] - Net loss attributable to common stockholders for the three months ended March 31, 2024, was $34.97 million, resulting in a net loss per share of $0.36[118] - Net cash used in operating activities for the three months ended March 31, 2024, was $57.3 million, compared to $25.3 million for the same period in 2023, indicating a significant increase in cash outflow[172] - The company reported a net loss of $35.0 million for the three months ended March 31, 2024, with $20.2 million attributed to stock-based compensation expenses[173] Assets and Liabilities - Total current assets decreased from $736,638,000 as of December 31, 2023, to $693,981,000 as of March 31, 2024, a decline of approximately 5.8%[17] - Total liabilities decreased from $86,353,000 as of December 31, 2023, to $53,417,000 as of March 31, 2024, a reduction of approximately 38%[17] - Stockholders' equity decreased to $644,067,000 as of March 31, 2024, from $656,337,000 as of December 31, 2023, a decline of about 1.9%[17] - As of March 31, 2024, the Company had an accumulated deficit of $523.7 million and cash and cash equivalents of $678.5 million[34][35] - As of March 31, 2024, the total fair value of the company's assets measured at fair value is $655,298, with Level 1 assets at $88,994 and Level 2 assets at $566,304[60] Revenue and Income - The company has not generated any revenue from product sales to date and does not have any products approved for sale[35] - The company reported interest income of $9,150,000 for the first quarter of 2024, up from $3,299,000 in the same quarter of 2023, reflecting an increase of about 177%[20] - Other income increased significantly by $44.4 million, from $3.4 million in Q1 2023 to $47.8 million in Q1 2024, primarily due to non-recurring income from vendor arrangements and asset sales[161] Expenses - Operating expenses for the three months ended March 31, 2024, were $82,774,000, down 54% from $179,833,000 for the same period in 2023[20] - Research and development expenses decreased to $58,032,000 in Q1 2024 from $167,920,000 in Q1 2023, a reduction of approximately 65%[20] - General and administrative expenses increased by $12.8 million, from $11.9 million in Q1 2023 to $24.7 million in Q1 2024, driven by increased personnel-related costs and stock-based compensation[159] - Total operating expenses decreased by $97.1 million, from $179.8 million in Q1 2023 to $82.8 million in Q1 2024, reflecting a 54% reduction[153] Stock and Equity - The company executed a reverse stock split at a ratio of 1.972-for-1 in April 2023, adjusting all share-related references retrospectively[31] - The company has a total of 24,980,221 shares reserved for future issuance as of March 31, 2024[101] - The Company adopted the 2023 Equity Incentive Plan, reserving 12,000,000 new shares for issuance, with an automatic annual increase starting January 1, 2024[104] - As of March 31, 2024, there were 12,915,515 outstanding stock options with a weighted average exercise price of $9.76 and an intrinsic value of $7.7 million[107] Obligations and Commitments - The company has a total value of non-cancellable obligations under contracts amounting to $117.7 million as of March 31, 2024[90] - The company is obligated to pay Affibody up to $280 million upon achieving various development, regulatory, and commercialization milestones[75] - The company is obligated to make payments of up to $99.5 million upon achieving various development and regulatory milestones under the Pierre Fabre Agreement[82] - The company must pay tiered royalties in the high single-digit to low-teen percentages on worldwide net sales for each PF Licensed Product, with royalties payable for 10 years after the first commercial sale[82] Future Outlook - The Company expects to continue incurring significant expenses and substantial losses as it develops and seeks regulatory approvals for its product candidates[35] - The company anticipates significant increases in expenses and capital requirements as it advances its product candidates through clinical development[131] - The company may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures[168] - The company plans to significantly increase manufacturing spending in 2024 to support potential Biologic License Application readiness for izokibep[130] Legal and Regulatory Risks - The company is involved in a federal securities class action lawsuit alleging misleading investors about a Phase 2b trial, seeking damages and costs[199] - The company may face additional legal proceedings or claims that could adversely impact its resources and operations[201] - The outcome of ongoing and planned clinical trials may not be sufficient for regulatory approval of product candidates[212] Internal Controls - The company has identified material weaknesses in internal control over financial reporting, which could result in misstatements of financial statements[189] - There are material weaknesses in the company's internal control over financial reporting, which could adversely affect investor confidence and stock value if not remediated[213]

Severance and Compensation - Employee will receive a severance payment equivalent to twelve months of base salary, totaling $424,350, commencing thirty days after the Termination Date[7] - A pro-rated lump sum cash payment of $119,283.04 will be made to the Employee as a targeted annual discretionary bonus for 2024, based on the length of employment in that year[9] - The Company will pay up to $5,000 for reasonable attorney's fees related to the negotiation and execution of the Separation Agreement[27] - The Employee acknowledges compliance with the Separation Agreement and confirms receipt of all compensation owed through the Termination Date[44] Benefits and Options - The Company will cover the full monthly COBRA premiums for the Employee and covered dependents for up to twelve months post-termination[8] - The vesting of Employee Options and Employee RSUs will be accelerated, allowing the Employee to be deemed vested in options and units that would have vested within twelve months post-termination[10] - The exercise period for the vested Employee Options will be extended through December 31, 2024[10] Legal and Release Clauses - Employee must execute a supplemental release of claims within five days of the Termination Date to receive severance payments and benefits[11] - The Company releases the Employee from any claims arising from omissions, acts, or damages up until the date of signing the Agreement[18] - Employee represents that there are no pending lawsuits or claims against the Company or any of the Employee Releasees[23] - The Agreement does not limit the Employee's ability to file a charge with government agencies regarding unlawful acts in the workplace[21] - The Employee releases the Company from any claims related to employment, including salary, bonuses, and benefits[45] - The Company releases the Employee from any claims known or unknown up to the date of signing the Release[46] - The Employee waives rights under the ADEA and acknowledges the consideration for the waiver is additional to what was already entitled[50] - The Release will not be effective until the revocation period of seven days has expired[50] - The entire agreement regarding the subject matter is set forth in the Release and the Separation Agreement[51] - The governing law for the agreement is the State of California[36] - The Employee has been advised to consult with legal counsel before signing the Release[50] Employment Termination - The Company ended employment with Ron Oyston on August 15, 2024[43] - Employee acknowledges that no portion of the performance-based restricted stock unit award granted on August 16, 2023, has met the associated Success Factor, resulting in its forfeiture[10]

Financial Performance - The company reported substantial losses since inception and anticipates incurring increasing losses for the foreseeable future[19]. - The net loss for 2023 was $381,641,000, compared to a net loss of $64,772,000 in 2022, reflecting an increase in losses of 486.5%[536]. - The company reported a net loss per share attributable to common stockholders of $5.43 in 2023, compared to $41.59 in 2022[536]. - The company has an accumulated deficit of $488.7 million as of December 31, 2023, reflecting ongoing financial challenges[550]. - The company expects to continue incurring significant expenses and substantial losses as it develops and seeks regulatory approvals for its product candidates[551]. - Cash used in operating activities was $169.7 million in 2023, up from $61.5 million in 2022, indicating increased operational expenditures[550]. Financing and Capital Requirements - The company requires significant additional financing to achieve its goals, and failure to secure this capital could delay or limit product development[21]. - The company raised approximately $573.6 million in net proceeds from its initial public offering (IPO) on May 9, 2023, after deducting underwriting discounts and commissions[548]. - The company issued 34,500,000 shares of common stock in connection with its initial public offering, raising $573,644,000 net of costs[540]. - The company completed the acquisition of ValenzaBio, Inc. on January 4, 2023, issuing 18,885,731 shares of Class A common stock as consideration[546]. - The company incurred $133.1 million in expenses related to acquired in-process research and development assets during 2023[550]. Assets and Liabilities - Total current assets increased to $736,638,000 in 2023 from $316,064,000 in 2022, representing a growth of 133.3%[535]. - Total liabilities rose to $86,353,000 in 2023, up from $26,192,000 in 2022, indicating an increase of 229.5%[535]. - Cash and cash equivalents decreased to $218,097,000 in 2023 from $267,110,000 in 2022, a decline of 18.3%[535]. - As of December 31, 2023, the company had cash and cash equivalents and short-term marketable securities totaling $721.3 million, providing a strong liquidity position[551]. Research and Development - Research and development expenses surged to $355,886,000 in 2023, up from $55,632,000 in 2022, marking a significant increase of 539.5%[536]. - The company’s business depends entirely on the success of its product candidates, and failure to develop or commercialize them could materially harm the business[24]. - The company has exclusive licenses for the development and commercialization of izokibep and lonigutamab, with potential milestone payments totaling up to $280 million and $99.5 million, respectively[25][33]. - Accrued research and development expenses rose significantly to $35.436 million in 2023 from $5.717 million in 2022, indicating increased investment in clinical activities[23]. - The company recorded $10.0 million in research and development expenses for additional license fees as of December 31, 2023[636]. Regulatory and Market Risks - The ongoing Phase 3 clinical trials of izokibep may not be sufficient for regulatory approval, even if successfully completed[25]. - The company faces competition from entities with substantial investments in novel treatments for immunological indications[23]. - The company is exposed to market risks related to interest rate changes, but does not believe a hypothetical 10% change would materially affect financial statements[520]. - The company has not experienced material foreign currency transaction gains or losses, and does not believe a 10% change in exchange rates would materially affect financial statements[521]. - Inflation has generally increased costs, but the company does not believe it has had a material effect on its business or financial condition[522]. Internal Controls and Governance - The company has identified material weaknesses in internal control over financial reporting, which could affect investor confidence and stock value[30]. - The company has not accrued for any potential liability relating to a federal securities class action lawsuit filed on November 15, 2023, as the outcome is uncertain[652]. Stock and Equity - The company executed a reverse stock split at a ratio of 1.972-for-1 in April 2023, adjusting all share-related references retrospectively[547]. - The total shares reserved for future issuance was 20,101,379, a decrease from 48,458,034 in 2022[674]. - The 2023 Equity Incentive Plan reserved 12,000,000 new shares of common stock for issuance, effective May 4, 2023[677]. - The 2023 Employee Stock Purchase Plan authorized the issuance of up to 900,000 shares of common stock, effective May 4, 2023[679]. Miscellaneous - The company has not declared any dividends for the years ended December 31, 2023, 2022, and 2021[661]. - The company has not experienced any losses on its financial instruments, indicating effective risk management strategies[566]. - The company has recorded a full valuation allowance on deferred tax assets as of December 31, 2023, indicating uncertainty regarding future realizability[586].

[ACELYRIN, INC. Full Year 2023 Financial Results and Recent Highlights](index=1&type=section&id=ACELYRIN_FY2023_Report) [Executive Summary and Strategic Vision](index=1&type=section&id=Executive_Summary_Strategic_Vision) The company reported positive clinical data for lonigutamab and izokibep while advancing its autoimmune portfolio, supported by a strong cash position - Reported positive Phase 1/2 proof-of-concept data for **lonigutamab**, demonstrating clinical responses in thyroid eye disease patients[1](index=1&type=chunk) - Achieved primary endpoint with **high statistical significance** in a global Phase 2b/3 clinical trial of izokibep in psoriatic arthritis[1](index=1&type=chunk) - The ongoing Phase 3 trial for izokibep in hidradenitis suppurativa is **enrolling faster than expected**, with topline data now anticipated in H2 2024[1](index=1&type=chunk) - ACELYRIN's goal is to advance programs across multiple autoimmune and inflammatory diseases to deliver transformative medicines for patients[2](index=2&type=chunk) [Full Year 2023 Financial Highlights](index=1&type=section&id=FY2023_Financial_Highlights) The company ended 2023 with a strong cash position of $721.3 million, despite increased R&D and G&A expenses driving a higher net loss Key Financial Highlights (YoY Comparison) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | Cash, cash equivalents and short-term marketable securities | $721,326 | $314,620 | +129.2% | | R&D Expenses | $355,886 | $55,632 | +540.0% | | G&A Expenses | $66,178 | $13,547 | +388.5% | | Net Loss | $(381,641) | $(64,772) | +489.2% | - R&D expense increase primarily resulted from izokibep program expansion and a **one-time $123.1 million in-process research and development (IPR&D) expense** related to the ValenzaBio acquisition[4](index=4&type=chunk) - G&A expense increase was primarily a result of expanding organizational capability to support the development of its broad portfolio[5](index=5&type=chunk) [Pipeline Updates and Milestones](index=2&type=section&id=Pipeline_Updates_Milestones) ACELYRIN is advancing its late-stage programs with key trial initiations and data readouts anticipated for izokibep and lonigutamab in 2024 - The **izokibep and lonigutamab programs** are at the forefront of development as next-generation approaches for psoriatic arthritis, hidradenitis suppurativa, and thyroid eye disease[6](index=6&type=chunk) [Upcoming Milestones](index=2&type=section&id=Upcoming_Milestones) - A Phase 2b/3 trial for lonigutamab in Thyroid Eye Disease, designed as the first of two registrational trials, is planned for initiation in H2 2024[10](index=10&type=chunk) - A confirmatory Phase 3 trial for izokibep in Psoriatic Arthritis is targeted for initiation by year-end 2024[10](index=10&type=chunk) - Topline data for the ongoing Phase 3 trial of izokibep in Hidradenitis Suppurativa are now expected in H2 2024[10](index=10&type=chunk) - Topline data for the ongoing Phase 2b/3 trial of izokibep in Noninfectious Uveitis are anticipated in H2 2024[10](index=10&type=chunk) [Recent Pipeline Highlights](index=2&type=section&id=Recent_Pipeline_Highlights) - Lonigutamab demonstrated **rapid improvements in proptosis and clinical activity score (CAS)** within three weeks in its Phase 1/2 TED trial[10](index=10&type=chunk) - Izokibep's Phase 2b/3 PsA trial **met the primary endpoint of ACR50 at 16 weeks** with high statistical significance and showed significant responses for high hurdles like ACR70 and PASI100[10](index=10&type=chunk) - Izokibep in HS showed **rapid, dose-ordered improvement** across multiple disease manifestations, with HiSCR100 consistently achieved in approximately one-third of patients on the 160 mg QW dose[10](index=10&type=chunk) - Izokibep's HS results demonstrated consistent improvement in resolution of abscesses, nodules, and draining tunnels, with **HiSCR100 achieved earlier than other IL-17A agents**[10](index=10&type=chunk)[11](index=11&type=chunk) [Corporate Information](index=3&type=section&id=Corporate_Information) The company announced key leadership appointments and provided detailed descriptions of its primary product candidates, Izokibep and Lonigutamab - Agnes Lee was recently appointed as **Senior Vice President, Investor Relations and Corporate Communications** and a member of the company's Senior Leadership Team[12](index=12&type=chunk) - Lynn Tetrault was appointed to **ACELYRIN's Board of Directors** in December 2023[13](index=13&type=chunk) [Leadership Updates](index=3&type=section&id=Leadership_Updates) - Agnes Lee was recently appointed as **Senior Vice President, Investor Relations and Corporate Communications** and a member of the company's Senior Leadership Team[12](index=12&type=chunk) - Lynn Tetrault was appointed to **ACELYRIN's Board of Directors** in December 2023[13](index=13&type=chunk) [Product Descriptions](index=3&type=section&id=Product_Descriptions) - Izokibep is a small protein therapeutic designed to inhibit IL-17A with **high potency and robust tissue penetration** due to its small molecular size[14](index=14&type=chunk) - Lonigutamab is a humanized IgG1 monoclonal antibody targeting the IGF-1 receptor, delivered subcutaneously, with **75-fold greater potency** in preclinical assays[15](index=15&type=chunk) [About ACELYRIN, INC.](index=3&type=section&id=About%20ACELYRIN%2C%20INC.) - ACELYRIN, INC is a late-stage clinical biopharma company focused on accelerating the development and commercialization of transformative medicines in immunology[16](index=16&type=chunk) - The company has two programs in late-stage clinical development: **Izokibep (IL-17A inhibitor)** and **Lonigutamab (anti-IGF-1R)**[16](index=16&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward_Looking_Statements) - This press release contains forward-looking statements related to the advancement of ACELYRIN's programs and anticipated development activities[18](index=18&type=chunk) - These statements are based on current plans and are subject to risks and uncertainties that may cause actual results to materially differ[18](index=18&type=chunk) [Financial Statements](index=5&type=section&id=Financial_Statements) The company's 2023 financials detail a significant increase in net loss, driven by higher operating expenses, alongside substantial growth in total assets - Net loss for the full year ended December 31, 2023, was **$381.6 million**, a significant increase from $64.8 million for 2022[5](index=5&type=chunk)[21](index=21&type=chunk) - Total assets increased to **$742.7 million** at December 31, 2023, from $319.9 million at December 31, 2022[23](index=23&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Consolidated_Statements_Operations_Comprehensive_Loss) Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Operating Expenses | 2023 | 2022 | 2021 | | :-------------------------------- | :--- | :--- | :--- | | Research and development | $355,886 | $55,632 | $38,230 | | General and administrative | $66,178 | $13,547 | $3,564 | | Total operating expenses | $422,064 | $69,179 | $41,794 | | Loss from operations | $(422,064) | $(69,179) | $(41,794) | | Change in fair value of derivative tranche liability | $10,291 | $487 | $- | | Interest income | $30,555 | $4,052 | $- | | Other expense, net | $(423) | $(132) | $(45) | | Net loss | $(381,641) | $(64,772) | $(41,839) | | Unrealized gain (loss) on short-term marketable securities, net | $248 | $(86) | $- | | Net loss per share attributable to common stockholders, basic and diluted | $(5.43) | $(41.59) | $(60.87) | | Weighted-average common shares outstanding, basic and diluted | 70,249,580 | 1,557,534 | 687,398 | [Selected Consolidated Balance Sheet Data](index=5&type=section&id=Selected_Consolidated_Balance_Sheet_Data) Selected Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | December 31, 2023 | December 31, 2022 | Change (YoY) | | :----------------- | :---------------- | :---------------- | :----------- | | Cash and cash equivalents | $218,097 | $267,110 | -18.3% | | Short-term marketable securities | $503,229 | $47,510 | +960.2% | | Total assets | $742,690 | $319,923 | +132.2% | | Total liabilities | $86,353 | $26,192 | +229.7% | | Accumulated deficit | $(488,719) | $(107,078) | +356.4% | [Company Contacts](index=5&type=section&id=Company_Contacts) This section provides contact information for investor relations and media inquiries for ACELYRIN, INC - Investor relations contact: investors@acelyrin.com[24](index=24&type=chunk) - Media contact: media@acelyrin.com[24](index=24&type=chunk)

Acelyrin Inc. (NASDAQ:SLRN) Q3 2023 Earnings Conference Call November 7, 2023 4:30 PM ET Company Participants Tyler Marciniak - Vice President, Investor Relations, Communications, Corporate Operations Shao-Lee Lin - Founder, Chief Executive Officer and Director Gil Labrucherie - Chief Financial Officer Conference Call Participants Yasmeen Rahimi - Analyst, Piper Sandler Emily Bodnar - Analyst, H.C. Wainwright and Company Akash Tewari - Analyst, Jefferies Tyler Van Buren - TD Cowen Vikram Purohit - Morgan St ...

Financial Highlights - Cash, cash equivalents, and short-term marketable securities totaled $788.4 million as of September 30, 2023[7] - Research and development expenses were $74.6 million for the third quarter of 2023, compared to $12.5 million for the same period in 2022[8] - General and administrative expenses were $19.9 million for the third quarter of 2023, compared to $2.9 million for the same period in 2022[8] - Net loss totaled $83.9 million for the third quarter of 2023, or $0.87 per share, compared to $14.4 million, or $8.17 per share, for the third quarter of 2022[8] - Total assets were $800.489 million as of September 30, 2023, compared to $319.923 million as of December 31, 2022[6] Clinical Program Updates - Top-line data from the global Phase 2b/3 trial for izokibep in PsA and proof-of-concept data for lonigutamab in thyroid eye disease are expected in the first quarter of 2024[7] - 46-week results from a Phase 2 trial of izokibep in PsA showed >75% achievement of ACR50, >50% achievement of ACR70, >70% achievement of PASI100, >80% resolution of enthesitis, and >50% achievement of Minimal Disease Activity (MDA)[7] - Approximately 25% of patients achieved HiSCR100 responses within 12 weeks in hidradenitis suppurativa trial[7] Leadership and Corporate Updates - Patricia Turney joined as Chief Technical Operations Officer[2] - Shephard (Shep) Mpofu joined as Senior Vice President of Development[7]

PART I FINANCIAL INFORMATION This section details the company's unaudited financial statements, management's analysis, market risks, and internal control effectiveness [Item 1. Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents ACELYRIN, INC.'s unaudited condensed consolidated financial statements, showing increased assets and a wider net loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $381,738 | $267,110 | | Short-term marketable securities | $406,693 | $47,510 | | **Total Assets** | **$800,489** | **$319,923** | | **Liabilities & Equity** | | | | Total Liabilities | $68,113 | $26,192 | | Total stockholders' equity (deficit) | $732,376 | $(102,862) | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $74,562 | $12,509 | $272,512 | $38,222 | | General and administrative | $19,861 | $2,887 | $44,440 | $8,145 | | **Loss from operations** | **$(94,423)** | **$(15,396)** | **$(316,952)** | **$(46,367)** | | **Net loss** | **$(83,940)** | **$(14,406)** | **$(286,429)** | **$(44,965)** | | Net loss per share | $(0.87) | $(8.17) | $(4.68) | $(31.66) | - The company completed its Initial Public Offering (IPO) on May 9, 2023, issuing **34.5 million shares** of common stock and receiving net proceeds of approximately **$573.6 million**[30](index=30&type=chunk) - On January 4, 2023, the company acquired ValenzaBio, Inc., adding lonigutamab and SLRN-517 to its portfolio, with the transaction accounted for as an asset acquisition[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the financial statements, covering significant accounting policies, acquisitions, and commitments - The acquisition of ValenzaBio was accounted for as an asset acquisition with a total purchase consideration of **$130.0 million**, expensing in-process research and development (IPR&D) assets valued at **$123.1 million** immediately[50](index=50&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - The company has significant licensing agreements with potential future milestone payments, including up to **$280.0 million** to Affibody for izokibep, up to **$489.5 million** to Pierre Fabre for lonigutamab, and up to **$726.3 million** to Novelty Nobility for SLRN-517[80](index=80&type=chunk)[87](index=87&type=chunk)[91](index=91&type=chunk) - Stock-based compensation expense increased significantly to **$31.0 million** for the nine months ended September 30, 2023, up from **$2.5 million** in the same period of 2022, driven by new option grants, RSU vesting, and acquisition-related expenses[138](index=138&type=chunk) - As of September 30, 2023, the company had cash, cash equivalents, and short-term marketable securities totaling **$788.4 million**, expected to fund the operating plan for at least the next 12 months[33](index=33&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses business strategy, financial performance, and liquidity, highlighting increased expenses and a strong post-IPO cash position [Results of Operations](index=41&type=section&id=Results%20of%20Operations) This section analyzes the company's operating expenses, detailing significant increases in R&D and G&A costs Comparison of Operating Expenses (in thousands) | Expense Category | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and Development | $272,512 | $38,222 | $234,290 | 613% | | General and Administrative | $44,440 | $8,145 | $36,295 | 446% | | **Total Operating Expenses** | **$316,952** | **$46,367** | **$270,585** | **584%** | - The **$234.3 million** increase in R&D expenses for the nine months ended Sep 30, 2023, was primarily driven by a one-time charge of **$133.1 million** for acquired IPR&D and license fees related to the ValenzaBio acquisition, and a **$77.2 million** increase in CRO and CMO expenses for advancing clinical trials[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - General and administrative expenses for the nine months ended Sep 30, 2023, increased by **$36.3 million**, mainly due to a **$17.9 million** increase in stock-based compensation (including **$5.5 million** for RSUs vested at IPO), higher personnel costs, and increased professional services costs associated with being a public company[196](index=196&type=chunk)[197](index=197&type=chunk) - In September 2023, the company announced that the primary endpoint in Part B of the Phase 2b/3 trial of izokibep in Hidradenitis Suppurativa (HS) did not meet statistical significance, potentially extending development timelines and increasing costs for the HS indication[171](index=171&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position and cash flow activities, emphasizing post-IPO capital strength - As of September 30, 2023, the company had **$788.4 million** in cash, cash equivalents, and short-term marketable securities, deemed sufficient to fund operations and capital expenditures for at least the next 12 months[203](index=203&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(96,074) | $(43,428) | | Net cash used in investing activities | $(355,138) | $(109,487) | | Net cash provided by financing activities | $565,840 | $274,613 | - Net cash from financing activities of **$565.8 million** in the first nine months of 2023 was primarily due to **$574.1 million** in net proceeds from the IPO[216](index=216&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risks include interest rate changes and foreign currency fluctuations, neither deemed materially impactful - The company is exposed to interest rate risk on its cash equivalents and short-term investments, but a hypothetical **10%** change in rates is not expected to have a material effect[226](index=226&type=chunk) - Operations are subject to foreign currency exchange risk as some R&D services are sourced from vendors outside the U.S., though these gains and losses have not been material to date[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses in internal financial reporting controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting[230](index=230&type=chunk) - Identified material weaknesses include a lack of sufficient professionals, an ineffective risk assessment process, and inadequate segregation of duties related to journal entries and account reconciliations[232](index=232&type=chunk) - The company is actively remediating these weaknesses by hiring additional accounting personnel, including a VP Controller and Director of Technical Accounting, and engaging a third-party firm for support[235](index=235&type=chunk)[236](index=236&type=chunk) PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other material information for the company [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect - As of the reporting date, there are no pending legal proceedings that are expected to materially impact the company[240](index=240&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks including clinical trial success, capital needs, competition, third-party reliance, and internal control weaknesses - The company's business is entirely dependent on the success of its clinical-stage product candidates, which face a lengthy, expensive, and uncertain development process, as highlighted by the failure of izokibep to meet its primary endpoint in the Part B HS trial[243](index=243&type=chunk)[251](index=251&type=chunk)[294](index=294&type=chunk) - The company has identified material weaknesses in its internal control over financial reporting, which could result in a material misstatement of financial statements and adversely affect investor confidence[247](index=247&type=chunk)[339](index=339&type=chunk) - The company will require substantial additional financing and faces risks that future clinical trial outcomes, such as the negative HS trial results, could hinder its ability to raise capital on acceptable terms[259](index=259&type=chunk)[260](index=260&type=chunk) - The company relies heavily on third-party licenses (e.g., from Affibody and Pierre Fabre) and third-party organizations for manufacturing (CMOs) and clinical trials (CROs), where failure to perform could significantly delay development programs[360](index=360&type=chunk)[457](index=457&type=chunk)[465](index=465&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=108&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) No material change in the planned use of IPO proceeds has occurred since the Final Prospectus disclosure - The planned use of proceeds from the company's IPO has not materially changed from what was disclosed in the Final Prospectus[509](index=509&type=chunk) [Item 5. Other Information](index=109&type=section&id=Item%205.%20Other%20Information) Several directors and officers adopted Rule 10b5-1 trading plans for future sales of company securities - During the quarter, several executives, including the CEO, COO, and CLO, adopted Rule 10b5-1 trading plans for the sale of company stock[512](index=512&type=chunk)[513](index=513&type=chunk)