SEC Filing | Astria Therapeutics

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ 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: 001-37467

Astria Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		26-3687168
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

75 State Street Suite 1400
Boston, Massachusetts		02109
(Address of Principal Executive Offices)		(Zip Code)

(617) 349-1971

(Registrant’s Telephone Number, Including Area Code)

100 High Street, Floor 28

Boston, Massachusetts 02110

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value per share		ATXS		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 29, 2022, there were 13,016,955 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31,2022 and 2021 the three months ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 2022 and 2021 and the three months ended June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION		28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	28

SIGNATURES		29

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance, strategy, future financial condition and clinical development programs. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, clinical development programs, regulatory filings and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

●

our expectations regarding the timing, plans, goals and results of our Phase 1a clinical trial and our planned Phase 1b/2 clinical trials of STAR-0215, including that favorable results from such trials could establish proof of concept for the differentiation of STAR-0215 as a potential treatment for hereditary angioedema (“HAE”);

●

our expectations about the unmet medical need for HAE, the potential differentiating attributes of STAR-0215 as a potential treatment for HAE, along with the potential market impact of such differentiation, the potential of STAR-0215 to be a best-in-class and the most patient friendly treatment for HAE, and the nature and anticipated growth of the global HAE market and HAE therapies;

●

our expectations that we have identified a stable cell line for STAR-0215 and the ability of such cell line to generate sufficient material of suitable and appropriate quality for our Phase 1a clinical trial of STAR-0215 and our planned STAR-0215 preclinical and clinical studies in a timely manner;

●

our expectations regarding our ability to expand our pipeline;

●

the potential benefits of any future acquisition, in-license, collaboration or preclinical development activities;

●

our manufacturing plans, capabilities and strategy;

●

our intellectual property position and strategy;

●

our estimates regarding our cash runway, expenses, future revenues, capital requirements and needs for additional financing, including additional financing to fund our long-term operations;

●

developments relating to our competitors and our industry; and

●

the impact of government laws and regulations.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, particularly in the sections entitled “Summary of the Material Risks Associated with Our Business” and “Risk Factors”, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

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PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

Astria Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	29,826	$	86,508
Short-term investments		72,652		39,000
Prepaid expenses and other current assets		1,343		1,567
Total current assets		103,821		127,075
Right-of-use asset		1,282		394
Other assets		190		45
Total assets	$	105,293	$	127,514
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	995	$	1,557
Accrued expenses		3,657		3,281
Current portion of operating lease liabilities		573		365
Total current liabilities		5,225		5,203
Long term portion of operating lease liabilities		649		—
Total liabilities		5,874		5,203
Commitments (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value per share, 4,908,620 shares authorized and no shares issued and outstanding		—		—
Series X redeemable convertible preferred stock, $0.001 par value per share, 91,380 shares authorized; 31,455 shares issued and outstanding as of June 30, 2022 and December 31, 2021		96,398		96,398
Common stock, $0.001 par value per share, 150,000,000 shares authorized; 13,016,955 shares issued and outstanding at June 30, 2022 and December 31, 2021		13		13
Additional paid-in capital		485,577		481,709
Accumulated other comprehensive loss		(186)		—
Accumulated deficit		(482,383)		(455,809)
Total stockholders’ equity		99,419		122,311
Total liabilities and stockholders’ equity	$	105,293	$	127,514

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Astria Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	6,617	$	3,478	$	16,975	$	6,071
General and administrative		4,832		4,008		9,852		6,881
Acquired in-process research and development		—		—		—		164,617
Total operating expenses		11,449		7,486		26,827		177,569
Loss from operations		(11,449)		(7,486)		(26,827)		(177,569)
Other income (expense):
Interest and investment income		214		40		269		53
Other expense, net		(15)		(20)		(16)		(34)
Total other income, net		199		20		253		19
Net loss		(11,250)		(7,466)		(26,574)		(177,550)
Dividend on convertible preferred stock related to beneficial conversion feature and issuance costs		—		(24,437)		—		(24,437)
Net loss attributable to common shareholders	$	(11,250)	$	(31,903)	$	(26,574)	$	(201,987)
Net loss per share - basic and diluted	$	(0.86)	$	(5.33)	$	(2.04)	$	(41.55)
Weighted-average common shares outstanding used in net loss per share - basic and diluted		13,016,955		5,980,097		13,016,955		4,861,279

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Astria Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(11,250)	$	(7,466)	$	(26,574)	$	(177,550)
Other comprehensive loss:
Unrealized loss on short-term investments, net of tax of $0		(133)		—		(186)		—
Total other comprehensive loss:		(133)		—		(186)		—
Comprehensive loss	$	(11,383)	$	(7,466)	$	(26,760)	$	(177,550)

The accompanying notes are an integral part of these condensed consolidated financial statements

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Astria Therapeutics, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In thousands, except shares)

(Unaudited)


	Series X Preferred Stock				Series X Preferred Stock				Common Stock
	Series X		Series X		Series X		Series X
	redeemable		redeemable		redeemable		redeemable										Accumulated		Total
	convertible		convertible		convertible		convertible						Additional				other		stockholders’
	preferred stock,		preferred stock,		preferred stock,		preferred stock,		Common stock,		Common stock,		paid-in		Accumulated		comprehensive		equity
	shares		value		shares		value		shares		par value		capital		deficit		loss		(deficit)
Balance at December 31, 2020		—	$	—		—	$	—		3,347,386	$	4	$	301,562	$	(260,897)	$	—	$	40,669
Issuance of preferred stock in a private offering of public equity, net of issuance costs		35,573		84,696		—		—		—		—		19,565		—		—		19,565
Issuance of preferred stock and common stock upon acquisition of Quellis		50,504		156,185		—		—		555,444		—		8,098		—		—		8,098
Expense related to warrants inherited in acquisiton of Quellis		—		—		—		—		—		—		241		—		—		241
Stock-based compensation expense		—		—		—		—		—		—		366		—		—		366
Net loss		—		—		—		—		—		—		—		(170,084)		—		(170,084)
Balance at March 31, 2021		86,077		240,881		—		—		3,902,830		4		329,832		(430,981)		—		(101,145)
Reclassification of preferred stock to permanent equity		(86,077)		(240,881)		86,077		240,881		—		—		—		—		—		240,881
Issuance of common stock upon the conversion of preferred stock		—		—		(53,532)		(165,548)		8,921,966		9		165,540		—		—		1
Expense related to warrants inherited in acquisiton of Quellis		—		—		—		—		—		—		146		—		—		146
Accretion of preferred stock discount		—		—		—		24,437		—		—		(24,437)		—		—		—
Reclassification of equity classified warrants		—		—		—		—		—		—		3,468		—		—		3,468
Stock-based compensation expense		—		—		—		—		—		—		1,014		—		—		1,014
Net loss		—		—		—		—		—		—		—		(7,466)		—		(7,466)
Balance at June 30, 2021		—	$	—		32,545	$	99,770		12,824,796	$	13	$	475,563	$	(438,447)	$	—	$	136,899

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Astria Therapeutics, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In thousands, except shares)

(Unaudited)


	Series X Preferred Stock				Series X Preferred Stock				Common Stock
	Series X		Series X		Series X		Series X
	redeemable		redeemable		redeemable		redeemable										Accumulated		Total
	convertible		convertible		convertible		convertible						Additional				other		stockholders’
	preferred stock,		preferred stock,		preferred stock,		preferred stock,		Common stock,		Common stock,		paid-in		Accumulated		comprehensive		equity
	shares		value		shares		value		shares		par value		capital		deficit		loss		(deficit)
Balance at December 31, 2021		—	$	—		31,455	$	96,398		13,016,955	$	13	$	481,709	$	(455,809)	$	—	$	122,311
Expense related to warrants inherited in acquisiton of Quellis		—		—		—		—		—		—		1,542		—		—		1,542
Stock-based compensation expense		—		—		—		—		—		—		1,209		—		—		1,209
Unrealized loss on short-term investments		—		—		—		—		—		—		—		—		(53)		(53)
Net loss		—		—		—		—		—		—		—		(15,324)		—		(15,324)
Balance at March 31, 2022		—		—		31,455		96,398		13,016,955		13		484,460		(471,133)		(53)		109,685
Expense related to warrants inherited in acquisiton of Quellis		—		—		—		—		—		—		—		—		—		—
Stock-based compensation expense		—		—		—		—		—		—		1,117		—		—		1,117
Unrealized loss on short-term investments		—		—		—		—		—		—		—		—		(133)		(133)
Net loss		—		—		—		—		—		—		—		(11,250)		—		(11,250)
Balance at June 30, 2022		—	$	—		31,455	$	96,398		13,016,955	$	13	$	485,577	$	(482,383)	$	(186)	$	99,419

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Astria Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities
Net loss	$	(26,574)	$	(177,550)
Reconciliation of net loss to net cash used in operating activities:
Non-cash portion of acquired in-process research and development		—		164,612
Stock-based compensation expense		2,326		1,380
Expense (gain) on warrants inherited in acquisiton of Quellis		1,542		(700)
Other non-cash items		79		10
Changes in assets and liabilities:
Prepaid expenses and other assets		224		999
Right-of-use asset- operating lease		(31)		(85)
Accounts payable		(562)		(2,900)
Accrued expenses		376		(1,882)
Net cash used in operating activities		(22,620)		(16,116)
Investing activities
Purchases of short-term investments		(164,889)		—
Sales and maturities of short-term investments		130,992		20,000
Cash acquired in acquisition of Quellis		—		6,466
Purchases of property and equipment		(2)		(21)
Net cash (used in) provided by investing activities		(33,899)		26,445
Financing activities
Proceeds from private offering of public equity, net of issuance costs		—		104,261
Net cash provided by financing activities		—		104,261
Net (decrease) increase in cash, cash equivalents and restricted cash		(56,519)		114,590
Cash, cash equivalents and restricted cash, beginning of period		86,629		25,051
Cash, cash equivalents and restricted cash, end of period	$	30,110	$	139,641
Supplemental disclosure of non-cash transactions:
Conversion of Series X Preferred Stock into common stock	$	—	$	165,549
Non-cash dividend on convertible preferred stock	$	—	$	24,437
Reclassification of warrant liability to additional paid-in capital	$	—	$	3,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Astria Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	Organization and Operations

The Company

Astria Therapeutics, Inc. (the “Company”), formerly known as Catabasis Pharmaceuticals, Inc., is a biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics. Its mission is to bring hope with life-changing therapies to patients and families that are affected by rare and niche allergic and immunological diseases. On October 26, 2020, the Company announced that the Phase 3 PolarisDMD trial of the Company’s previous lead product candidate, edasalonexent, for the treatment of Duchenne Muscular Dystrophy did not meet its primary and secondary endpoints. Based on these results, the Company announced that it was stopping activities related to the development of edasalonexent, including the Company’s ongoing open-label extension trial. On January 28, 2021, the Company acquired Quellis Biosciences, Inc. (“Quellis”). The Company’s lead product candidate, which was acquired in the Quellis acquisition, is STAR-0215, a monoclonal antibody inhibitor of plasma kallikrein in clinical development for the treatment of hereditary angioedema (“HAE”), a rare, debilitating and potentially life-threatening disease. The Company was incorporated in the State of Delaware on June 26, 2008.

Reverse Stock Split

On August 19, 2021, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of one-for-six (1:6) pursuant to a Certificate of Amendment to its Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware. Pursuant to the reverse stock split, every six shares of the Company’s issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock. Amounts of common stock resulting from the reverse stock split were rounded down to the nearest whole share and any resulting fractional shares were cancelled for cash. The number of authorized shares of the Company’s common stock remained unchanged. The reverse stock split affected all issued and outstanding shares of the Company’s common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding Series X Preferred Stock (as defined below), outstanding stock options, outstanding warrants and the Company’s equity incentive plans were proportionately adjusted. All share and per share amounts of the common stock included in the accompanying unaudited condensed consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split for all periods presented, including reclassifying an amount equal to the reduction in par value to additional paid-in capital.

Agreement and Plan of Merger

On January 28, 2021, the Company acquired Quellis (the “Quellis Acquisition”). Under the terms of that certain agreement and plan of merger, dated January 28, 2021 (the “Merger Agreement”), the Company issued to the stockholders of Quellis 555,444 shares of the Company’s common stock, par value $0.001 per share, and 50,504 shares of newly designated Series X redeemable convertible preferred stock (“Series X Preferred Stock”) (as described below). The Series X Preferred Stock had a conversion value on the closing date of $122.7 million. In addition, the Company assumed options granted under the Quellis 2019 Stock Incentive Plan, which became options to purchase 55,414 shares of the Company’s common stock, a warrant to purchase 2,805 shares of Series X Preferred Stock at an exercise price of $341.70 per share, and a warrant to purchase 30,856 shares of the Company’s common stock at an exercise price of $2.10 per share. Upon stockholder approval of the Conversion Proposal (as defined below) on June 2, 2021, the warrant to purchase Series X Preferred Stock was converted into the right to purchase 467,500 shares of the Company’s common stock at a per share exercise price of $2.10 per share.

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Stock Purchase Agreement and Series X Preferred Stock

Concurrent with the Quellis Acquisition, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors. Pursuant to the Purchase Agreement, the Company sold an aggregate of 35,573 shares of Series X Preferred Stock for gross proceeds of approximately $110.0 million, and net proceeds of $104.3 million (the “February 2021 Financing”). Each share of Series X Preferred Stock is convertible into 166.67 shares of common stock. In accounting for the Purchase Agreement, the Company recorded a beneficial conversion feature of $19.6 million and issuance costs of $5.7 million. The combined total was treated as a discount to the value of Series X Preferred Stock, see Note 2, “Summary of Significant Accounting Policies” for further discussion.

As a result of the Quellis Acquisition and the February 2021 Financing, the Company issued the following Series X Preferred Stock and assumed the following warrant:


	Series X	Common Stock
	Preferred	Issuable Upon
	Stock at	Conversion at
	Transaction	Transaction
	Date	Date
Shares issued in merger	50,504	8,417,502
Shares issued in February 2021 Financing	35,573	5,928,952
Warrant assumed in merger	2,805	467,500
Total	88,882	14,813,954

At its Annual Meeting of Stockholders on June 2, 2021, the Company’s stockholders approved the conversion of the Company’s Series X Preferred Stock into shares of the Company’s common stock in accordance with Nasdaq Listing Rule 5635(a) (the “Conversion Proposal”). Following stockholder approval of the Conversion Proposal, each share of Series X Preferred Stock then outstanding automatically converted into 166.67 shares of the Company’s common stock, subject to certain beneficial ownership limitations, including that a holder of Series X Preferred Stock is prohibited from converting shares of Series X Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (as of June 30, 2022, these percentages are set at 4.99% to 9.99% and can be adjusted by the holder to a number between 4.99% and 19.99)% of the total number of shares of the Company’s common stock issued and outstanding immediately after giving effect to such conversion. As of June 30, 2022, 54,622 shares of Series X Preferred Stock have been converted into 9,103,664 shares of common stock and 31,455 shares of Series X Preferred Stock remained outstanding. Each share of Series X Preferred Stock is convertible into 166.67 shares of common stock. At June 30, 2022, the number of shares of common stock issuable upon conversion of the remaining outstanding shares of Series X Preferred Stock is 5,242,501. Outstanding shares of Series X Preferred Stock are subject to conversion at the option of the holder.

Holders of Series X Preferred Stock are entitled to receive dividends, subject to certain beneficial ownership limitations, on shares of Series X Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the Company’s common stock. Except as otherwise required by law, the Series X Preferred Stock does not have voting rights. However, as long as any shares of Series X Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series X Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series X Preferred Stock or alter or amend the Certificate of Designation that authorized the Series X Preferred Stock, amend or repeal any provision of, or add any provision to, the Company’s Restated Certificate of Incorporation or bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series X Preferred Stock, (ii) issue further shares of Series X Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series X Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing.

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Liquidity

The Company had entered into various sales agreements with Cowen and Company LLC (“Cowen”) pursuant to which the Company could issue and sell shares of common stock under at-the-market offering programs. On May 20, 2021, the Company terminated its sales agreement with Cowen. On June 30, 2021, the Company entered into an Open Market Sale Agreement^SM with Jefferies LLC (the “Jefferies Sale Agreement”) pursuant to which the Company can issue and sell shares of common stock of up to $25.0 million under at-the-market offering programs (collectively, with the Cowen at-the-market offering program, the “ATM Programs”). The Company pays the sales agent commissions of 3% of the gross proceeds from any common stock sold through the ATM Programs. As of June 30, 2022, the Company has not sold any shares of common stock pursuant to the Jefferies Sale Agreement. There was also no activity from the ATM Programs during the six months ended June 30, 2021.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and regulatory approval and market acceptance of the Company’s products. The Company has been primarily involved with research and development activities and has incurred operating losses and negative cash flows from operations since its inception. The Company anticipates that it will continue to incur significant operating losses and negative cash flows for the next several years as it continues to develop its product candidates.

As of June 30, 2022, the Company had an accumulated deficit of $482.4 million and had available cash, cash equivalents and short-term investments of $102.5 million. The Company has determined that its existing cash, cash equivalents and short-term investments will be sufficient to meet its projected operating expenses and capital expenditure requirements for at least 12 months from the date of issuance of these unaudited condensed consolidated financial statements. The Company has not generated any product revenues and has financed its operations primarily through public offerings and private placements of its equity securities. There can be no assurance that the Company will be able to obtain additional debt, equity or other financing or generate product revenues or revenues from collaborative partners on terms acceptable to the Company, on a timely basis or at all. Management’s conclusion with respect to its ability to fund its operations is based on estimates that are subject to risks and uncertainties that may prove to be incorrect. If actual results differ from management’s estimates, the Company may be required to seek additional funding or curtail planned activities to reduce operating expenses, which may have an adverse impact on the Company’s ability to achieve its business objectives.

2.	Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying financial statements and the related disclosures are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted from this report. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”).

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including those adjustments that are of a normal and recurring nature, which are necessary to fairly present the Company’s results for the interim periods presented. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Astria Securities Corporation and Quellis Biosciences, LLC, successor in interest to Quellis. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

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The Company utilizes certain estimates to record expenses relating to research and development contracts. These contract estimates, which are primarily related to the length of service of each contract and the amount of service provided as of each measurement date, are determined by the Company based on input from internal project management, as well as from the Company’s service providers.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the Company’s dilutive net loss per share calculation, preferred stock, stock options and warrants to purchase common stock and preferred stock were considered to be common stock equivalents but were excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive; therefore, basic and diluted net loss per share were the same for all periods presented.

The following common stock equivalents, including Series X Preferred Stock shown as common stock equivalents, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:


	Three and Six Months Ended June 30,
	2022	2021
Series X Preferred Stock	5,242,501	5,424,201
Stock options	2,106,150	1,321,722
Common stock warrants	1,530,176	1,530,648
	8,878,827	8,276,570

Cash, Cash Equivalents and Restricted Cash

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with original maturities of three months or less. Cash equivalents are mainly comprised of money market accounts invested in U.S. Treasury securities, corporate debt securities, commercial paper and reverse repurchase agreements.

Restricted cash is comprised of deposits with a financial institution used to collateralize letters of credit related to the Company’s lease arrangements. Restricted cash is presented as a component of prepaid expenses and other current assets and other long-term assets at June 30, 2022 and other long-term assets at June 30, 2021.

The reconciliation of cash, cash equivalents and restricted cash reported within the applicable condensed consolidated balance sheet that sum to the total of the same such amount shown in the condensed consolidated statement of cash flows is as follows (in thousands):


	June 30,
	2022		2021
Cash and cash equivalents	$	29,826	$	139,520
Restricted cash		284		121
Total	$	30,110	$	139,641

Acquired In-Process Research and Development

The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire in-process research and development (“IPR&D”) with no alternative future use is charged to expense at the acquisition date. Refer to Note 3, “Acquisition of Quellis” for a more detailed description of the accounting policy utilized for the recent asset acquisition.

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Preferred Stock Discount

As discussed above, in February 2021, the Company issued Series X Preferred Stock in a private placement transaction. It was determined that this transaction resulted in recognition of a beneficial conversion feature, which was valued based on the difference between the price of the shares of common stock on the date of commitment and the conversion price on the closing date, resulting in a total value of $19.6 million. Additionally, the Company incurred total issuance costs of $5.7 million related to the private placement. Both of these features were recorded as a discount on Series X Preferred Stock recognized at the close of the transaction. These features are analogous to preferred dividends and are recorded as a non-cash return to holders of Series X Preferred Stock through additional paid in capital. The discount related to the beneficial conversion feature is recognized through the earliest possible date of conversion, which occurred upon stockholder approval of the Conversion Proposal in June 2021. The issuance costs are recognized as a dividend at the time of conversion to common shares. As of June 30, 2022, $24.4 million of the above amounts were accounted for as a non-cash dividend related to shares of Series X Preferred Stock, and $0.9 million remained to be recognized upon future conversion.

Recent Accounting Pronouncements - Not Yet Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326). This standard requires a financial asset to be presented at amortized cost basis at the net amount expected to be collected. It also requires that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. In November 2019, the FASB issued an amendment making this standard effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements as well as the timing of when this standard will be adopted.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” in the 2021 Annual Report on Form 10-K, and there were no significant changes to such policies in the three and six months ended June 30, 2022 that had a material impact on the Company’s results of operations or financial position.

3.Acquisition of Quellis

On January 28, 2021, the Company completed the Quellis Acquisition in accordance with the terms of the Merger Agreement as discussed in Note 1, “Organization and Operations”. Under the terms of the Merger Agreement, the Company issued 555,444 shares of common stock and 50,504 shares of Series X Preferred Stock. Each share of Series X Preferred Stock is convertible into 166.67 shares of common stock, subject to certain conditions.

The Company concluded that the Quellis Acquisition was not the acquisition of a business, as substantially all of the fair value of the non-monetary assets acquired was concentrated in a single identifiable asset, STAR-0215.

The Company determined that the cost to acquire the Quellis assets was $170.7 million, based on the fair value of the equity consideration issued and including direct costs of the acquisition of $1.8 million. The net assets acquired in connection with the Quellis Acquisition were recorded at their estimated fair values as of January 28, 2021, which is the date the Quellis Acquisition was completed. The following table summarizes the net assets acquired based on their estimated fair values as of January 28, 2021 (in thousands):


Acquired IPR&D	$	164,612
Cash and cash equivalents		8,307
Prepaid expenses and other assets		136
Accounts payable		(1,974)
Accrued liabilities		(400)
Net acquired tangible assets	$	170,681

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In the estimation of fair value of the asset purchase consideration, the Company used the carrying value of the cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued liabilities as the most reliable indicator of fair value based on the associated short-term nature of the balances. The remaining fair value was attributable to the acquired IPR&D. As STAR-0215 had not, at the time of the Quellis Acquisition, received regulatory approval in any territory, the cost attributable to the IPR&D was expensed in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 as the acquired IPR&D had no alternative future use, as determined by the Company in accordance with U.S. GAAP.

4.Financial Instruments

The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability. There were no transfers between fair value measurement levels during the three and six months ended June 30, 2022 and 2021.

The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. The Company validates the prices provided by its third party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company also invests in certain reverse repurchase agreements which are collateralized by deposits in the form of U.S. Government Securities and Obligations for an amount no less than 102% of their value. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilized a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

The Company accounted for warrants to purchase its stock pursuant to Accounting Standards Codification (“ASC”) Topic 470, Debt, and ASC Topic 480, Distinguishing Liabilities from Equity, and classifies warrants for common stock and preferred stock as liabilities or equity. The warrants classified as liabilities are reported at their estimated fair value and any changes in fair value are reflected in research and development expense. The warrants classified as equity are reported at their estimated fair value with no subsequent remeasurement.

Below is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):


	As of June 30, 2022
	Quoted
	Prices		Significant		Significant
	in Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Cash equivalents:
Money market funds	$	3,391	$	—	$	—	$	3,391
Corporate debt securities		—		1,000		—		1,000
Reverse repurchase agreements		—		10,500		—		10,500
Short term investments
Corporate debt securities		—		23,685		—		23,685
Commercial paper		—		8,984		—		8,984
Yankee securities		—		6,998		—		6,998
U.S. agency bonds		—		2,985		—		2,985
Reverse repurchase agreements		—		30,000		—		30,000
Total	$	3,391	$	84,152	$	—	$	87,543

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	As of December 31, 2021
	Quoted
	Prices		Significant		Significant
	in Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Cash equivalents:
Money market funds	$	1,853	$	—	$	—	$	1,853
Short-term investments:
Reverse repurchase agreements		—		39,000		—		39,000
Total	$	1,853	$	39,000	$	—	$	40,853

The carrying amounts reflected in the unaudited condensed consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. Items measured at fair value on a recurring basis include cash equivalents and short-term investments as of June 30, 2022 and December 31, 2021.

5.Short-Term Investments

The following table summarizes the short-term investments held at June 30, 2022 and December 31, 2021 (in thousands):