Acelyrin, Inc. (NASDAQ:SLRN) Q2 2023 Earnings Conference Call August 14, 2023 4:30 PM ET Company Participants Tyler Marciniak - VP of Investor Relations, Communications, and Corporate Operations Shao-Lee Lin - Founder and Chief Executive Officer Paul Peloso - Chief Medical Officer Gil Labrucherie - Interim Chief Financial Officer Conference Call Participants Tyler Van Buren - TD Cowen Akash Tewari - Jefferies Vikram Purohit - Morgan Stanley Operator Good afternoon and welcome to the ACELYRIN, INC. Confere ...

Table of Contents x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 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 ACELYRIN, INC. (Exact name of registrant as specified in its charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Delaware 85-2406735 (S ...

[Special Note Regarding Forward-Looking Statements](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements concerning future operations and financial performance, which are subject to significant risks and uncertainties - The report contains forward-looking statements regarding future operations, financial position, business strategy, product candidates, clinical trials, regulatory submissions, and commercialization plans, which are subject to known and unknown risks and uncertainties[8](index=8&type=chunk)[9](index=9&type=chunk)[10](index=10&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and an increase in total liabilities and stockholders' deficit Balance Sheet Highlights | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Cash and cash equivalents | $289,194 | $267,110 | | Short-term marketable securities | $- | $47,510 | | Total current assets | $291,856 | $316,064 | | Total assets | $298,519 | $319,923 | | Accounts payable | $10,770 | $5,947 | | Accrued R&D expenses | $14,087 | $5,717 | | Severance liability | $3,280 | $- | | Total current liabilities | $33,664 | $15,901 | | Total liabilities | $45,278 | $26,192 | | Accumulated deficit | $(283,528) | $(107,078) | | Total stockholders' deficit | $(143,352) | $(102,862) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The statements reveal a significant increase in operating expenses and net loss, driven by higher R&D costs Statement of Operations Highlights | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Research and development | $167,920 | $13,003 | $154,917 | 1191.4% | | General and administrative | $11,913 | $3,082 | $8,831 | 286.5% | | Total operating expenses | $179,833 | $16,085 | $163,748 | 1018.0% | | Loss from operations | $(179,833) | $(16,085) | $(163,748) | 1018.0% | | Interest income | $3,299 | $- | $3,299 | 100% | | Net loss | $(176,450) | $(16,085) | $(160,365) | 997.0% | | Net loss per share, basic and diluted | $(8.61) | $(17.89) | $9.28 | -51.9% | | Weighted-average common shares outstanding | 20,492,101 | 899,319 | 19,592,782 | 2178.6% | [Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Deficit) This statement details changes in equity, including the impact of the ValenzaBio acquisition and net loss Changes in Stockholders' Deficit | Metric | Balance at Dec 31, 2022 (in thousands) | ValenzaBio Acquisition (in thousands) | Stock-based Compensation (in thousands) | Net Loss (in thousands) | Unrealized Gain (in thousands) | Balance at Mar 31, 2023 (in thousands) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | :---------------------- | :----------------------------- | :------------------------------------ | | Redeemable Convertible Preferred Stock | $396,593 | $- | $- | $- | $- | $396,593 | | Common Stock | $- | $- | $- | $- | $- | $- | | Additional Paid-in Capital | $4,302 | $128,735 | $7,139 | $- | $- | $140,176 | | Accumulated Deficit | $(107,078) | $- | $- | $(176,450) | $- | $(283,528) | | Accumulated Other Comprehensive Loss | $(86) | $- | $- | $- | $86 | $- | | Total Stockholders' Deficit | $(102,862) | $128,735 | $7,139 | $(176,450) | $86 | $(143,352) | - The company issued **18,885,731 shares** of Class A Common Stock as consideration for the ValenzaBio acquisition, valued at **$128.7 million**[21](index=21&type=chunk)[28](index=28&type=chunk)[51](index=51&type=chunk) - Stock-based compensation expense for the three months ended March 31, 2023, was **$7.1 million**[21](index=21&type=chunk)[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statement highlights increased cash used in operations and cash provided by investing activities Cash Flow Summary | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(25,329) | $(14,572) | | Net cash provided by investing activities | $47,542 | $- | | Net cash (used in) provided by financing activities | $(129) | $124,974 | | Net increase in cash and cash equivalents | $22,084 | $110,402 | | Cash and cash equivalents at end of period | $289,194 | $212,644 | - Cash used in operating activities increased by **$10.8 million**, from $14.6 million in Q1 2022 to **$25.3 million** in Q1 2023, primarily due to the increased net loss and acquisition-related expenses[24](index=24&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Investing activities provided **$47.5 million** in cash in Q1 2023, mainly from **$47.8 million** in maturities of short-term marketable securities and **$10.0 million** cash acquired from ValenzaBio, partially offset by **$10.0 million** paid for the Pierre Fabre license[24](index=24&type=chunk)[201](index=201&type=chunk) Notes to the Condensed Consolidated Financial Statements [Note 1. Description of Business, Organization and Liquidity](index=10&type=section&id=1.%20Description%20of%20Business%2C%20Organization%20and%20Liquidity) This note describes the company's business focus, recent acquisition, and financial standing, including its IPO - ACELYRIN, INC. is a late-stage clinical biopharma company focused on identifying, acquiring, and accelerating the development and commercialization of transformative medicines, incorporated in Delaware on July 27, 2020[26](index=26&type=chunk) - The company acquired ValenzaBio, Inc. on January 4, 2023, adding lonigutamab and SLRN-517 to its portfolio[28](index=28&type=chunk) - The company effected a **1.972-for-1 reverse stock split** in April 2023 and closed its IPO on May 9, 2023, issuing **34,500,000 shares** at $18.00 per share, generating net proceeds of approximately **$573.7 million**[29](index=29&type=chunk)[30](index=30&type=chunk) Financial and Liquidity Summary | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net loss | $(176.5) | $(16.1) | | Accumulated deficit (as of March 31, 2023) | $(283.5) | N/A | | Cash used in operating activities | $(25.3) | $(14.6) | | Cash and cash equivalents (as of March 31, 2023) | $289.2 | N/A | | Net IPO proceeds (May 9, 2023) | $573.7 | N/A | [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and policies applied in preparing the financial statements - The financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim financial reporting, consolidating ACELYRIN, INC. and its wholly-owned subsidiary, WH2, LLC[35](index=35&type=chunk)[36](index=36&type=chunk) - The company operates as a single operating segment, with its CEO reviewing financial information on an aggregate basis[39](index=39&type=chunk) - The company adopted ASU 2016-02, "Leases (Topic 842)" as of January 1, 2022, recognizing right-of-use assets and lease liabilities for operating leases[42](index=42&type=chunk) - The company capitalizes certain legal, accounting, and other third-party fees directly associated with in-process equity financing as deferred offering costs; as of March 31, 2023, deferred IPO offering costs were **$3.1 million**[46](index=46&type=chunk)[73](index=73&type=chunk) [Note 3. ValenzaBio Acquisition](index=13&type=section&id=3.%20ValenzaBio%20Acquisition) This note details the accounting treatment and financial impact of the ValenzaBio asset acquisition - The acquisition of ValenzaBio, Inc. closed on January 4, 2023, and was accounted for as an asset acquisition, adding lonigutamab and SLRN-517 to the company's portfolio[28](index=28&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) ValenzaBio Purchase Consideration | Purchase Consideration Component | Amount (in thousands) | | :------------------------------- | :-------------------- | | Issued Class A Common Stock | $128,735 | | Transaction costs | $1,271 | | Cash | $8 | | **Total Purchase Consideration** | **$130,014** | ValenzaBio Net Assets Acquired | Acquired Asset/Liability | Amount (in thousands) | | :----------------------- | :-------------------- | | Cash | $11,369 | | Prepaid expenses and other current assets | $2,074 | | In-process research and development assets | $123,057 | | Accounts payable | $(1,628) | | Accrued research and development expenses | $(4,805) | | Accrued compensation and other current liabilities | $(53) | | **Total Net Asset Acquired** | **$130,014** | - The acquired IPR&D assets (lonigutamab at **$114.8 million** and SLRN-517 at **$8.2 million**) were expensed as research and development costs (**$123.1 million**) in January 2023, as they had no alternative future use[56](index=56&type=chunk) [Note 4. Fair Value Measurements](index=15&type=section&id=4.%20Fair%20Value%20Measurements) This note explains the methodology for measuring financial instruments at fair value across a three-tier hierarchy - The company's financial instruments are categorized into a three-tier fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[63](index=63&type=chunk)[64](index=64&type=chunk) Fair Value of Financial Instruments | Financial Instrument | Fair Value as of March 31, 2023 (in thousands) | Level | | :------------------- | :------------------------------------------ | :---- | | Money market funds | $258,227 | 1 | | Derivative tranche liability | $10,144 | 3 | - The derivative tranche liability, a Level 3 financial liability, was estimated using a probability-weighted model with a **75% probability** of achieving specified conditions, a Series C preferred stock fair value of **$12.8180**, and a **25% discount rate** as of March 31, 2023[66](index=66&type=chunk)[68](index=68&type=chunk) [Note 5. Available-For-Sale Marketable Securities](index=16&type=section&id=5.%20Available-For-Sale%20Marketable%20Securities) This note provides details on the composition and fair value of the company's marketable securities portfolio Marketable Securities (March 31, 2023) | Security Type | Amortized Cost (Mar 31, 2023, in thousands) | Unrealized Loss (Mar 31, 2023, in thousands) | Estimated Fair Value (Mar 31, 2023, in thousands) | | :------------ | :---------------------------------------- | :------------------------------------------- | :------------------------------------------------ | | Money market funds | $258,227 | $- | $258,227 | | **Total** | **$258,227** | **$-** | **$258,227** | Marketable Securities (December 31, 2022) | Security Type | Amortized Cost (Dec 31, 2022, in thousands) | Unrealized Loss (Dec 31, 2022, in thousands) | Estimated Fair Value (Dec 31, 2022, in thousands) | | :------------ | :---------------------------------------- | :------------------------------------------- | :------------------------------------------------ | | Money market funds | $238,223 | $- | $238,223 | | U.S. Government bonds | $25,506 | $(47) | $25,459 | | U.S. Treasury obligations | $11,430 | $(26) | $11,404 | | Corporate debt obligations | $2,145 | $(4) | $2,141 | | Federal agency obligations | $8,515 | $(9) | $8,506 | | **Total** | **$285,819** | **$(86)** | **$285,733** | [Note 6. Consolidated Balance Sheet Components](index=17&type=section&id=6.%20Consolidated%20Balance%20Sheet%20Components) This note provides a detailed breakdown of specific current and non-current assets and liabilities Prepaid Expenses and Other Current Assets | Prepaid Expenses and Other Current Assets | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------------------------- | :----------------------------- | :------------------------------ | | Prepaid research and development expenses | $1,258 | $682 | | Prepaid other services | $689 | $288 | | Prepaid insurance and other current assets | $465 | $86 | | Research and development credit receivable | $250 | $250 | | Interest receivable | $- | $138 | | **Total** | **$2,662** | **$1,444** | Prepaid Expenses and Other Assets, Non-Current | Prepaid Expenses and Other Assets, Non-Current | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------------- | :----------------------------- | :------------------------------ | | Deferred IPO offering costs | $3,082 | $774 | | Prepaid research and development expenses, non-current | $1,977 | $1,964 | | Security deposits | $34 | $- | | Acquisition transaction costs | $- | $1,121 | | **Total** | **$5,093** | **$3,859** | Accrued Compensation and Other Current Liabilities | Accrued Compensation and Other Current Liabilities | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------------------- | :----------------------------- | :------------------------------ | | Accrued professional service fees | $4,440 | $808 | | Accrued compensation | $930 | $3,068 | | Other accrued expenses and current liabilities | $157 | $361 | | **Total** | **$5,527** | **$4,237** | [Note 7. Significant Agreements](index=18&type=section&id=7.%20Significant%20Agreements) This note summarizes key licensing and collaboration agreements, including financial obligations and terms - Under the Affibody Agreement, ACELYRIN licensed worldwide rights to izokibep, paying **$25.0 million** upfront and owing up to **$280.0 million** in milestones plus royalties[27](index=27&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) - Upon the ValenzaBio acquisition, ACELYRIN assumed the Pierre Fabre Agreement for lonigutamab, paying a **$10.0 million** license fee and owing up to **$489.5 million** in milestones plus royalties[82](index=82&type=chunk)[84](index=84&type=chunk)[86](index=86&type=chunk) - Through ValenzaBio, ACELYRIN also assumed the Novelty License Agreement for SLRN-517, with obligations for up to **$726.3 million** in milestones plus tiered royalties[87](index=87&type=chunk)[88](index=88&type=chunk) [Note 8. Commitments and Contingent Liabilities](index=20&type=section&id=8.%20Commitments%20and%20Contingent%20Liabilities) This note discloses the company's contractual commitments, including lease obligations and potential milestone payments - The company has commitments for milestones and royalties under license agreements, but none were probable or accrued as of March 31, 2023[91](index=91&type=chunk) - In January 2023, the company entered a 65-month lease for office space, resulting in a **$1.3 million** right-of-use asset and operating lease liability[93](index=93&type=chunk)[94](index=94&type=chunk) Operating Lease Liabilities Maturity Analysis | Operating Lease Liabilities Maturity Analysis (as of March 31, 2023) | Amount (in thousands) | | :--------------------------------------------------- | :-------------------- | | 2023 (remainder of the year) | $26 | | 2024 | $375 | | 2025 | $386 | | 2026 | $397 | | 2027 | $409 | | Thereafter | $280 | | **Total future lease payments** | **$1,873** | | Less imputed interest | $(558) | | **Total operating lease liability balance** | **$1,315** | [Note 9. Redeemable Convertible Preferred Stock](index=21&type=section&id=9.%20Redeemable%20Convertible%20Preferred%20Stock) This note details the terms, issuance, and carrying value of the company's various series of preferred stock - In 2022, the company issued **$125.0 million** of Series B preferred stock and **$150.0 million** of Series C preferred stock[99](index=99&type=chunk)[100](index=100&type=chunk) Preferred Stock Summary (March 31, 2023) | Preferred Stock Series | Shares Authorized | Shares Issued and Outstanding (as of Mar 31, 2023, in thousands) | Aggregate Liquidation Preference (in thousands) | Net Carrying Value (in thousands) | | :--------------------- | :---------------- | :------------------------------------------------------------- | :---------------------------------------------- | :-------------------------------- | | Series A | 8,000,000 | 4,056,795 | $8,000 | $7,916 | | Series B | 48,230,900 | 24,457,846 | $250,000 | $249,678 | | Series C | 48,230,736 | 12,228,881 | $150,000 | $138,999 | | **Total** | **104,461,636** | **40,743,522** | **$408,000** | **$396,593** | - All redeemable convertible preferred stock converted into Class A Common Stock immediately prior to the IPO closing on May 9, 2023, and the Series C Second Tranche Closing was terminated[102](index=102&type=chunk) [Note 10. Derivative Tranche Liability](index=23&type=section&id=10.%20Derivative%20Tranche%20Liability) This note describes the nature and valuation of the derivative liability associated with future stock issuance obligations - The company had a derivative tranche liability of **$10.1 million** as of March 31, 2023, representing an obligation to issue additional Series C preferred stock[113](index=113&type=chunk) - The fair value of the derivative tranche liability was estimated using a probability-weighted model, with a **75% probability** of achieving specified conditions as of March 31, 2023[68](index=68&type=chunk)[112](index=112&type=chunk) - The Series C Second Tranche Closing and the associated derivative tranche liability were terminated upon the IPO closing on May 9, 2023[111](index=111&type=chunk)[113](index=113&type=chunk) [Note 11. Common Stock](index=23&type=section&id=11.%20Common%20Stock) This note provides information on the authorized and outstanding shares of common stock and shares reserved for future issuance - As of March 31, 2023, the company was authorized to issue **172,709,973 shares** of Class A Common Stock and **96,461,636 shares** of Class B Common Stock[114](index=114&type=chunk) Shares Reserved for Future Issuance | Shares Reserved for Future Issuance | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Redeemable convertible preferred stock | 40,743,522 | 40,743,522 | | Outstanding stock options | 5,554,611 | 5,036,946 | | Options assumed upon ValenzaBio acquisition | 1,249,811 | - | | Outstanding restricted stock units | 1,107,213 | 1,107,213 | | Shares available for future grants under Equity Incentive Plan | 1,661,207 | 1,570,353 | | **Total shares reserved** | **50,316,364** | **48,458,034** | - Immediately prior to the IPO closing on May 9, 2023, all Class A Common Stock was reclassified into common stock, and no Class B Common Stock was outstanding as of March 31, 2023[117](index=117&type=chunk) [Note 12. Equity Incentive Plan](index=24&type=section&id=12.%20Equity%20Incentive%20Plan) This note details the company's stock-based compensation plans, including option activity and related expenses - The company granted stock-based awards under the 2020 Stock Option Plan, reserving **8,842,254 shares** of common stock for issuance as of March 31, 2023[121](index=121&type=chunk) Stock Option Activity | Stock Option Activity | Number of Options (as of Mar 31, 2023) | Weighted Average Exercise Price Per Share | | :-------------------- | :------------------------------------- | :---------------------------------------- | | Outstanding at Dec 31, 2022 | 5,036,946 | $4.7872 | | Options granted | 558,182 | $7.2260 | | Options canceled/forfeited/expired | (40,517) | $5.8766 | | **Outstanding at Mar 31, 2023** | **5,554,611** | **$5.0243** | | Exercisable at Mar 31, 2023 | 635,778 | $3.1325 | Stock-Based Compensation Expense | Stock-Based Compensation Expense (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Research and development expenses | $3,765 | $240 | | General and administrative expenses | $3,374 | $1,370 | | **Total stock-based compensation expense** | **$7,139** | **$1,610** | - The company recognized **$4.9 million** in stock-based compensation expense related to assumed ValenzaBio options and **$0.9 million** for unvested options and RSAs net-settled at the acquisition closing[128](index=128&type=chunk)[131](index=131&type=chunk) [Note 13. Related Party Transactions](index=27&type=section&id=13.%20Related%20Party%20Transactions) This note discloses any transactions between the company and its related parties - During Q1 2022, the company reimbursed an investor **$10,000** for Series B Stock issuance costs[132](index=132&type=chunk) [Note 14. Net Loss Per Share Attributable to Common Stockholders](index=27&type=section&id=14.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This note explains the calculation of basic and diluted net loss per share Net Loss Per Share Calculation | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss (in thousands) | $(176,450) | $(16,085) | | Weighted-average common shares outstanding, basic and diluted | 20,492,101 | 899,319 | | **Net loss per share, basic and diluted** | **$(8.61)** | **$(17.89)** | Potentially Dilutive Securities Excluded | Potentially Dilutive Securities Excluded | As of March 31, 2023 | As of March 31, 2022 | | :--------------------------------------- | :------------------- | :------------------- | | Redeemable convertible preferred stock | 40,743,522 | 28,514,641 | | Common stock subject to repurchase | 473,290 | 1,832,613 | | Outstanding options to purchase common stock | 5,554,611 | 1,907,163 | | Outstanding options to purchase common stock assumed upon ValenzaBio acquisition | 1,249,811 | - | | Unvested RSUs outstanding | 1,107,213 | 275,151 | | **Total** | **49,128,447** | **32,529,568** | [Note 15. Income Taxes](index=27&type=section&id=15.%20Income%20Taxes) This note describes the company's income tax position, including its effective tax rate and deferred tax assets - The company did not record an income tax provision for Q1 2023 or Q1 2022[134](index=134&type=chunk) - A **100% valuation allowance** is maintained on total deferred tax assets, resulting in a **0% effective tax rate**[134](index=134&type=chunk) [Note 16. Subsequent Events](index=27&type=section&id=16.%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - In April 2023, the company granted options for **218,505 shares** under the 2020 Plan and approved grants for **2,278,546 stock options** under the new 2023 Plan, effective upon IPO[135](index=135&type=chunk)[136](index=136&type=chunk) - A **1.972-for-1 reverse stock split** was effected in April 2023[138](index=138&type=chunk) - The IPO closed on May 9, 2023, generating approximately **$573.7 million** in net proceeds from the sale of **34,500,000 common shares** at $18.00 per share[30](index=30&type=chunk)[139](index=139&type=chunk) - The company adopted the 2023 Equity Incentive Plan and 2023 Employee Stock Purchase Plan in April 2023, reserving **18,920,846** and **900,000** shares, respectively[140](index=140&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=29&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial condition, results of operations, key performance factors, and future outlook [Overview](index=29&type=section&id=Overview) The company is a late-stage clinical biopharma focused on developing transformative medicines for immunological indications - ACELYRIN is a late-stage clinical biopharma company focused on identifying, acquiring, and accelerating the development and commercialization of transformative medicines, particularly for immunological indications[143](index=143&type=chunk) - The company's lead product candidate, izokibep, is in development for multiple immunological indications, while lonigutamab and SLRN-517 are in Phase 1/2 trials[145](index=145&type=chunk) Financial Snapshot | Metric | Three Months Ended March 31, 2023 (in millions) | | :----- | :------------------------------------------ | | Net loss | $(176.4) | | Accumulated deficit (as of March 31, 2023) | $(283.5) | | Cash and cash equivalents (as of March 31, 2023) | $289.2 | | Net IPO proceeds (May 9, 2023) | $573.7 | - The Q1 2023 net loss includes **$123.1 million** for acquired in-process R&D assets and a **$10.0 million** license fee payment related to the ValenzaBio acquisition[148](index=148&type=chunk) [Macroeconomic Trends and the Impact of the COVID-19 Pandemic](index=31&type=section&id=Macroeconomic%20Trends%20and%20the%20Impact%20of%20the%20COVID-19%20Pandemic) The company monitors macroeconomic conditions and the COVID-19 pandemic, which have not yet materially impacted operations - The company monitors macroeconomic trends and the COVID-19 pandemic, which have not yet had a material financial statement impact or business disruption[151](index=151&type=chunk)[154](index=154&type=chunk) - Negative macroeconomic conditions could impact future financing, and the COVID-19 pandemic could disrupt CMOs, CROs, and clinical trial sites, potentially delaying clinical programs[152](index=152&type=chunk)[153](index=153&type=chunk) [ValenzaBio Acquisition](index=31&type=section&id=ValenzaBio%20Acquisition) The acquisition of ValenzaBio added two product candidates to the company's portfolio - The acquisition of ValenzaBio, Inc. closed on January 4, 2023, adding lonigutamab and SLRN-517 to the company's portfolio[155](index=155&type=chunk) - Consideration included **18,885,731 shares** of common stock issued to ValenzaBio stockholders and assumed options for **1,249,811 shares** of common stock, which vested on March 31, 2023[155](index=155&type=chunk) [License and Collaboration Agreements](index=31&type=section&id=License%20and%20Collaboration%20Agreements) The company's product pipeline is built upon key in-licensing agreements with third parties - The Affibody Agreement grants exclusive worldwide rights to izokibep for inflammatory and autoimmune disorders, with ACELYRIN retaining final decision-making authority for global development[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - The Pierre Fabre Agreement, assumed via ValenzaBio acquisition, provides exclusive worldwide licenses for lonigutamab for non-oncology indications[159](index=159&type=chunk)[160](index=160&type=chunk) - The Novelty Nobility License Agreement, also assumed via ValenzaBio, grants a worldwide exclusive license for SLRN-517 as a therapeutic treatment[161](index=161&type=chunk) Components of Results of Operations [Research and Development](index=32&type=section&id=Research%20and%20Development) R&D expenses consist of costs incurred for technology acquisition and clinical development of product candidates - R&D expenses are expensed as incurred and include costs for acquiring technology, clinical development (CROs, CMOs), and professional consulting services[165](index=165&type=chunk) - Internal R&D costs cover personnel-related expenses and allocated facilities/overhead[165](index=165&type=chunk) - R&D expenses are projected to increase significantly due to advancing product candidates through clinical trials, seeking regulatory approval, and expanding the product pipeline[166](index=166&type=chunk) [General and Administrative](index=34&type=section&id=General%20and%20Administrative) G&A expenses include personnel costs, legal services, and other corporate overhead - G&A expenses are mainly personnel-related costs, legal and external consulting services, and allocated overhead[171](index=171&type=chunk) - The company anticipates a substantial increase in G&A expenses due to operational expansion, preparation for commercialization, and costs associated with public company compliance[172](index=172&type=chunk) [Other Income, Net](index=34&type=section&id=Other%20Income%2C%20Net) Other income primarily consists of interest income from marketable securities and changes in derivative liability value - Other income (expense), net, is primarily composed of interest income, net amortization/accretion on marketable securities, foreign currency transaction loss, and gain on derivative tranche liability remeasurement[173](index=173&type=chunk) Results of Operations [Comparison of the Three Months Ended March 31, 2023 and 2022](index=35&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) This section compares operating results between Q1 2023 and Q1 2022, highlighting significant variances Operating Results Comparison | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Research and development | $167,920 | $13,003 | $154,917 | 1191.4% | | General and administrative | $11,913 | $3,082 | $8,831 | 286.5% | | Total operating expenses | $179,833 | $16,085 | $163,748 | 1018.0% | | Loss from operations | $(179,833) | $(16,085) | $(163,748) | 1018.0% | | Interest income | $3,299 | $- | $3,299 | 100% | | Net loss | $(176,450) | $(16,085) | $(160,365) | 997.0% | [Research and Development Expenses](index=35&type=section&id=Research%20and%20Development%20Expenses) R&D expenses increased dramatically due to acquired IPR&D assets and expanded clinical development activities R&D Expense Breakdown | R&D Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | License fees and acquired in-process R&D expenses | $133,057 | $- | $133,057 | 100% | | CRO, CMO and Affibody transition services | $23,040 | $11,190 | $11,850 | 106% | | Professional consulting services | $5,065 | $136 | $4,929 | * | | Personnel-related costs | $6,393 | $1,669 | $4,724 | 283% | | Facilities and overhead costs | $365 | $8 | $357 | * | | **Total R&D expense** | **$167,920** | **$13,003** | **$154,917** | * | - The **$133.1 million** increase in license fees and acquired IPR&D expenses includes **$123.1 million** for lonigutamab and SLRN-517 assets and **$10.0 million** for the Pierre Fabre Agreement amendment[178](index=178&type=chunk) - CRO and CMO expenses for izokibep development increased by **$14.4 million**, and new expenses of **$2.3 million** for lonigutamab and **$1.3 million** for SLRN-517 were incurred in Q1 2023[179](index=179&type=chunk)[181](index=181&type=chunk) - Personnel-related costs increased by **$4.7 million**, including **$2.5 million** in severance obligation expense and **$1.7 million** in salaries/benefits due to increased headcount[183](index=183&type=chunk) [General and Administrative Expenses](index=37&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses rose due to increased headcount, stock-based compensation, and professional services supporting growth - G&A expenses increased by **$8.8 million** to **$11.9 million** in Q1 2023[185](index=185&type=chunk) - This increase includes **$2.7 million** in stock-based compensation and **$2.4 million** in severance obligation expense related to the ValenzaBio acquisition[186](index=186&type=chunk) - Employee salaries and benefits increased by **$1.5 million** due to a higher headcount (from 7 to 22 employees)[186](index=186&type=chunk) - Professional consulting services expenses increased by **$2.8 million** to **$3.4 million**, supporting company growth and business development[186](index=186&type=chunk) [Total Other Income, Net](index=37&type=section&id=Total%20Other%20Income%2C%20Net) Other income was driven by interest from marketable securities and a gain on a derivative liability - Total other income, net, for Q1 2023 included **$3.3 million** in interest income from marketable securities[187](index=187&type=chunk) - A **$0.1 million** gain was recognized from the change in fair value of the Series C derivative tranche liability, which was terminated upon the IPO closing in May 2023[188](index=188&type=chunk)[189](index=189&type=chunk) Liquidity, Capital Resources and Capital Requirements [Sources of Liquidity](index=38&type=section&id=Sources%20of%20Liquidity) The company has funded operations through preferred stock sales and its recent IPO - The company has primarily funded operations through sales of redeemable convertible preferred stock and its May 2023 IPO[190](index=190&type=chunk) Liquidity Position | Metric | As of March 31, 2023 (in millions) | Net IPO Proceeds (May 2023, in millions) | | :----- | :--------------------------------- | :--------------------------------------- | | Cash and cash equivalents | $289.2 | N/A | | Net IPO proceeds | N/A | $573.7 | - Management estimates that existing cash and cash equivalents, including IPO proceeds, will be sufficient to fund operating and capital expenditure requirements for at least the next 12 months[150](index=150&type=chunk)[191](index=191&type=chunk) [Future Funding Requirements](index=38&type=section&id=Future%20Funding%20Requirements) The company anticipates significant future expenses and will require additional capital to fund its long-term plans - The company expects significant and increasing expenses for the foreseeable future, primarily for R&D, corporate infrastructure expansion, and potential commercialization[192](index=192&type=chunk) - Future funding requirements are dependent on factors such as the timing and progress of preclinical/clinical development, regulatory approvals, and manufacturing costs[194](index=194&type=chunk)[195](index=195&type=chunk) - The company plans to finance operations through equity offerings, debt financings, or other capital sources like collaborations, with risks including dilution of ownership or unfavorable terms[196](index=196&type=chunk) [Cash Flows](index=39&type=section&id=Cash%20Flows) This section analyzes the changes in cash flows from operating, investing, and financing activities Cash Flow Summary | Cash Flow Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------- | :------------------------------------------ | :------------------------------------------ | | Operating activities | $(25,329) | $(14,572) | | Investing activities | $47,542 | $- | | Financing activities | $(129) | $124,974 | | **Net increase in cash and cash equivalents** | **$22,084** | **$110,402** | - Net cash used in operating activities increased to **$25.3 million** in Q1 2023, primarily due to the net loss of **$176.5 million**, partially offset by non-cash adjustments like **$123.1 million** for acquired IPR&D assets[198](index=198&type=chunk)[199](index=199&type=chunk) - Net cash provided by investing activities was **$47.5 million** in Q1 2023, driven by **$47.8 million** from marketable securities maturities and **$10.0 million** cash acquired from ValenzaBio[201](index=201&type=chunk) - Net cash used in financing activities was **$0.1 million** in Q1 2023 for IPO costs, a significant decrease from **$125.0 million** provided in Q1 2022 from preferred stock issuance[202](index=202&type=chunk) [Contractual Obligations and Commitments](index=40&type=section&id=Contractual%20Obligations%20and%20Commitments) The company's primary commitments relate to operating leases and potential milestone payments under license agreements - The company's agreements with suppliers, CROs, and CMOs generally provide for termination with less than one-year notice, making non-cancelable obligations immaterial[203](index=203&type=chunk) - Milestone, royalty, and other payments under existing license and collaboration agreements were not probable to occur as of March 31, 2023, and December 31, 2022[204](index=204&type=chunk) [Leases](index=41&type=section&id=Leases) The company has a multi-year operating lease for its office space - The company leased **10,012 square feet** of office space in January 2023 for a term of 65 months[205](index=205&type=chunk) Operating Lease Liabilities Maturity Analysis | Operating Lease Liabilities Maturity Analysis (as of March 31, 2023) | Amount (in thousands) | | :--------------------------------------------------- | :-------------------- | | 2023 (remainder of the year) | $26 | | 2024 | $375 | | 2025 | $386 | | 2026 | $397 | | 2027 | $409 | | Thereafter | $280 | | **Total future lease payments** | **$1,873** | | Less imputed interest | $(558) | | **Total operating lease liability balance** | **$1,315** | [Recently Issued Accounting Pronouncements](index=41&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) No new accounting pronouncements have materially impacted the company's financial statements - No new accounting pronouncements were adopted, and no material changes to significant accounting policies occurred during Q1 2023[34](index=34&type=chunk)[48](index=48&type=chunk) - As an "emerging growth company," the company has elected to use the extended transition period for complying with new or revised accounting standards[47](index=47&type=chunk)[209](index=209&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) There were no material changes to the company's critical accounting policies during the period - No material changes to critical accounting policies and estimates occurred during the three months ended March 31, 2023[207](index=207&type=chunk) [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[208](index=208&type=chunk) [Emerging Growth Company Status](index=41&type=section&id=Emerging%20Growth%20Company%20Status) The company qualifies as an emerging growth company, allowing for reduced reporting requirements - The company is an "emerging growth company" under the JOBS Act, benefiting from reduced reporting requirements and an extended transition period for new accounting standards[209](index=209&type=chunk)[463](index=463&type=chunk)[465](index=465&type=chunk) - This status may last up to five years, or until the company becomes a "large accelerated filer" or generates **$1.24 billion** in annual gross revenue[464](index=464&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily from interest rate and foreign currency fluctuations [Interest Rate and Market Risk](index=41&type=section&id=Interest%20Rate%20and%20Market%20Risk) The company's primary market risk exposure is related to interest rate changes on its cash and investments - The company is exposed to market risks from changes in interest rates on cash equivalents and short-term investments[210](index=210&type=chunk) - A hypothetical **10%** increase or decrease in interest rates is not expected to have a material effect on the company's financial statements[210](index=210&type=chunk) [Foreign Currency Exchange Fluctuations](index=41&type=section&id=Foreign%20Currency%20Exchange%20Fluctuations) The company has exposure to foreign currency risk from payments to international vendors - The company utilizes R&D service vendors outside the U.S., leading to exposure to foreign currency exchange rate fluctuations[211](index=211&type=chunk) - Foreign currency transaction gains and losses have not been material, and a hypothetical **10%** change in exchange rates is not expected to have a material effect on financial statements[211](index=211&type=chunk) [Effects of Inflation](index=42&type=section&id=Effects%20of%20Inflation) Inflation has not had a material impact on the company's operations to date - Inflation affects the company by increasing labor and R&D costs[212](index=212&type=chunk) - Inflation has not had a material effect on the company's business, results of operations, or financial condition[212](index=212&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=42&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls were not effective due to material weaknesses in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed not effective as of the end of the period - Disclosure controls and procedures were deemed **not effective** as of March 31, 2023[214](index=214&type=chunk) - Material weaknesses identified include insufficient accounting professionals, an ineffective risk assessment process, and inadequate segregation of duties for journal entries and account reconciliations[216](index=216&type=chunk) - These material weaknesses could result in a material misstatement of financial statements not being prevented or detected in a timely manner[217](index=217&type=chunk) [Remediation Plans](index=42&type=section&id=Remediation%20Plans) The company is taking steps to remediate the identified material weaknesses - Remediation efforts include hiring additional accounting personnel, such as a VP and Controller and a Director of Technical Accounting[219](index=219&type=chunk) - The company is implementing a formal risk assessment process and designing sufficient controls over segregation of duties[219](index=219&type=chunk) - Material weaknesses will not be considered remediated until controls are designed, implemented, and tested as effective over a sufficient period[219](index=219&type=chunk) [Changes in Internal Control over Financial Reporting](index=43&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to internal controls occurred during the quarter - No material changes in internal control over financial reporting occurred during Q1 2023[220](index=220&type=chunk) [Limitations on the Effectiveness of Controls](index=43&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) All control systems have inherent limitations and cannot provide absolute assurance - Control systems have inherent limitations and provide only **reasonable, not absolute, assurance** of achieving control objectives[221](index=221&type=chunk) - Limitations include faulty judgments, simple errors, and circumvention by individual acts, collusion, or unauthorized overrides[221](index=221&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=44&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings - The company is not aware of any pending legal proceedings that could have a material adverse effect on its financial position, results of operations, or cash flows[223](index=223&type=chunk) [ITEM 1A. RISK FACTORS](index=44&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details significant risks related to the company's financial position, product development, operations, and stock ownership [Risk Factor Summary](index=44&type=section&id=Risk%20Factor%20Summary) The company faces substantial risks as a clinical-stage entity with a limited history and significant losses - The company is a clinical-stage biopharma with a limited operating history, no approved products, and **substantial, increasing losses**[226](index=226&type=chunk) - Preclinical and clinical development is lengthy, expensive, and uncertain, with no guarantee of successful completion or commercialization of product candidates[226](index=226&type=chunk) - The company requires **substantial additional financing**, and failure to obtain it could delay or terminate product development[226](index=226&type=chunk) - **Material weaknesses** in internal control over financial reporting have been identified, which could affect financial reporting accuracy and investor confidence[230](index=230&type=chunk) [Risks Related to Our Financial Position and Need for Capital](index=45&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Capital) The company has a history of losses, expects increasing expenses, and requires significant additional capital - The company is a clinical-stage biopharma with no products approved for commercial sale and has incurred substantial losses since inception, with a net loss of **$176.4 million** for Q1 2023 and an accumulated deficit of **$283.5 million**[228](index=228&type=chunk)[229](index=229&type=chunk) - The company anticipates substantial increases in expenses for further clinical trials, acquiring new product candidates, manufacturing, regulatory approvals, and commercialization[231](index=231&type=chunk) - The company relies on equity offerings, debt financings, or collaborations for capital, and failure to obtain sufficient funding could lead to delays, reductions, or termination of product development[242](index=242&type=chunk)[243](index=243&type=chunk) [Risks Related to Product Candidate Development and Commercialization](index=48&type=section&id=Risks%20Related%20to%20Product%20Candidate%20Development%20and%20Commercialization) Product development is uncertain, competitive, and subject to significant regulatory and commercialization hurdles - Clinical development is lengthy, expensive, and uncertain, with a **high risk of failure**, and earlier trial results may not predict future outcomes[233](index=233&type=chunk) - Clinical trials may reveal significant adverse events that could delay or prevent regulatory approval or market acceptance[244](index=244&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk) - The company faces **intense competition** from large pharmaceutical and biotechnology companies with greater resources and approved therapies[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) - Successful commercialization depends on obtaining coverage, adequate reimbursement, and favorable pricing policies from governmental authorities and health insurers[264](index=264&type=chunk)[265](index=265&type=chunk) [Risks Related to Our Business and Operations](index=53&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) The company's success is dependent on its product candidates, organizational growth, and internal controls - The business is entirely dependent on the successful development, regulatory approval, and commercialization of product candidates, which is uncertain and may never occur[274](index=274&type=chunk)[275](index=275&type=chunk)[278](index=278&type=chunk) - The company needs to grow its organization and manage expansion, which includes hiring personnel and building commercial capabilities, posing management challenges[285](index=285&type=chunk) - **Material weaknesses** in internal control over financial reporting have been identified, which could lead to material misstatements and adversely affect investor confidence[316](index=316&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk) - The company's operations are concentrated in California, making it vulnerable to natural disasters like wildfires and earthquakes[310](index=310&type=chunk) [Risks Related to Intellectual Property](index=64&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's success hinges on obtaining, maintaining, and defending its intellectual property rights - The company's success depends on obtaining and maintaining patent protection for its product candidates and operating without infringing third-party rights[325](index=325&type=chunk)[327](index=327&type=chunk) - The patent application process is expensive, time-consuming, and uncertain, with no assurance that pending applications will result in issued patents[328](index=328&type=chunk)[330](index=330&type=chunk)[332](index=332&type=chunk) - The company relies on in-licensed patents and could lose critical rights if it fails to comply with license obligations[337](index=337&type=chunk)[339](index=339&type=chunk) - The company may be involved in costly and time-consuming lawsuits to protect its IP or defend against infringement claims from third parties[361](index=361&type=chunk)[364](index=364&type=chunk) [Risks Related to Government Regulation](index=78&type=section&id=Risks%20Related%20to%20Government%20Regulation) The biopharmaceutical industry is subject to extensive and complex government regulation - The regulatory approval process for the company's product candidates is highly uncertain, costly, and time-consuming, with no guarantee of success[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk) - Even if approved, product candidates will be subject to extensive and ongoing regulatory requirements, including manufacturing, labeling, and post-approval monitoring[394](index=394&type=chunk)[395](index=395&type=chunk) - Healthcare reform measures and governmental scrutiny of drug pricing may increase costs and reduce reimbursement for approved products[398](index=398&type=chunk)[399](index=399&type=chunk)[402](index=402&type=chunk) - Product candidates regulated as biologics may face competition sooner than anticipated from biosimilars approved through abbreviated pathways[405](index=405&type=chunk)[406](index=406&type=chunk) [Risks Related to Our Reliance on Third Parties](index=86&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) The company depends on third-party contractors for clinical trials, manufacturing, and supply - The company relies on third parties (CROs, CMOs) to conduct preclinical studies and clinical trials, reducing control over timing and quality[432](index=432&type=chunk)[435](index=435&type=chunk) - The company relies on third-party manufacturers for drug substances and products, exposing it to risks of supply limitations, interruptions, and quality issues[439](index=439&type=chunk)[443](index=443&type=chunk) - Dependence on sole-source and limited-source suppliers for critical materials could lead to delays in clinical trials and increased costs[445](index=445&type=chunk)[446](index=446&type=chunk) - Biopharmaceutical manufacturing is complex and susceptible to issues like contamination, equipment failure, and scaling difficulties[448](index=448&type=chunk)[449](index=449&type=chunk) [Risks Related to Ownership of Our Common Stock](index=91&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of the company's common stock involves risks including price volatility and limited investor rights - Quarterly and annual operating results are expected to fluctuate significantly, leading to potential volatility in the common stock price[455](index=455&type=chunk)[458](index=458&type=chunk) - The company's "emerging growth company" status allows for reduced reporting requirements, which may make its common stock less attractive to some investors[463](index=463&type=chunk)[465](index=465&type=chunk) - Anti-takeover provisions in charter documents and Delaware law could prevent or delay beneficial acquisitions and limit stockholders' ability to bring certain claims[466](index=466&type=chunk)[471](index=471&type=chunk) - The company does not anticipate paying dividends in the foreseeable future, meaning capital appreciation will be the sole source of gain for stockholders[476](index=476&type=chunk) [General Risk Factors](index=95&type=section&id=General%20Risk%20Factors) The company is subject to general business risks, including economic conditions and public company compliance costs - Unstable economic and market conditions, including inflation, rising interest rates, and geopolitical instability, may adversely affect the business, financial condition, and stock price[477](index=477&type=chunk) - Operating as a public company incurs increased costs and requires substantial management time for compliance with SEC and Nasdaq requirements[479](index=479&type=chunk) - Failure to maintain effective internal control over financial reporting could adversely affect the business, investor confidence, and lead to securities litigation[481](index=481&type=chunk)[483](index=483&type=chunk)[485](index=485&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=97&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details unregistered equity sales and confirms the planned use of IPO proceeds [Unregistered Sales of Equity Securities](index=97&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) The company issued common shares and options in connection with its acquisition and employee compensation plans - The company issued **18,885,731 common shares** to ValenzaBio stockholders and assumed options for **1,249,811 common shares** in connection with the ValenzaBio acquisition[491](index=491&type=chunk) - Options to purchase **558,182 common shares** were granted to employees under the 2020 Stock Option and Grant Plan[491](index=491&type=chunk) - These securities were exempt from registration under Section 4(a)(2) or Rule 701 of the Securities Act[486](index=486&type=chunk) [Use of Proceeds](index=97&type=section&id=Use%20of%20Proceeds) The use of proceeds from the May 2023 IPO remains consistent with the prospectus - The IPO closed on May 9, 2023, with **34,500,000 common shares** sold at $18.00 per share, yielding **$621.0 million** gross proceeds and approximately **$573.7 million** net proceeds[487](index=487&type=chunk) - The planned use of IPO proceeds remains consistent with the description in the Final Prospectus[488](index=488&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=97&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is marked "Not applicable," indicating no defaults upon senior securities - Not applicable[489](index=489&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=97&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is marked "Not applicable," indicating no mine safety disclosures - Not applicable[490](index=490&type=chunk) [ITEM 5. OTHER INFORMATION](index=97&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This item is marked "Not applicable," indicating no other information to disclose - Not applicable[491](index=491&type=chunk) [ITEM 6. EXHIBITS](index=98&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q - The exhibits include the Merger Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Section 302 and 906 certifications, and Inline XBRL documents[493](index=493&type=chunk) [SIGNATURE](index=99&type=section&id=SIGNATURE) The report is duly signed on behalf of the company by its Chief Financial Officer - The report was signed by Mardi C. Dier, Chief Financial Officer and Chief Business Officer, on June 15, 2023[497](index=497&type=chunk)