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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)  
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
Or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to         

Commission file number: 001-36080
IVERIC bio, Inc.
(Exact name of registrant as specified in its charter)
Delaware 20-8185347
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
8 Sylvan Way 07054
Parsippany,NJ(Zip Code)
(Address of principal executive offices)
(609474-6755
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareISEEThe Nasdaq Global Select Market
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 filerNon-accelerated filerSmaller reporting companyEmerging 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 financial 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 May 1, 2023 there were 137,782,748 shares of Common Stock, $0.001 par value per share, outstanding.





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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. 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, are forward-looking statements. The words “anticipate,” “believe,” “goals,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
statements related to the transactions contemplated by the Agreement and Plan of Merger, dated as of April 28, 2023, or the Merger Agreement, among us, Astellas US Holding, Inc., a Delaware corporation, or Astellas, Berry Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Astellas, or Merger Sub, and solely as provided by Section 8.10(b) of the Merger Agreement, Astellas Pharma Inc., a company organized under the laws of Japan, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into our company, or the Merger, with our company surviving the Merger as a wholly owned subsidiary of Astellas, including our expectations regarding the consummation of the Merger within the timeframe anticipated, or at all;
the potential benefits of our business plan and strategy, including our goal to deliver treatment options for various stages of age-related macular degeneration (AMD);
our expectations regarding the impact of results from GATHER1, our completed Phase 3 clinical trial evaluating avacincaptad pegol (ACP) for the treatment of Geographic Atrophy (GA) secondary to AMD, and from GATHER2, our ongoing Phase 3 clinical trial evaluating ACP for the treatment of GA secondary to AMD, on our business and regulatory strategy, including, the timing and response to our new drug application (NDA) submitted to the U.S. Food and Drug Administration (FDA), our plans to submit marketing authorization applications to the European Medicines Agency (EMA) and the UK Medicines and Healthcare products Regulatory Agency (MHRA), and our expectations for using ACP for the treatment of intermediate AMD;
the timing, costs, conduct and outcome of GATHER2, including expectations regarding patient retention and the safety profile of ACP, including from our open-label extension study for patients who completed the GATHER2 trial, and expectations regarding the potential for ACP to receive regulatory approval for the treatment of GA based on the clinical trial results we have received to date;
our plans and strategy for the potential commercialization of ACP, including hiring of medical affairs and commercialization personnel, building a commercialization infrastructure, including sales, marketing and distribution capabilities, and our expectations regarding the market dynamics for treatments for GA and other commercial matters;
our ability to establish and maintain capabilities and capacity for the manufacture of ACP and our other product candidates, including scale up and validation of the manufacturing process for ACP drug substance and drug product, and securing the supply of the polyethylene glycol (PEG) starting material and other materials for our expected manufacturing needs and securing the supply of ACP drug substance, drug product and finished goods for our expected needs;
our plans for evaluating, obtaining rights to, developing and potentially commercializing new formulations of ACP with the silica-based sustained release technology we in-licensed from DelSiTech Ltd. (DelSiTech) and other sustained release delivery technologies for ACP;
the timing, costs, conduct and outcome of STAR, our ongoing Phase 2b screening trial evaluating ACP for the treatment of autosomal recessive Stargardt disease, including expectations regarding the recruitment of additional patients for this trial;
our estimates regarding expenses, future revenues and debt service obligations, the sufficiency of our cash resources and our capital requirements and need for, and ability to obtain, additional financing;
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the timing, costs, conduct and outcome of our ongoing clinical trials, including statements regarding the timing of the initiation and completion of, and the receipt of results from, such clinical trials, the costs to conduct such clinical trials, and the impact of the results of such clinical trials on our business strategy;
the timing, costs, conduct and outcome of our ongoing and planned research and preclinical development activities, including statements regarding the timing of the initiation and completion of, and the receipt of results from, such activities, the costs to conduct such activities, and the impact of the results of such activities on our business strategy;
the timing of and our ability to submit investigational new drug applications for, and to submit new drug applications or marketing authorization applications for and to obtain marketing approval of our product candidates, and the ability of our product candidates to meet existing or future regulatory standards;
the potential advantages of our product candidates and other technologies that we are pursuing, including our hypotheses regarding complement factor C5 inhibition and HtrA1 inhibition as potentially relevant mechanisms of action to treat GA and other stages of AMD, and of gene therapy, including the use of minigenes;
our estimates regarding the number of patients affected by the diseases our product candidates and development programs are intended to treat;
our estimates regarding the potential market opportunity for our product candidates, including our ability to obtain coverage and reimbursement for those product candidates, if approved;
the rate and degree of potential market acceptance and clinical utility of our product candidates, if approved;
the potential receipt of revenues from future sales of our product candidates, if approved;
our personnel and human capital resources;
our plans and ability to acquire rights to additional product candidates or technologies to treat retinal diseases, including additional sustained release delivery technologies for ACP;
our intellectual property position;
the impact of existing and new governmental laws and regulations; and
our competitive position.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and our stockholders 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 year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on March 1, 2023, and in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” sections that we believe 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, licenses, dispositions, joint ventures or investments we may make. In particular, except as otherwise indicated, our forward-looking statements do not assume the consummation of the proposed acquisition of our company by Astellas. If the Merger is consummated, many of the forward-looking statements contained in this Quarterly Report on Form 10-Q would no longer be applicable.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our other periodic reports, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.
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In connection with the proposed acquisition by Astellas, we will be filing documents with the SEC, including preliminary and definitive proxy statements relating to the proposed acquisition. This document is not a substitute for the proxy statement or any other document which we may file with the SEC. The definitive proxy statement will be mailed to our stockholders in connection with the proposed acquisition. This Quarterly Report on Form 10-Q is not a substitute for the proxy statement or any other document that may be filed by us with the SEC. BEFORE MAKING ANY VOTING DECISION, OUR INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PRELIMINARY AND DEFINITIVE PROXY STATEMENTS AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED ACQUISITION OR INCORPORATED BY REFERENCE IN THE PROXY STATEMENT WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED ACQUISITION. Any vote in respect of resolutions to be proposed at our stockholder meeting to approve the proposed acquisition or other responses in relation to the proposed acquisition should be made only on the basis of the information contained in our proxy statement relating to the proposed acquisition. Investors and security holders may obtain free copies of these documents (when they are available) and other related documents filed with the SEC at the SEC’s web site at www.sec.gov, and all documents filed by us with the SEC are available to all of our stockholders free of charge at https://investors.ivericbio.com/financial-information/sec-filings or by contacting our investor relations department at the following:

IVERIC bio, Inc.
Kathy Galante
Senior Vice President, Investor Relations
kathy.galante@ivericbio.com

We, and our directors, executive officers and other members of management and certain other people may be deemed to be participants in the solicitation of proxies in connection with the proposed acquisition by Astellas. Information about our directors and executive officers is included in the proxy statement for our 2023 annual meeting of stockholders, filed with the SEC on April 5, 2023. Additional information regarding these persons and their interests in the proposed acquisition will be included in the proxy statement relating to the proposed acquisition when it is filed with the SEC. These documents, when available, can be obtained free of charge from the sources indicated above.

USE OF TRADEMARKS
The trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks named in this Quarterly Report on Form 10-Q after their first reference in this Quarterly Report on Form 10-Q.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IVERIC bio, Inc.
Condensed Unaudited Consolidated Balance Sheets
(in thousands, except share and per share data)
 March 31, 2023December 31, 2022
Assets  
Current assets  
Cash and cash equivalents$467,572 $476,304 
Available for sale securities132,349 170,531 
Prepaid expenses and other current assets11,622 15,991 
Total current assets611,543 662,826 
Property and equipment, net1,109 946 
Right-of-use asset, net755 1,182 
Other assets 1,869 
Total assets$613,407 $666,823 
Liabilities and Stockholders' Equity   
Current liabilities  
Accrued research and development expenses$20,574 $11,555 
Accounts payable and accrued expenses18,026 22,843 
Lease liability774 1,189 
Total current liabilities39,374 35,587 
Lease liability, non-current 11 
Debt, non-current96,987 96,568 
Total liabilities136,361 132,166 
Stockholders' equity  
Preferred stock—$0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding
  
Common stock—$0.001 par value, 200,000,000 shares authorized, 137,249,579 and 136,639,687 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
137 137 
Additional paid-in capital1,414,043 1,399,555 
Accumulated deficit(937,035)(864,806)
Accumulated other comprehensive income(99)(229)
Total stockholders' equity477,046 534,657 
Total liabilities and stockholders' equity$613,407 $666,823 
   
The accompanying unaudited notes are an integral part of these financial statements.
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IVERIC bio, Inc.
Condensed Unaudited Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
 Three Months Ended March 31,
 20232022
Operating expenses:  
Research and development$42,083 $22,557 
General and administrative31,758 12,113 
Total operating expenses73,841 34,670 
Loss from operations(73,841)(34,670)
Interest income, net3,461 133 
Other (expense) income, net(1,849)1 
Loss before income tax benefit(72,229)(34,536)
Income tax benefit  
Net loss$(72,229)$(34,536)
Comprehensive loss$(72,099)$(34,840)
Net loss per common share:  
Basic and diluted$(0.53)$(0.29)
Weighted average common shares outstanding:
Basic and diluted137,087 118,755 
   
The accompanying unaudited notes are an integral part of these financial statements.

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IVERIC bio, Inc.
Condensed Unaudited Consolidated Statements of Stockholders' Equity
(in thousands)
 Preferred StockCommon StockAdditional
paid-in
capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
 SharesAmountSharesAmount
Balance at December 31, 2022 $ 136,640 $137 $1,399,555 $(864,806)$(229)$534,657 
Issuance of common stock under employee stock compensation plans— — 610 — 2,589 — — 2,589 
Share-based compensation— — — — 11,899 — — 11,899 
Net loss— — — — — (72,229)— (72,229)
Unrealized loss on available for sale securities, net of tax— — — — — — 130 130 
Balance at March 31, 2023 $ 137,250 $137 $1,414,043 $(937,035)$(99)$477,046 
 Preferred StockCommon StockAdditional
paid-in
capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
 SharesAmountSharesAmount
Balance at December 31, 2021 $ 115,277 $115 $1,040,098 $(679,595)$(90)$360,528 
Issuance of common stock under employee stock compensation plans— — 697 1 2,079 — — 2,080 
Share-based compensation— — — — 5,386 — — 5,386 
Net loss— — — — — (34,536)— (34,536)
Unrealized loss on available for sale securities, net of tax— — — — — — (304)(304)
Balance at March 31, 2022 $ 115,974 $116 $1,047,563 $(714,131)$(394)$333,154 


The accompanying unaudited notes are an integral part of these financial statements.
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IVERIC bio, Inc.
Condensed Unaudited Consolidated Statements of Cash Flows
(in thousands)
 Three Months Ended March 31,
 20232022
Operating Activities  
Net loss$(72,229)$(34,536)
Adjustments to reconcile net loss to net cash used in operating activities  
Depreciation and other expense70 21 
   Amortization and accretion of term loan related costs419  
Amortization of premium and discounts on investment securities(1,289)300 
Share-based compensation11,899 5,386 
Changes in operating assets and liabilities:  
Prepaid expense and other assets6,238 435 
Accrued interest receivable96 (66)
Accrued research and development expenses9,019 (1,486)
Accounts payable and accrued expenses(4,817)(7,562)
Change in working capital1 (4)
Net cash used in operating activities(50,593)(37,512)
Investing Activities  
Purchase of marketable securities (48,897)
Purchase of property and equipment(233)(116)
Maturities of marketable securities39,505 14,865 
Net cash provided by (used in) investing activities39,272 (34,148)
Financing Activities  
Proceeds from employee stock plan purchases 2,589 2,080 
Net cash provided by financing activities2,589 2,080 
Net decrease in cash and cash equivalents(8,732)(69,580)
Cash and cash equivalents  
Beginning of period476,304 261,447 
End of period$467,572 $191,867 
Supplemental disclosure of cash paid
Interest expense paid in cash$2,406 $ 

   The accompanying unaudited notes are an integral part of these financial statements.
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IVERIC bio, Inc.
Notes to Condensed Unaudited Consolidated Financial Statements
(in thousands, except per share data)
1. Business
Description of Business and Organization
IVERIC bio, Inc. (the “Company”) is a science-driven biopharmaceutical company focused on the discovery and development of novel treatments for retinal diseases with significant unmet medical needs. The Company is committed to having a positive impact on patients’ lives by delivering high-quality, safe and effective treatments designed to address debilitating retinal diseases, including earlier stages of age-related macular degeneration (“AMD”).
On April 28, 2023, the Company, Astellas US Holding, Inc., a Delaware corporation (“Astellas”), Berry Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Astellas (“Merger Sub”), and solely as provided by Section 8.10(b) of the Merger Agreement, Astellas Pharma Inc., a company organized under the laws of Japan (“Guarantor”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), discussed further in Note 11, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Astellas. Consummation of the Merger is subject to customary closing conditions, including, without limitation, obtaining the required regulatory approvals and approval by the Company’s stockholders.

The Company’s lead asset is its clinical stage product candidate avacincaptad pegol (also referred to as ACP), a complement C5 inhibitor. It is currently targeting the following diseases with avacincaptad pegol:

Geographic Atrophy (“GA”), which is the advanced stage of AMD, and is characterized by marked thinning or atrophy of retinal tissue, leading to irreversible loss of vision;

intermediate AMD, which is an earlier stage of AMD; and

autosomal recessive Stargardt disease (“STGD1”), which is an orphan inherited condition characterized by progressive damage to the central portion of the retina (the “macula”) and other retinal tissue, leading to loss of vision.

In October 2019, the Company announced positive 12-month data for GATHER1, its first Phase 3 clinical trial evaluating avacincaptad pegol for the treatment of GA secondary to AMD. In GATHER1, 286 patients were randomized to receive various doses of avacincaptad pegol, including avacincaptad pegol 2 mg, or sham control. The Company observed a 27.7% (p-value = 0.0063) reduction in the mean rate of growth (slope) estimated based on GA area between the avacincaptad pegol 2 mg group and the corresponding sham control group over 12 months, when performing the primary analysis, and a 35.4% (p-value = 0.0050) reduction in the mean rate of growth (slope) estimated based on GA area between the two groups over 12 months, when performing the supportive analysis. These results are based on a post-hoc analysis of the GATHER1 data using the U.S. Food and Drug Administration (“FDA”) preferred primary efficacy endpoint analysis from the Company’s Special Protocol Assessment (“SPA”), which is described further below. The Company analyzed the endpoint by using the square root transformation of the GA area, which it refers to as the primary analysis, and the Company analyzed the endpoint by using the observed GA area (without square root transformation), which it refers to as the supportive analysis. In GATHER1, through month 12, the Company did not observe any events of endophthalmitis or ischemic optic neuropathy events, and only one case of intraocular inflammation, which was mild and transient and reported as related to the injection procedure. The incidence of choroidal neovascularization (“CNV”) in the study eye through month 12 was 6 patients (9.0%) in the avacincaptad pegol 2 mg group and 3 patients (2.7%) in the corresponding sham control group.

In June 2020, the Company started enrolling patients in GATHER2, its second Phase 3 clinical trial evaluating avacincaptad pegol for the treatment of GA secondary to AMD. In July 2021, the Company received a written agreement from the FDA under the SPA for the overall design of GATHER2. The SPA is a procedure by which the FDA provides a clinical trial sponsor with an official evaluation and written guidance on the design of a proposed protocol intended to form the basis for a new drug application (“NDA”). In connection with our SPA, the FDA recommended, and the Company accepted, modifying the primary efficacy endpoint for the GATHER2 trial from the mean rate of change in GA area over 12 months measured by fundus autofluorescence (“FAF”) at three timepoints: baseline, month 6 and month 12, to the mean rate of growth (slope) estimated based on GA area measured by FAF in at least three timepoints: baseline, month 6 and month 12.

In September 2022, the Company announced positive 12-month top-line data for GATHER2. In GATHER2, 448 patients were randomized on a 1:1 basis to receive avacincaptad pegol 2 mg or sham control over the first 12 months of the trial. At 12
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months, the Company measured the primary efficacy endpoint in accordance with the SPA. In GATHER2, the Company observed a 14.3% (p-value = 0.0064) reduction in the mean rate of growth (slope) in GA area between the two groups at 12 months with the primary analysis, and a 17.7% (p-value = 0.0039) reduction in the mean rate of growth (slope) in GA area between the two groups at 12 months with the supportive analysis. The Company did not observe any events of endophthalmitis, intraocular inflammation events, events of vasculitis or ischemic optic neuropathy events through month 12, and the incidence of choroidal neovascularization (“CNV”) in the study eye through month 12 was 15 patients (6.7%) in the avacincaptad pegol 2 mg group and 9 patients (4.1%) in the sham control group.

In March 2023, the Company announced results from an exploratory time-to-event analysis from the GATHER1 and GATHER2 clinical trials evaluating reduction in vision loss with avacincaptad pegol 2 mg versus sham treatment. The GATHER1 and GATHER2 clinical trials were designed to evaluate the rate of GA lesion growth in patients with GA secondary to AMD. The post-hoc analysis for vision loss from these pivotal trials signals up to a 59% reduction in rate of vision loss with avacincaptad pegol 2 mg compared to sham treatment at 12 months. The results were consistent in the GATHER1 and GATHER2 clinical trials independently, signaling a 44% reduction (Hazard Ratio 0.56 with 95% CI, 0.15-2.06) and a 59% percent reduction (Hazard Ratio 0.41 with 95% CI, 0.17-1.00) respectively in the rate of vision loss with avacincaptad pegol 2 mg compared to sham over the first 12 months of treatment. In a combined analysis of GATHER1 and GATHER2, patients treated with avacincaptad pegol 2 mg experienced a 56% reduction (Hazard Ratio 0.44, with 95% CI, 0.21-0.92) in the rate of vision loss compared to sham over the first 12 months of treatment. Vision loss in this analysis was defined as a loss of ≥15 letters (EDTRS) in best corrected visual acuity (“BCVA”) from baseline measured at any two consecutive visits up to month 12.

The Company believes that with the statistically significant results from its GATHER1 and GATHER2 trials and the safety profile of avacincaptad pegol to date, it has sufficient data from two independent, adequate and well-controlled pivotal clinical trials of avacincaptad pegol in GA secondary to AMD to support an application for marketing approval. In November 2022, the FDA granted breakthrough therapy designation to ACP for the treatment of GA secondary to AMD. In December 2022, the Company completed the rolling submission of its NDA to the FDA for marketing approval of avacincaptad pegol for the treatment of GA secondary to AMD. In February 2023, the FDA accepted its NDA for filing and granted priority review with a Prescription Drug User Fee Act (“PDUFA”) target action date of August 19, 2023.

In addition to avacincaptad pegol, the Company is developing its preclinical product candidate IC-500, a High temperature requirement A serine peptidase 1 protein (“HtrA1”) inhibitor, for GA secondary to AMD and potentially other age-related retinal diseases.

The Company’s portfolio also includes several ongoing gene therapy research programs, each of which uses adeno-associated virus (“AAV”) for gene delivery. These AAV mediated gene therapy programs are targeting the following orphan inherited retinal diseases (“IRDs”):

Leber Congenital Amaurosis type 10 (“LCA10”), which is characterized by severe bilateral loss of vision at or soon after birth;

STGD1; and

IRDs associated with mutations in the USH2A gene, which include Usher syndrome type 2A, and USH2A-associated non-syndromic autosomal recessive retinitis pigmentosa.

2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023.
Basis of Presentation and Consolidation
In the opinion of management, the Company’s condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been
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eliminated in consolidation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes included in the Annual Report.
The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Segment and Geographic Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company's Condensed Unaudited Consolidated Balance Sheets and the amount of expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, accounting for research and development costs, accounting for share-based compensation and accounting for income taxes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. The carrying amounts reported in the Condensed Unaudited Consolidated Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
Available for Sale Securities
The Company considers debt securities with original maturities of greater than 90 days to be available-for-sale securities. Available-for-sale securities with original maturities of greater than one year are recorded as non-current assets. Available-for -sale securities are recorded at fair value and unrealized gains and losses are recorded within other comprehensive income.
On a quarterly basis, the Company reviews the status of each security in an unrealized loss position, to evaluate the existence of potential credit losses. The Company first considers whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company considers a number of factors to determine if the decline in fair value has resulted from credit losses or other factors, including but not limited to: (1) the extent of the decline; (2) changes to the rating of the security by a rating agency; (3) any adverse conditions specific to the security; and (4) other market conditions that may affect the fair value of the security. If this assessment indicates that a credit loss exists and the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is required for the credit loss. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Concentration of Suppliers
The Company historically relied upon a single third-party manufacturer to provide the drug substance for avacincaptad pegol on a purchase order basis. The Company also historically relied upon a single third-party manufacturer to provide fill/finish services for avacincaptad pegol drug product. The Company has engaged one additional third-party manufacturer to provide drug substance for avacincaptad pegol. The Company has also engaged a single third-party manufacturer to provide packaging services and the finished goods for avacincaptad pegol. In addition, the Company currently relies upon a single third-party supplier to supply on a purchase order basis the polyethylene glycol starting material used to manufacture avacincaptad pegol. Furthermore, the Company and its contract manufacturers currently rely upon sole-source suppliers of certain raw materials and other specialized components of production used in the manufacture and fill/finish of avacincaptad pegol. The Company currently relies upon a single third-party contract manufacturer to conduct process development, scale-up and current Good Manufacturing Practices (“cGMP”) manufacture of the drug substance for IC-500 for preclinical toxicology studies and early-stage clinical trials and a single third-party contract manufacturer to conduct fill/finish services for IC-500. If the Company’s third-party manufacturers or fill/finish service providers should become unavailable to the Company for any reason, including as a result of capacity constraints, different business objectives, financial difficulties, insolvency or the COVID-19
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pandemic, the Company believes that there are a limited number of potential replacement manufacturers, and the Company likely would incur added costs and delays in identifying or qualifying such replacements.
Income Taxes
The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes.  Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense.
Equity Investments

The Company holds investments in equity securities without a readily determinable fair value. Equity investments without a readily determinable fair value are recognized at fair value and are adjusted for observable price changes, or when qualitative assessments indicate that impairment exists, which is recorded in other income (loss).
Financial Instruments
Cash equivalents and available for sale securities are reflected in the accompanying financial statements at fair value. The carrying amount of accounts payable and accrued expenses, including accrued research and development expenses, approximates fair value due to the short-term nature of those instruments. The carrying amount of the Company’s term loan approximates fair value due to the variable interest rate nature of the debt.
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company reviews investments on a periodic basis for other than temporary impairments. This review is subjective as it requires management to evaluate whether an event or change in circumstances has occurred in the period that may have a significant adverse effect on the fair value of the investment. The Company uses the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company classifies its corporate debt securities within the fair value hierarchy as Level 2 assets, as it primarily utilizes quoted market prices or rates for similar instruments to value these securities.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market. The Company's Level 1 assets consist of investments in money market funds and U.S. Treasury securities.
Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. The Company's Level 2 assets consist of investments in investment-grade corporate debt securities.
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability. The Company does not hold any assets that are measured using Level 3 inputs.
Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents and available for sale securities.

The Company maintains its cash in bank accounts, the balances of which generally exceed federally insured limits. We monitor the credit ratings and our concentration of risk with these financial institutions on a continuing basis to safeguard our cash deposits. As more fully described below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments”, on July 26, 2022 (the “Closing Date”), the Company and certain of its subsidiaries (the “Subsidiary Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with
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Hercules Capital, Inc. (“Hercules”), in its capacity as administrative agent and collateral agent (in such capacity, the “Agent”) and as a lender, Silicon Valley Bank (“SVB”) and certain other financial institutions that from time to time become parties to the Loan Agreement as lenders (collectively, the “Lenders”). The Loan Agreement contains a financial covenant requiring the Company and certain of the Subsidiary Borrowers, starting on the one (1) year anniversary of the Closing Date (July 26, 2023), to (i) maintain all of their respective operating accounts, depository accounts and excess cash in the United States with SVB or an SVB affiliate and (ii) obtain any business card, letter of credit and other material cash management services in the United States exclusively from SVB or an SVB affiliate.

The Company maintains its cash equivalents and available for sale securities in investments in money market funds, in U.S. Treasury securities, asset-backed securities and investment-grade corporate debt securities with original maturities of 90 days or less.

The Company believes it is not exposed to significant credit risk on its cash, cash equivalents and available for sale securities.
Leases
The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, it recognizes a right-of-use (“ROU”) asset and operating lease liability on the Company's Condensed Unaudited Consolidated Balance Sheet. ROU lease assets represent the Company's right to use the underlying asset for the lease term and the lease obligation represents the Company's commitment to make the lease payments arising from the lease. ROU lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit discount rate, the Company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. ROU lease assets include any lease payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all office lease agreements the Company combines lease and nonlease components. Leases with an initial term of 12 months or less are not recorded on the Company's Condensed Unaudited Consolidated Balance Sheet.
Property and Equipment
Property and equipment, which consists mainly of clinical and laboratory equipment, computers, software, other office equipment, and leasehold improvements, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally three to ten years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset.
Research and Development
The Company's research and development expenses primarily consist of costs associated with the manufacturing, development and preclinical and clinical testing of the Company’s product candidates and costs associated with its gene therapy research programs. The Company's research and development expenses consist of:
external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”) and contract development and manufacturing organizations (“CDMOs”) and other vendors for the production and analysis of drug substance and drug product; and
employee-related expenses for employees dedicated to research and development activities, including salaries, benefits and share-based compensation expense.
Research and development expenses also include costs of acquired product licenses, in-process research and development, and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to collaborators.
All research and development expenses are charged to operations as incurred in accordance with ASC 730, Research and Development. The Company accounts for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.
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Income Taxes
The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes.  Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense.
Share-Based Compensation
The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and non-employee directors, including employee stock options, restricted stock units (“RSUs”) and options granted to employees to purchase shares under the 2016 Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period, net of estimated forfeitures. For grants containing performance-based vesting provisions, expense is recognized over the estimated achievement period only when the performance-based milestone is deemed probable of achievement. If performance-based milestones are later determined not to be probable of achievement, then all previously recorded stock-based compensation expense associated with such options will be reversed during the period in which the Company makes this determination.
The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company uses historical data to estimate pre-vesting forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from the Company's estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised.
Stock Options
The Company estimates the fair value of stock options granted to employees, consultants, and non-employee directors on the date of grant using the Black-Scholes option-pricing model. The Company's computation of stock-price volatility is based on daily historical volatility during the time period that corresponds to the expected option term. The Company's computation of expected term is determined using the expected term of stock option grants to employees based on an analysis of actual option exercises. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon U.S. Treasury yield at the date of grant for a term equivalent to the expected term of the option.
The weighted-average assumptions used to estimate grant date fair value of stock options using the Black-Scholes option pricing model were as follows for the three month periods ended March 31, 2023 and 2022:
 Three Months Ended March 31,
 20232022
Expected common stock price volatility81%101%
Risk-free interest rate
3.45%-4.22%
1.38%-1.63%
Expected term of options (years)5.05.2
Expected dividend yield
RSUs
The Company estimates the fair value of RSUs granted to employees using the closing market price of the Company's common stock on the date of grant.
ESPP
In April 2016, the Company's board of directors adopted the ESPP pursuant to which the Company may sell up to an aggregate of 1,000,000 shares of its common stock. The ESPP was approved by the Company’s stockholders in June 2016. The ESPP is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes option-pricing model and recognized over the six month withholding period prior to purchase.
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Table of Contents                                 
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements through the date the financial statements were issued and filed with the SEC and believes that there are none that will have a material impact on the Company’s financial statements.
3. Net Loss Per Common Share
Basic and diluted net loss per common share is determined by dividing net loss by the weighted average common shares and pre-funded warrants outstanding during the period. Basic and diluted shares outstanding includes the weighted average effect of the Company's outstanding pre-funded warrants as the exercise of such pre-funded warrants requires nominal consideration to be given for the delivery of the corresponding shares of common stock. As of March 31, 2023, the Company had no pre-funded warrants outstanding. For the periods when there is a net loss, shares underlying stock options and RSUs have been excluded from the calculation of diluted net loss per common share because the effect of including such shares would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.
The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated:
 Three Months Ended March 31,
 20232022
Basic and diluted net loss per common share calculation:  
Net loss$(72,229)$(34,536)
Weighted average common shares outstanding - basic and dilutive137,087 118,755 
Net loss per share of common stock - basic and diluted$(0.53)$(0.29)
The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding for the periods presented, as the effect of including such shares would be anti-dilutive:
 Three Months Ended March 31,
 20232022
Stock options outstanding12,896,479 10,469,980 
Restricted stock units2,816,817 2,200,043 
Total15,713,296 12,670,023 
4. Cash, Cash Equivalents and Available-for-Sale Securities
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase to be cash equivalents. As of March 31, 2023 and December 31, 2022, the Company had cash and cash equivalents of approximately $467.6 million and $476.3 million, respectively. Cash and cash equivalents included cash of $6.0 million at March 31, 2023 and $0.6 million at December 31, 2022. Cash and cash equivalents at March 31, 2023 and December 31, 2022 included $461.6 million and $475.7 million, respectively, of investments in money market funds.
The Company considers debt securities with original maturities of greater than 90 days at the date of purchase to be available for sale securities. As of March 31, 2023 and December 31, 2022, the Company held available for sale securities of $132.3 million and $170.5 million, respectively, all of which have maturities of less than one year.
The Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from credit loss or other factors. The Company has determined that there were no credit losses in fair value of its investments as of March 31, 2023. Factors considered in determining whether a loss resulted from a credit loss or other factors included the length of time and extent to which the investment’s fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, the extent of the loss related to credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost.
The Company classifies these securities as available-for-sale. However, the Company has not sold and does not currently intend to sell its investments and the Company believes it is more likely than not that the Company will recover the carrying value of these investments.
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The Company believes that its existing cash, cash equivalents and available-for-sale securities as of March 31, 2023 will be sufficient to fund its currently planned capital expenditure requirements and operating expenses for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.
Available for sale securities, including carrying value and estimated fair values, are summarized as follows:
 As of March 31, 2023
 Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities$21,674 $1 $(29)$21,646 
Corporate debt securities86,102  (35)86,067 
U.S. government agency securities9,761 7  9,768 
Asset-backed securities9,903  (33)9,870 
Supranational securities5,008  (10)4,998 
Total$132,448 $8 $(107)$132,349 

 As of December 31, 2022
 Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities$27,481 $3 $(61)$27,423 
Corporate debt securities109,248  (119)109,129 
U.S. government agency securities9,644 25  9,669 
Asset-backed securities19,360  (63)19,297 
Supranational securities5,027  (14)5,013 
Total$170,760 $28 $(257)$170,531 
The Company’s available for sale securities are reported at fair value on the Company’s balance sheet. Unrealized gains (losses) are reported within other comprehensive income in the statements of comprehensive loss. The cost of securities sold and any realized gains/losses from the sale of available for sale securities are based on the specific identification method. The changes in accumulated other comprehensive income associated with the unrealized gain on available for sale securities during the three months ended March 31, 2023 and 2022, respectively, were as follows:
 Three months ended March 31,
 20232022
Beginning balance$(229)$(90)
Current period changes in fair value before reclassifications, net of tax130 (304)
Amounts reclassified from accumulated other comprehensive income, net of tax  
Total other comprehensive loss$130 $(304)
Ending balance$(99)$(394)
5. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company's assets
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and liabilities that are measured at fair value on a recurring basis as of March 31, 2023:
 Fair Value Measurement Using
 Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets   
Investments in money market funds*$461,564 $ $ 
Investments in U.S. Treasury securities$21,646 $ $ 
Investments in corporate debt securities$ $86,067 $ 
Investments in U.S. government agency securities9,768 
Investments in asset-backed securities$ 9,870 $ 
Investments in supranational securities$ 4,998 $ 
*Investments in money market funds are reflected in cash and cash equivalents in the accompanying Condensed Unaudited Consolidated Balance Sheets.
The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022:
 Fair Value Measurement Using
 Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets   
Investments in money market funds*$475,689 $ $ 
Investments in U.S. Treasury securities $27,423 $ $ 
Investments in corporate debt securities$ $109,129 $ 
Investments in U.S. government agency securities 9,669  
Investments in asset-backed securities $ $19,297 $ 
Investments in supranational securities$ $5,013 $ 
*Investments in money market funds are reflected in cash and cash equivalents in the accompanying Condensed Unaudited Consolidated Balance Sheets.
No transfer of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three months ended March 31, 2023.
6. Share-Based Compensation
Pursuant to the evergreen provisions of the Company's 2013 stock incentive plan (the “2013 Plan”), annual increases have resulted in the addition of an aggregate of approximately 18,166,000 additional shares to the 2013 Plan, including for 2023, an increase of approximately 2,542,000 shares. As of March 31, 2023, the Company had approximately 2,646,000 shares available for grant under the 2013 Plan.
In October 2019, the Company's board of directors adopted its 2019 Inducement Stock Incentive Plan (the “2019 Inducement Plan”) to reserve initially 1,000,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company as a material inducement to such individuals’ entry into employment with the Company within Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2019 Inducement Plan are substantially similar to those of the 2013 Plan. In March 2020, February 2021, September 2021, December 2021, May 2022 and February 2023, the Company's board of directors amended the 2019 Inducement Plan to reserve an additional 1,000,000 shares, an additional 600,000 shares, an additional 1,000,000 shares, an additional 1,000,000 shares, an additional 1,000,000 shares and an additional 2,000,000 shares, respectively, of its common stock for issuance under the plan. As of March 31, 2023, the Company had approximately 1,995,000 shares available for grant under the 2019 Inducement Plan.
Share-based compensation expense, net of estimated forfeitures, includes expenses related to stock options and RSUs granted to employees, non-employee directors and consultants, as well as options granted to employees to purchase shares
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under the ESPP. Stock-based compensation by award type was as follows:
 Three Months Ended March 31,
 20232022
Stock options$6,894 $3,323 
Restricted stock units4,838 2,005 
Employee stock purchase plan167 58 
Total$11,899 $5,386 
The Company allocated stock-based compensation expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss as follows:
 Three Months Ended March 31,
 20232022
Research and development$5,541 $2,661 
General and administrative6,358 2,725 
Total$11,899 $5,386 
Stock Options
A summary of the stock option activity, weighted average exercise prices, options outstanding, exercisable and expected to vest as of March 31, 2023 is as follows (in thousands except weighted average exercise price):
 Number of Shares Underlying OptionsWeighted
Average
Exercise
Price
Outstanding, December 31, 202212,403 $14.70 
Granted784 $22.43 
Exercised(289)$7.26 
Forfeited(1)$8.64 
Outstanding, March 31, 202312,897 $15.34 
Vested and exercisable, March 31, 20235,668 $13.66 
Vested and expected to vest, March 31, 202312,390 $15.28 
As of March 31, 2023, there were approximately $72.5 million of unrecognized compensation costs, net of estimated forfeitures, related to stock option awards grants, which are expected to be recognized over a remaining weighted average period of 3.1 years.
RSUs
The following table presents a summary of the Company's outstanding RSU awards granted as of March 31, 2023 (in thousands except weighted average grant-date fair value):
Restricted
Stock
Units
Weighted Average
Grant-Date
Fair Value
Outstanding, December 31, 20223,026 $15.12 
Awarded76 $22.71 
Vested(285)$14.11 
Forfeited $ 
Outstanding, March 31, 20232,817 $15.43 
Outstanding, expected to vest2,624 $15.43 
As of March 31, 2023, there were approximately $33.9 million of unrecognized compensation costs, net of estimated forfeitures, related to RSUs grants, which are expected to be recognized over a remaining weighted average period of 3.1 years.
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ESPP
As of March 31, 2023, there were 676,853 shares available for future purchases under the ESPP. There were 35,541 and 15,095 shares issued under the ESPP during the three months ended March 31, 2023 and 2022, respectively. Cash proceeds from ESPP purchases were $532 thousand and $184 thousand during the three months ended March 31, 2023 and 2022, respectively.
7. Commitments and Contingencies
Avacincaptad Pegol - Archemix Corp.
The Company is party to an agreement with Archemix Corp. (“Archemix”) under which the Company in-licensed rights in certain patents, patent applications and other intellectual property related to avacincaptad pegol and pursuant to which the Company may be required to pay sublicense fees and make milestone payments (the “C5 License Agreement”). Under the C5 License Agreement, for each anti-C5 aptamer product that the Company may develop under the agreement, including avacincaptad pegol, the Company is obligated to make additional payments to Archemix of up to an aggregate of $50.5 million if the Company achieves specified development, clinical and regulatory milestones, with $24.5 million of such payments relating to a first indication, $23.5 million of such payments relating to second and third indications and $2.5 million of such payments relating to sustained delivery applications. Under the C5 License Agreement, the Company is also obligated to make additional payments to Archemix of up to an aggregate of $22.5 million if the Company achieves specified commercial milestones based on net product sales of all anti-C5 products licensed under the agreement. The Company is also obligated to pay Archemix a double-digit percentage of specified non-royalty payments the Company may receive from any sublicensee of its rights under the C5 License Agreement. The Company is not obligated to pay Archemix a running royalty based on net product sales in connection with the C5 License Agreement.
Avacincaptad Pegol Drug Substance - Agilent Technologies, Inc.
In March 2023, the Company entered into a Commercial Manufacturing and Supply Agreement with Agilent Technologies, Inc. ("Agilent"), relating to the commercial manufacturing and supply of avacincaptad pegol drug substance (the "Agilent Agreement"). Pursuant to the Agilent Agreement, Agilent has agreed to manufacture and supply to the Company, and the Company has agreed to purchase from Agilent, a specified percentage of its commercial requirements in the United States of the active pharmaceutical ingredient ("API") used in avacincaptad pegol. The Agilent Agreement has an initial term of seven years from the date of regulatory approval in the United States of the Company's NDA for avacincaptad pegol, followed by successive two-year automatic renewal periods, absent non-renewal or termination by either party in accordance with the terms of the Agilent Agreement. The Agilent Agreement provides for pricing for the API based on a per batch or per gram basis, depending on the scale for which the Company orders the API.
The Company may cancel any purchase order under the Agilent Agreement at any time, subject to the payment of specified cancellation fees. The Company may terminate the Agilent Agreement in the event that it cannot commercialize avacincaptad pegol due to regulatory or other medical, scientific or legal reasons. Agilent may terminate the Agilent Agreement in the event that the Company does not, over a specified period, purchase and take delivery of the agreed upon minimum requirements of API. Each party also has the right to terminate the Agilent Agreement for other customary reasons such as material breach and bankruptcy.
Avacincaptad Pegol Sustained Release Delivery Technology - DelSiTech
Under the DelSiTech License Agreement with DelSiTech, the Company is obligated to make payments up to an aggregate of €35.0 million, if the Company achieves specified clinical and development milestones with respect to a Licensed Product. In addition, the Company is also obligated to pay DelSiTech up to an aggregate of €60.0 million if the Company achieves specified commercial sales milestones with respect to worldwide net sales of the Licensed Product. The Company is also obligated to pay DelSiTech royalties at a low single-digit percentage of net sales of the Licensed Product. The royalties payable by the Company are subject to reduction under specified circumstances.
miniCEP290 Program - University of Massachusetts
Under its exclusive license agreement with the University of Massachusetts (“UMass”) for its miniCEP290 program, which targets LCA10, which is associated with mutations in the CEP290 gene, the Company is obligated to pay UMass up to an aggregate of $14.75 million in cash and issue up to 75,000 shares of common stock of the Company if the Company achieves specified clinical and regulatory milestones with respect to a licensed product. In addition, the Company is obligated to pay UMass up to an aggregate of $48.0 million if the Company achieves specified commercial sales milestones with respect to a licensed product. The Company is also obligated to pay UMass royalties at a low single-digit percentage of net sales of licensed products. If the Company or any of its affiliates sublicenses any of the licensed patent rights or know-how to a third
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party, the Company will be obligated to pay UMass a high single-digit to a mid-tens percentage of the consideration received in exchange for such sublicense, with the applicable percentage based upon the stage of development of the licensed products at the time the Company or the applicable affiliate enters into the sublicense. If the Company receives a priority review voucher from the FDA in connection with obtaining marketing approval for a licensed product, and the Company subsequently uses such priority review voucher in connection with a different product candidate outside the scope of the agreement, the Company will be obligated to pay UMass a low-tens percentage of the fair market value of the priority review voucher at the time of approval of such product candidate and a low-twenties percentage of the fair market value of the priority review voucher at the time of achievement of a specified commercial sales milestone for such product candidate. In addition, if the Company sells such a priority review voucher to a third party, the Company will be obligated to pay UMass a low-thirties percentage of any consideration received from such third party in connection with such sale.
IC-500 - Former Equityholders of Inception 4
Under the agreement and plan of merger between the Company and Inception 4, Inc. (“Inception 4”), pursuant to which the Company acquired IC-500 and its other HtrA1 inhibitors (the “Inception 4 Merger Agreement”), the Company is obligated to make payments to the former equityholders of Inception 4 of up to an aggregate of $105 million, subject to the terms and conditions of the Inception 4 Merger Agreement, if the Company achieves certain specified clinical and regulatory milestones with respect to IC-500 or any other product candidate from its HtrA1 inhibitor program, with $45 million of such potential payments relating to GA and $60 million of such potential payments relating to wet AMD. Under the Inception 4 Merger Agreement, the Company does not owe any commercial milestones or royalties based on net sales. The future milestone payments will be payable in the form of shares of the Company's common stock, calculated based on the price of its common stock over a five-trading day period preceding the achievement of the relevant milestone, unless and until the issuance of such shares would, together with all other shares issued in connection with the acquisition, exceed an overall maximum limit of approximately 7.2 million shares, which is equal to 19.9% of the number of issued and outstanding shares of the Company's common stock as of the close of business on the business day prior to the closing date of the Inception 4 acquisition, and will be payable in cash thereafter. The Inception 4 Merger Agreement also includes customary indemnification obligations to the former equityholders of Inception 4, including for breaches of the representations and warranties, covenants and agreements of the Company and its subsidiaries (other than Inception 4) in the Inception 4 Merger Agreement.
Employment Contracts
The Company also has letter agreements with certain employees that require the funding of a specific level of payments if certain events, such as a termination of employment by the employee for good reason or by the Company without cause, in each case in connection with a change of control, occur.
 Contract Service Providers
In addition, in the course of normal business operations, the Company has agreements with contract service providers to assist in the performance of the Company’s research and development, manufacturing and commercial planning activities. Expenditures to CROs, CDMOs and other service providers represent significant costs in preclinical and clinical development and commercial planning. Subject to required notice periods and the Company’s obligations under binding purchase orders and any cancellation fees that the Company may be obligated to pay, the Company can elect to discontinue the work under these agreements at any time. 
8. Operating Leases
The Company leases office space located in Cranbury, New Jersey and Parsippany, New Jersey under non-cancelable operating lease arrangements. During May 2022, the Company amended its Cranbury office space lease to extend the lease period by one year through the end of February 2024. During June 2022, the Company amended its Parsippany office lease to include an additional portion of the premises consisting of approximately 34,836 square feet of the third floor of the building. The Parsippany lease expires at the end of August 2023.
As of June 30, 2022, the Company recognized additional right-of-use assets and lease liabilities of approximately $1.0 million, which represents the present value of its remaining lease payments using a weighted average estimated incremental borrowing rate of 8%.
For the three months ended March 31, 2023 and 2022, lease expense was $0.4 million and $0.3 million, respectively. Cash paid from operating cash flows for amounts included in the measurement of lease liabilities was $0.4 million and $0.3 million, for the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, the Company's operating leases had a weighted average remaining lease term of 0.5 years and a weighted average estimated incremental borrowing rate of 5.6%.
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The following presents the maturity of the Company’s operating lease liabilities as of March 31, 2023:
Remainder of 2023775 
202411 
     Total remaining obligation786 
Less imputed interest(12)
     Present value of lease liabilities774 
9. Loan and Security Agreement
On July 26, 2022 (the “Closing Date”), the Company and the Subsidiary Borrowers entered into the Loan Agreement with Hercules, in its capacity as Agent and as a lender, SVB and certain other financial institutions that from time to time become parties to the Loan Agreement as lenders. The Loan Agreement provides for term loans in an aggregate principal amount of up to $250.0 million under multiple tranches (the “2022 Term Loan Facility”), available as follows: (i) a term loan advance in the amount of $50.0 million, which was drawn on the Closing Date; (ii) subject to the Company’s announcement that the GATHER2 trial evaluating avacincaptad pegol in GA has achieved its protocol-specified primary endpoint and the Company has a sufficient clinical data package to support the submission of an NDA to the FDA for avacincaptad pegol in GA (“Milestone 1”), a second tranche consisting of term loan advances in the aggregate principal amount of $50.0 million available at the Company’s option beginning on the date that Milestone 1 is achieved through December 15, 2022, which was drawn in December 2022; (iii) subject to the Company’s submission of an NDA to the FDA for avacincaptad pegol in GA and the FDA accepting such NDA for review (“Milestone 2”), a third tranche consisting of term loan advances in the aggregate principal amount of $25.0 million, available at the Company’s option beginning on the date that Milestone 2 is achieved through September 30, 2023; (iv) subject to FDA approval of avacincaptad pegol in GA with a label generally consistent with that sought in the Company’s NDA (“Milestone 3”), a fourth tranche consisting of term loan advances in the aggregate principal amount of $75.0 million, available at the Company’s option beginning on the date that Milestone 3 is achieved and continuing through the earlier of (x) September 30, 2024 and (y) the date that is 90 days after the date that Milestone 3 is achieved; and (v) subject to approval by the Lenders’ investment committee in its discretion, a fifth tranche of additional term loans in an aggregate principal amount of up to $50.0 million, available on or before the Amortization Date (as defined below). The Company believes it has achieved Milestone 2 and plans to borrow the full $25.0 million tranche that is available during 2023. With the exception of the first and second $50.0 million tranches drawn on the Closing Date and in December 2022, respectively, each of the tranches may be drawn down in $5.0 million increments at the Company's election upon achievement of the relevant milestones specified in the Loan Agreement. The Company has agreed to use the proceeds of the 2022 Term Loan Facility for working capital and general corporate purposes.
Notwithstanding limitations and restrictions imposed by covenants in the Loan Agreement, the Company is permitted to engage in certain specified transactions. For example, the terms of the Loan Agreement provide that the Company may issue convertible notes in an aggregate principal amount of not more than $400.0 million, provided that such notes are unsecured, have a maturity date no earlier than six months following the Maturity Date (as defined below), and meet certain other conditions. The Loan Agreement also provides that the Company may enter into royalty interest financing transactions that are subordinated to the 2022 Term Loan Facility, have a maturity date no earlier than six months following the Maturity Date, and meet certain other conditions. Following the achievement of Milestone 3, the Loan Agreement also provides for a possible additional revolving credit facility of up to $50.0 million, which will be formula-based and backed by the Company’s accounts receivables. This potential revolving credit facility is not an existing facility under the Loan Agreement, is not committed, and is subject to agreement among the Company and the Lenders. The Company may enter into non-exclusive and certain specified exclusive licensing arrangements with respect to core intellectual property and non-exclusive and exclusive licensing arrangements or otherwise transfer non-core intellectual property without the consent of the Lenders. The Company may also enter into certain permitted acquisitions, subject to a limit on total cash consideration for acquisitions consummated during specified periods. Additionally, the Company must provide the Lenders the opportunity to invest up to $10.0 million in any equity financing, subject to certain exclusions, that is broadly marketed to multiple investors and in which the Company receives net cash proceeds of $75.0 million or more in any one or series of related financings (or in the case of any such equity financing that is a registered offering, use its commercially reasonable efforts to provide such opportunity to the Lenders).
The 2022 Term Loan Facility will mature on August 1, 2027 (the “Maturity Date”). The outstanding principal balance of the 2022 Term Loan Facility bears interest at a floating interest rate per annum equal to the greater of either (i) (x) the lesser of the Wall Street Journal prime rate and 6.25% plus (y) 4.00% or (ii) 8.75%. The per annum interest rate is capped at 10.25%. Accrued interest is payable monthly following the funding of each term loan. The Company may make payments of interest only, without any loan amortization payments, for a period of 42 months following the Closing Date, which period may be
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extended to the Maturity Date if (i) Milestone 3 has been achieved and (ii) no default or event of default exists under the Loan Agreement. At the end of the interest only period (the “Amortization Date”), the Company is required to begin repayment of the outstanding principal of the 2022 Term Loan Facility in equal monthly installments.
As collateral for the obligations under the 2022 Term Loan Facility, the Company has granted to the Agent for the benefit of the Lenders a senior security interest in substantially all of its and each Subsidiary Borrower’s property, inclusive of intellectual property, with certain limited exceptions set forth in the Loan Agreement.
The Loan Agreement contains customary closing and commitment fees, prepayment fees and provisions, events of default and representations, warranties and affirmative and negative covenants, including a financial covenant requiring the Company to maintain certain levels of cash in accounts subject to a control agreement in favor of the Agent (the “Qualified Cash”) during the period commencing on May 15, 2023 through August 14, 2024. Effective as of July 26, 2023, the Company and certain of the Subsidiary Borrowers will be required to (i) maintain all of their respective operating accounts, depository accounts and excess cash in the United States with SVB or an SVB affiliate and (ii) obtain any business card, letter of credit and other material cash management services in the United States exclusively from SVB or an SVB affiliate. Commencing on August 15, 2024, the Company will also be required to maintain a certain minimum amount of trailing six-month net product revenue from the sale of avacincaptad pegol, tested on a quarterly basis. The revenue covenant will be waived at any time at which the Company (x) (i) maintains a market capitalization in excess of $600.0 million and (ii) maintains Qualified Cash in an amount greater than or equal to 50% of the outstanding 2022 Term Loan Facility at such time or (y) maintains Qualified Cash in an amount greater than or equal to 90% of the outstanding 2022 Term Loan Facility at such time. Upon the occurrence of an event of default, including a material adverse effect, subject to certain exceptions, on the business, operations, properties, assets or financial condition of the Company and the Subsidiary Borrowers taken as a whole, and subject to any specified cure periods, all amounts owed by the Company may be declared immediately due and payable by the Lenders. As of March 31, 2023, the Company was in compliance with all applicable covenants under the Loan Agreement.
In addition, the Company is required to make a final payment fee (the “End of Term Charge”) upon the earlier of (i) the Maturity Date or (ii) the date the Company prepays, in full or in part, the outstanding principal balance of the 2022 Term Loan Facility. The End of Term Charge is 4.25% of the aggregate original principal amount of the term loans repaid or prepaid under the Loan Agreement.
The Company may, at its option, prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the Closing Date, and (iii) 0.75% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the Closing Date.
During the three months ended March 31, 2023, the Company recognized interest expense on its Consolidated Statements of Operations and Comprehensive Loss in connection with the 2022 Term Loan Facility as follows:
 Three months ended March 31, 2023
Interest expense for 2022 Term Loan Facility $2,563 
Accretion of end of term charge220 
Amortization of debt issuance costs 199 
Total interest expense related to 2022 Term Loan Facility $2,982 
The principal balance of the 2022 Term Loan Facility and related accretion and amortization as of March 31, 2023, were as follows:
 March 31, 2023
2022 Term Loan Facility, gross (amount drawn)$100,000 
Debt issuance costs (legal and other administrative fees)(3,898)
Accretion of end of term charge435 
Accumulated amortization of debt issuance costs450 
2022 Term Loan Facility, net$96,987 
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10. Subsequent Events
Sale of New Jersey Net Operating Losses
During April 2023, through the State of New Jersey's Technology Business Tax Certificate Transfer Program (the "Program"), the Company received $11.8 million as it completed the sale of approximately $139.3 million of its New Jersey State net operating losses (“NOLs”). The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of NOLs and defined research and development tax credits, subject to a maximum lifetime benefit of $20.0 million. Under the Program, if the Company fails to use the net proceeds received from the Program for allowable expenditures or fails to maintain a headquarters or a base of operations in New Jersey during the five years following the closing date, the Company may be subject to the recapture of up to the face value of the tax benefits.
Merger Agreement
On April 28, 2023, the Company and Astellas entered into the Merger Agreement, pursuant to which, among other things, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Astellas.
At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company issued and outstanding as of immediately prior to the Effective Time (other than Excluded Shares (as defined in the Merger Agreement) and Dissenting Shares (as defined in the Merger Agreement)) will be cancelled and automatically converted into the right to receive cash in an amount equal to $40.00, without interest (the “Merger Consideration”) and subject to any withholding of taxes. The Merger Agreement requires Guarantor to guarantee the covenants, obligations (including payment obligations) and liabilities applicable to Astellas, Merger Sub or the surviving corporation, as applicable, under the Merger Agreement.
Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, no material adverse effect having occurred since the signing of the Merger Agreement, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other antitrust authority specified in the Merger Agreement, solely to the extent the approval of any such authority is required in connection with the Merger, and approval by the Company’s stockholders. The Company expects the Merger and the other transactions contemplated by the Merger Agreement to close in the third calendar quarter of 2023.
The Company has made customary representations and warranties in the Merger Agreement and has agreed to customary covenants regarding the operation of the business of the Company and its subsidiaries prior to the Effective Time. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public information to, and participate in discussions and engage in negotiations with, third parties regarding alternative acquisition proposals, with customary exceptions to allow the board of directors of the Company to exercise its fiduciary duties.
The Merger Agreement contains certain termination rights for the Company and Astellas. Subject to certain limitations, the Company or Astellas may terminate the Merger Agreement if the Merger is not consummated by midnight Eastern Time, on October 27, 2023, subject to an automatic 90-day extension in the event that all conditions other than the required antitrust approvals have been obtained or waived as of such date and a second automatic 90-day extension thereafter in the event that all conditions other than the required antitrust approvals have been obtained or waived as of such extended date (the “End Date”).
Upon termination of the Merger Agreement, under specified circumstances, the Company will be required to pay Astellas a termination fee of approximately $222.4 million. Such circumstances include where the Merger Agreement is terminated (i) in connection with the Company accepting a Superior Offer (as defined in the Merger Agreement) approved by the Company’s board of directors, (ii) due to the Company’s board of directors’ change or withdrawal of, or failure to reaffirm, its recommendation of the Merger, or (iii) because the Company’s board of directors or the Company intentionally breach their non-solicit obligations under the Merger Agreement in any material respects. This termination fee will also be payable if the Merger Agreement is terminated because the Company’s stockholders did not vote to adopt the Merger Agreement, the Merger is not consummated before the End Date, or the Company breaches its representations, warranties or covenants in a manner that would cause the related closing conditions to not be met, and prior to any such termination, a proposal to acquire at least 50% of the Company’s stock or assets is communicated to the Company’s board of directors or publicly disclosed and within one year after the termination of the Merger Agreement the Company enters into an agreement for, or consummates, such a transaction, whether or not the consummated transaction was the one contemplated by such proposal.

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At the Effective Time, each option to purchase shares of the Company (each, a “Company Option”) that is then outstanding and unexercised, whether or not vested and which has a per share exercise price that is less than the Merger Consideration (each, an “In the Money Option”), will be cancelled and converted into the right to receive a cash payment equal to (A) the excess of (x) the Merger Consideration over (y) the exercise price payable per share under such In the Money Option, multiplied by (B) the total number of shares subject to such In the Money Option immediately prior to the Effective Time (without regard to vesting). In addition, at the Effective Time, each Company Option other than an In the Money Option that is then outstanding and unexercised, whether or not vested, will be cancelled with no consideration payable in respect thereof. At the Effective Time, each then outstanding restricted stock unit with respect to shares of the Company (each, a “Company RSU”) will be canceled and the holder thereof will be entitled to receive a cash payment equal to the product of (x) the Merger Consideration and (y) the number of shares subject to such Company RSU. At the Effective Time, each then outstanding performance vesting restricted stock unit with respect to shares of the Company (each, a “Company PSU”) will be canceled and converted into a cash-based award, which will entitle the holder thereof to receive a cash payment equal to the product of (x) the Merger Consideration, and (y) the number of shares subject to such Company PSU, subject to the same terms and conditions (including vesting, forfeiture and acceleration provisions) that were applicable to the corresponding Company PSU immediately prior to the Effective Time.
The representations, warranties and covenants of the Company contained in the Merger Agreement have been made solely for the benefit of Astellas and Merger Sub. In addition, such representations, warranties and covenants (i) have been made only for purposes of the Merger Agreement, (ii) have been qualified by (a) subject to certain terms and conditions, matters specifically disclosed in the Company’s filings with the SEC prior to the date of the Merger Agreement and (b) confidential disclosures made to Astellas and Merger Sub in the disclosure letter delivered in connection with the Merger Agreement, (iii) are subject to materiality qualifications contained in the Merger Agreement which may differ from what may be viewed as material by investors, and (iv) have been included in the Merger Agreement for the purpose of allocating risk between the contracting parties rather than establishing matters as fact.
If the Merger is completed, the Company expects that its common stock will thereafter be removed from listing on the Nasdaq Global Select Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended, and the Company will cease to be a publicly traded company.
Bylaws Amendment
On April 28, 2023, the board of directors of the Company approved an amendment to the Company’s existing Amended and Restated Bylaws (the “Bylaws”) to add a new Article V, Section 9 forum selection provision (the “Forum Selection Amendment”).
The Forum Selection Amendment provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, stockholder, employee or agent of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company or any current or former director, officer, stockholder, employee or agent of the Company arising out of or relating to any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation of the Company or the Bylaws (each, as in effect from time to time), or (iv) any action asserting a claim against the Company or any current or former director, officer, stockholder, employee or agent of the Company governed by the internal affairs doctrine of the State of Delaware; provided, however, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding will be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources, so as to allow investors to better view our company from management’s perspective. This discussion and analysis should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 1, 2023, and elsewhere in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Merger Agreement
On April 28, 2023, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Astellas US Holdings, Inc., a Delaware corporation, or Astellas, Berry Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Astellas, or Merger Sub, and solely as provided by Section 8.10(b) of the Merger Agreement, Astellas Pharma Inc., a company organized under the laws of Japan, or the Guarantor, pursuant to which, among other things, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into our company, or the Merger, with our company surviving the Merger as a wholly owned subsidiary of Astellas. On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of our common stock, par value $0.001 per share, that is issued and outstanding as of immediately prior to the effective time of the Merger (other than Excluded Shares (as defined in the Merger Agreement) and Dissenting Shares (as defined in the Merger Agreement)) will be cancelled and automatically converted into the right to receive cash in an amount equal to $40.00, without interest, and subject to any withholding of taxes. The Merger Agreement requires Guarantor to guarantee the covenants, obligations (including payment obligations) and liabilities applicable to Astellas, Merger Sub or the surviving corporation, as applicable, under the Merger Agreement.
The Merger Agreement contains certain termination rights for us and Astellas. If the Merger Agreement is terminated under specified circumstances, we will be required to pay Astellas a termination fee of approximately $222.4 million.
Although we anticipate closing the Merger in the third calendar quarter of 2023, the closing of the Merger is subject to customary closing conditions, and we may not complete the pending Merger with Astellas within the timeframe we anticipate, or at all. If the Merger is completed, we expect that our common stock will thereafter be removed from listing on the Nasdaq Global Select Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended, and we will cease to be a publicly traded company. However, except as otherwise indicated, we have prepared this Quarterly Report on Form 10-Q and the forward-looking statements contained in this Quarterly Report as if we were going to remain an independent, standalone company. If the Merger is consummated, many of the forward-looking statements contained in this Quarterly Report on Form 10-Q would no longer be applicable.
For further discussion, refer to “Note 10-Subsequent Events”, in the notes to the financial statements filed with this Quarterly Report on Form 10-Q. In addition, please refer to “Item 1A. Risk Factors – Risks Related to our Pending Merger with Astellas” in Part II, Item 1A. of this Quarterly Report on Form 10-Q for a discussion of the relevant risks regarding the pending Merger with Astellas.
Overview
We are a science-driven biopharmaceutical company focused on the discovery and development of novel treatments for retinal diseases with significant unmet medical needs. We are committed to having a positive impact on patients’ lives by delivering high-quality, safe and effective treatments designed to address debilitating retinal diseases, including earlier stages of age-related macular degeneration, or AMD.
Our lead asset is our clinical stage product candidate avacincaptad pegol, which is also referred to as ACP, a complement C5 inhibitor. We are currently targeting the following diseases with ACP:
Geographic Atrophy, or GA, which is the advanced stage of AMD and is characterized by marked thinning or atrophy of retinal tissue, leading to irreversible loss of vision;
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intermediate AMD, which is an earlier stage of AMD; and
autosomal recessive Stargardt disease, or STGD1, which is an orphan inherited condition characterized by progressive damage to the central portion of the retina, or the macula, and other retinal tissue, leading to loss of vision.
In October 2019, we announced positive 12-month data for GATHER1, our first Phase 3 clinical trial evaluating ACP for the treatment of GA secondary to AMD. In GATHER1, 286 patients were randomized to receive various doses of ACP, including ACP 2 mg, or sham control. We observed a 27.7% (p-value = 0.0063) reduction in the mean rate of growth (slope) estimated based on GA area between the ACP 2 mg group and the corresponding sham control group over 12 months, when performing the primary analysis, and a 35.4% (p-value = 0.0050) reduction in the mean rate of growth (slope) estimated based on GA area between the two groups over 12 months, when performing the supportive analysis. These results are based on an analysis of the primary efficacy endpoint required by the U.S. Food and Drug Administration, or FDA, in accordance with our Special Protocol Assessment, or the SPA, which we describe further below. We analyzed the endpoint by using the square root transformation of the GA area, which we refer to as the primary analysis, and we analyzed the endpoint by using the observed GA area (without square root transformation), which we refer to as the supportive analysis. In GATHER1, through month 12, we did not observe any events of endophthalmitis or ischemic optic neuropathy events, and only one case of intraocular inflammation, which was mild and transient and reported as related to the injection procedure. The incidence of choroidal neovascularization, or CNV, in the study eye through month 12 was 6 patients (9.0%) in the ACP 2 mg group and 3 patients (2.7%) in the corresponding sham control group.
In June 2020, we started enrolling patients in GATHER2, our second Phase 3 clinical trial evaluating ACP for the treatment of GA secondary to AMD. In July 2021, we received a written agreement from the FDA under the SPA for the overall design of GATHER2. The SPA is a procedure by which the FDA provides a clinical trial sponsor with an official evaluation and written guidance on the design of a proposed protocol intended to form the basis for a new drug application, or NDA. In connection with our SPA, the FDA recommended, and we accepted, modifying the primary efficacy endpoint for the GATHER2 trial from the mean rate of change in GA area over 12 months measured by fundus autofluorescence, or FAF, at three timepoints: baseline, month 6 and month 12, to the mean rate of growth (slope) estimated based on GA area measured by FAF in at least three timepoints: baseline, month 6 and month 12.
In September 2022, we announced positive 12-month top-line data for GATHER2. In GATHER2, 448 patients were randomized on a 1:1 basis to receive ACP 2 mg or sham control over the first 12 months of the trial. At 12 months, we measured the primary efficacy endpoint in accordance with the SPA. In GATHER2, we observed a 14.3% (p-value = 0.0064) reduction in the mean rate of growth (slope) in GA area between the two groups at 12 months with the primary analysis, and a 17.7% (p-value = 0.0039) reduction in the mean rate of growth (slope) in GA area between the two groups at 12 months with the supportive analysis. We did not observe any events of endophthalmitis, intraocular inflammation events, events of vasculitis or ischemic optic neuropathy events through month 12, and the incidence of CNV in the study eye through month 12 was 15 patients (6.7%) in the ACP 2 mg group and 9 patients (4.1%) in the sham control group.
In March 2023, we announced results from an exploratory time-to-event analysis from the GATHER1 and GATHER2 clinical trials evaluating reduction in vision loss with ACP 2 mg versus sham treatment. The GATHER1 and GATHER2 clinical trials were designed to evaluate the rate of GA lesion growth in patients with GA secondary to AMD. The post-hoc analysis for vision loss from these pivotal trials signals up to a 59% reduction in rate of vision loss with ACP 2 mg compared to sham treatment at 12 months. The results were consistent in the GATHER1 and GATHER2 clinical trials independently, signaling a 44% reduction (Hazard Ratio 0.56 with 95% CI, 0.15-2.06) and a 59% percent reduction (Hazard Ratio 0.41 with 95% CI, 0.17-1.00) respectively in the rate of vision loss with ACP 2 mg compared to sham over the first 12 months of treatment. In a combined analysis of GATHER1 and GATHER2, patients treated with ACP 2 mg experienced a 56% reduction (Hazard Ratio 0.44, with 95% CI, 0.21-0.92) in the rate of vision loss compared to sham over the first 12 months of treatment. Vision loss in this analysis was defined as a loss of ≥15 letters (EDTRS) in best corrected visual acuity, or BCVA, from baseline measured at any two consecutive visits up to month 12.
We believe that with the statistically significant results from our GATHER1 and GATHER2 trials and the safety profile of ACP to date, we have sufficient data from two independent, adequate and well-controlled pivotal clinical trials of ACP in GA secondary to AMD to support an application for marketing approval. In November 2022, the FDA granted breakthrough therapy designation to ACP for the treatment of GA secondary to AMD. In December 2022, we completed the rolling submission of our NDA to the FDA for marketing approval of ACP for the treatment of GA secondary to AMD. In February 2023, the FDA accepted our NDA for filing and granted priority review with a Prescription Drug User Fee Act, or PDUFA, target action date of August 19, 2023.
In addition to ACP, we are developing our preclinical product candidate IC-500, a High temperature requirement A serine peptidase 1 protein, or HtrA1, inhibitor, for GA secondary to AMD and potentially other age-related retinal diseases.
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Our portfolio also includes several ongoing gene therapy research programs, each of which uses adeno-associated virus, or AAV, for gene delivery. These AAV mediated gene therapy programs are targeting the following orphan inherited retinal diseases, or IRDs:
Leber Congenital Amaurosis type 10, or LCA10, which is characterized by severe bilateral loss of vision at or soon after birth;
STGD1; and
IRDs associated with mutations in the USH2A gene, which include Usher syndrome type 2A, or Usher 2A, and USH2A-associated non-syndromic autosomal recessive retinitis pigmentosa.
Research and Development Pipeline
We have summarized the current status of our ongoing research and development programs in the table below.
pipeline May 2023.jpg
Therapeutic Development Programs
Avacincaptad Pegol
Avacincaptad pegol, our complement C5 inhibitor, is a chemically-synthesized, pegylated RNA aptamer. Aptamers are short molecules made up of a single stranded nucleic acid sequence or amino acid sequence that binds molecular targets with high selectivity and specificity. The following are brief descriptions of the regulatory status, commercial planning, manufacturing activities, clinical trials and lifecycle management activities for ACP.
Avacincaptad pegol Regulatory Status
Our NDA for marketing approval of ACP for the treatment of GA secondary to AMD is currently under review by the FDA, with a PDUFA target action date of August 19, 2023. In April 2023, we had a mid-review cycle meeting with the FDA, during which the FDA communicated that no significant issues had been identified in our NDA at that time.
In April 2023, we had a joint rapporteur and co-rapporteur pre-submission meeting to discuss and obtain feedback on the overall content and format of our planned marketing authorization application, or MAA, to the European Medicines Agency, or EMA. We believe the discussions at this meeting support our regulatory strategy for seeking marketing approval from the EMA for ACP for the treatment of GA secondary to AMD. We are also planning for a similar interaction with the Medicines and Healthcare products Regulatory Agency, or MHRA, in the United Kingdom. We are planning to submit MAAs to the EMA and the MHRA during the third quarter of 2023.
Commercial Preparation Activities
We are continuing to build our commercial capabilities and infrastructure in anticipation of a potential launch of ACP in the United States for GA, if approved. In April 2023, we completed the hiring of a majority of our field based sales force, and we expect to complete the hiring of the remainder of our sales force before potential launch. In addition, we are continuing to hire additional personnel across core areas such as marketing, patient access and reimbursement, analytics and operations, and
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product distribution. We are continuing to build internal and external infrastructure to support our planned commercialization efforts.
Avacincaptad Pegol Manufacturing
We are working with our historical contract manufacturer for avacincaptad pegol drug substance, Agilent Technologies, Inc., or Agilent, to scale up and potentially validate the manufacturing process for avacincaptad pegol drug substance. In 2022, Agilent completed the manufacture of multiple batches of avacincaptad pegol drug substance at a larger scale, a scale which we believe can support commercial launch, if approved. In March 2023, we entered into an agreement with Agilent for long-term commercial manufacture and supply of ACP drug substance. We are continuing to work with Agilent on additional scale up and validation activities.
In parallel, we are working with a new contract manufacturer with the goal of assessing whether this manufacturer can produce ACP drug substance at an adequate scale for potential commercial use. Subject to successful completion of scale up and validation activities, we currently plan to use Agilent as the primary source of supply of ACP drug substance upon launch, if approved, and the new manufacturer as a second source of supply of ACP drug substance.
We are working with our historical fill/finish manufacturer, Ajinomoto Bio-Pharma Services, or Ajinomoto, on fill/finish of avacincaptad pegol drug product. We believe Ajinomoto has the capacity to supply us with avacincaptad pegol drug product for our expected commercial supply needs upon launch, if approved. We are continuing discussions with Ajinomoto for long-term supply of ACP drug product and are assessing additional suppliers of ACP drug product.
We order the polyethylene glycol, or PEG, starting material used to make avacincaptad pegol drug substance from a sole source third-party manufacturer outside the United States. We currently procure the supply on a purchase order basis and are continuing discussions regarding a long-term supply agreement with this manufacturer for the PEG starting material. We believe this supplier has the capacity to supply us with the PEG at the scale that we will need for commercial manufacturing.
We have also engaged a third-party manufacturer to package ACP drug product to produce finished goods for potential commercial distribution.
ACP Clinical Trials
The following are brief summaries of the status of our ongoing clinical trials for ACP.
GATHER2 (GA secondary to AMD)
GATHER2 is an international, randomized, double-masked, sham controlled, multi-center Phase 3 clinical trial evaluating the safety and efficacy of avacincaptad pegol for the treatment of GA secondary to AMD. 448 patients were enrolled in this trial. In September 2022, we announced 12-month top-line data from this trial. We plan to treat and follow patients for 24 months in total.
ISEE2009 Open-Label Extension Study
We initiated an open-label extension study, or the OLE study, which is an international, open-label, multi-center clinical trial assessing the safety of intravitreal administration of avacincaptad pegol in patients who completed their month 24 visits in the GATHER2 trial. All patients participating in the OLE study will receive monthly doses of avacincaptad pegol 2 mg, regardless of the treatment arm (avacincaptad pegol or sham procedure) that they were randomized to in GATHER2. We are continuing to enroll patients and plan to treat and follow patients for up to 18 months or until marketing approval of avacincaptad pegol in the applicable region, whichever is sooner.
STAR (STGD1)
STAR is an international, randomized, double-masked, sham controlled, multi-center clinical trial evaluating the safety and efficacy of avacincaptad pegol for the treatment of STGD1. We initially enrolled 95 patients in the STAR trial, none of whom have any remaining study visits. We continue to enroll new patients in the United States and plan to enroll approximately 25 additional patients, with the goal of enrolling a total of approximately 120 patients. Newly enrolled patients are randomized on a 1:1 basis to be treated with either avacincaptad pegol 4 mg or sham for 18 months. We have been and plan to remain masked to the treatment group of all patients in the trial. In addition, we have not reviewed and do not plan to review or analyze efficacy data for any patients in the trial, until the 18-month data has been collected and analyzed for all patients enrolled in the trial.


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Avacincaptad Pegol Lifecycle Initiatives
We continue to pursue multiple sustained release delivery technologies for avacincaptad pegol, including conducting feasibility studies of avacincaptad pegol with those technologies and analyzing and evaluating the resulting formulations. One of the technologies is DelSiTech’s proprietary silica-based sustained release technology, with which we are continuing formulation and other studies. In addition to DelSiTech’s technology, we continue to evaluate other sustained release delivery technologies for avacincaptad pegol. If any of the other resulting formulations are promising, we may pursue long-term development collaborations with those technologies.
Gene Therapy Research and Development Programs
Minigene Programs
The following is a summary of our minigene programs and their status:
miniCEP290 (LCA10): This program, which we refer to as the miniCEP290 program, is targeting LCA10, which is associated with mutations in the CEP290 gene. In July 2019, we entered into a license agreement with the University of Massachusetts, or UMass, for exclusive development and commercialization rights to this program. We have identified a lead construct from this program and are considering preclinical development options.
miniABCA4 (STGD1): This program, which we refer to as the miniABCA4 program, is targeting STGD1, which is associated with mutations in the ABCA4 gene. We have identified a lead construct from this program and are considering preclinical development options. We are discussing with UMass our plans for this program.
miniUSH2A (USH2A-related IRDs): This program, which we refer to as the miniUSH2A program, is targeting IRDs associated with mutations in the USH2A gene, including Usher 2A and USH2A-associated non-syndromic autosomal recessive retinitis pigmentosa. UMMS generated and evaluated several USH2A minigene constructs in in vitro experiments and we are planning to evaluate their efficacy in animals. The animal experiments were delayed as a result of transitioning the work from UMMS to us. We are discussing with UMass our plans for this program.
IC-500: HtrA1 Inhibitor
IC-500 is our preclinical product candidate for the treatment of GA secondary to AMD and potentially other age-related retinal diseases.
We are currently evaluating this program in light of available scientific and clinical information about this mechanism of action and our strategic goals. We do not currently expect to submit an investigational new drug application, or IND, to the FDA for IC-500 during the first half of 2024, as previously planned.
Business Development and Financing Activities
As we prepare for the potential marketing approval and potential commercial launch of ACP, progress our research and development programs and evaluate our overall strategic priorities, we continue to pursue selective business development and financing opportunities that advance us toward our strategic goals. We plan to continue to evaluate, on a selective and targeted basis, opportunities to obtain rights to additional product candidates and technologies for retinal diseases, with a focus on additional sustained release delivery technologies for ACP.
Please see our Annual Report on Form 10-K for the year ended December 31, 2022 for information about our exclusive license agreement with DelSiTech for its sustained release delivery technology for ACP and our asset purchase agreement with Opus Genetics Inc., or Opus, for our former preclinical stage gene therapy product candidates, IC-100 and IC-200.
For information about our $250.0 million term loan facility, or the 2022 Term Loan Facility, with Hercules Capital, Inc., or Hercules, and Silicon Valley Bank, or SVB, and our follow-on public offering completed in December 2022, please see the Liquidity and Capital Resources section of this Management' s Discussion and Analysis of Financial Condition and Results of Operations. We believe we have sufficient financial resources to launch ACP for GA in the United States, if approved based on our current expectations.
Financial Matters
As of March 31, 2023, we had approximately $599.9 million in cash, cash equivalents and available-for-sale securities. We estimate that our cash, cash equivalents, available for sale securities and committed loan facilities will be sufficient to fund our planned capital expenditure requirements, debt service obligations and operating expenses through at least the next twelve
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months. These estimates do not include any potential new borrowings under the 2022 Term Loan Facility with Hercules and SVB beyond the $25.0 million that we plan to borrow during 2023 based on our achievement of the performance milestone related to the FDA's acceptance of our NDA for marketing approval of avacincaptad pegol for the treatment of GA secondary to AMD. In the event that SVB or any successor is unable to fund its portion of the commitments for the $25 million tranche that the we plan to borrow as a result of recent events, including the FDIC takeover of SVB and the subsequent sale of SVB’s successor, Silicon Valley Bridge Bank, to First-Citizens Bank & Trust Company in March 2023, we do not believe such failure to fund would have a material effect on our cash balances or financial condition.
Financial Operations Overview
Revenue
As we have no products approved for sale, we do not expect to receive any revenue related to our product candidates until we obtain regulatory approval for and commercialize such products, or until we potentially enter into agreements with third parties for the development and commercialization of our product candidates. For example, if the FDA approves our NDA for marketing approval of avacincaptad pegol for the treatment of GA secondary to AMD and we successfully launch ACP in the United States, we expect to generate revenues from product sales.
Our ability to become and remain profitable depends on our ability to generate revenues in excess of our expenses. Our ability to generate revenues from product sales is dependent on our obtaining marketing approval for and commercializing our product candidates or any product candidates we may in-license or acquire. We may be unsuccessful in our efforts to develop and commercialize product candidates or in our efforts to in-license or acquire additional product candidates. Even if we succeed in developing and commercializing one or more of our product candidates, we may never achieve sufficient sales revenue to achieve or maintain profitability.
Research and Development Expenses
Our research and development expenses primarily consist of costs associated with the manufacturing, development, and preclinical and clinical testing of our product candidates and costs associated with our gene therapy research programs. Our research and development expenses consist of:
external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, contract development and manufacturing organizations, or CDMOs, and other vendors for the production and analysis of drug substance, drug product and finished goods; and
employee-related expenses for employees dedicated to research and development activities, including salaries, benefits and share-based compensation expense.
Research and development expenses also include costs of acquired product licenses, in-process research and development, and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to collaborative partners.
All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, 730, Research and Development. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we record expenses by functional department. Accordingly, we do not allocate expenses to individual projects or product candidates, although we do allocate some portion of our research and development expenses by project area or product candidate, as shown below.
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The following table summarizes our research and development expenses for the three months ended March 31, 2023 and March 31, 2022:
 Three Months Ended March 31,
 20232022
 (in thousands)
Avacincaptad Pegol$27,328 $14,169 
IC-500: HtrA1316 695 
Other gene therapy51 40 
Prior product candidate IC-100— (320)
Prior product candidate IC-200— (298)
Personnel-related8,726 5,512 
Share-based compensation5,541 2,661 
Other121 98 
Total$42,083 $22,557 
As we continue our ongoing clinical trials and the OLE study and continue our ongoing and planned manufacturing and lifecycle management activities for avacincaptad pegol, we expect our research and development expenses for avacincaptad pegol to increase. We expect our research and development expenses for our minigene research programs to increase as we plan for and initiate additional preclinical development and manufacturing activities. We expect our research and development expenses for IC-500 to decrease. Our research and development expenses may increase if we in-license or acquire any new product candidates or technologies or if we commence any new development programs.
See the “Liquidity and Capital Resources” section of this Quarterly Report on Form 10-Q for more information regarding our current and future financial resources and our expectations regarding our research and development expenses and funding requirements.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation expense, in our executive, legal, finance, business development, commercial operations, human resources, investor relations and information technology functions. Other general and administrative expenses include facility costs and professional fees for legal, including patent-related, services and expenses, consulting and accounting services, and travel expenses.
We expect our general and administrative expenses to increase as we continue to hire personnel for our commercial organization, including sales, marketing, access and reimbursement and operations personnel, and as we continue to build our capabilities for the commercial launch of ACP, if approved. Our general and administrative expenses may further increase if the market opportunity for avacincaptad pegol exceeds our current expectations and we need to hire additional commercialization personnel and/or incur additional outside service fees in order to commercialize ACP, if approved. Our general and administrative expenses may also increase if we choose to hire additional personnel and incur additional fees and expenses for our general and administrative function areas. In light of the pending acquisition of our company by Astellas, we anticipate incurring additional legal, accounting and other advisory fees in relation to the transactions contemplated by the Merger Agreement and the consummation thereof.
Interest Income, Net
Interest income, net, consists of interest income earned on our cash, cash equivalents and marketable securities offset by interest expense recognized on our debt.
We currently have invested our cash, cash equivalents and available for sale securities in money market funds, U.S. Treasury securities, investment-grade corporate debt securities, asset-backed securities, and debt instruments issued by foreign governments. Interest income earned is offset by amortization of premiums and accretion of discounts to maturity on our marketable securities.
Interest expense consists of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our debt. Debt discount is accreted, and debt issuance costs are amortized, to interest expense using the effective interest rate method over the term of the debt. Our consolidated balance sheets reflect debt, net of the debt discount, debt issuance costs paid to the lender and other third-party costs.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses and share-based compensation described in greater detail below. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Of those policies, we believe that the following accounting policies are the most critical to aid our stockholders in fully understanding and evaluating our financial condition and results of operations.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses related to our CROs, CDMOs and other vendors in connection with research and development and manufacturing activities.
We base our expenses related to CROs and CDMOs on our estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented in this Quarterly Report on Form 10-Q.
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Results of Operations
Comparison of Three Month Periods Ended March 31, 2023 and 2022
 Three months ended March 31,
 20232022Increase
(Decrease)
 (in thousands)
Statements of Operations Data:   
Operating expenses:   
Research and development$42,083 $22,557 $19,526 
General and administrative31,758 12,113 19,645 
Total operating expenses73,841 34,670 39,171 
Loss from operations(73,841)(34,670)39,171 
Interest income, net3,461 133 3,328 
Other (expense) income, net (1,849)(1,850)
Loss before income tax benefit(72,229)(34,536)37,693 
Income tax benefit— — — 
Net loss$(72,229)$(34,536)$37,693 
Research and Development Expenses
Our research and development expenses were $42.1 million for the three months ended March 31, 2023, an increase of $19.5 million compared to $22.6 million for the three months ended March 31, 2022. The increase in research and development expenses for the three months ended March 31, 2023 was primarily due to a $13.2 million increase in costs associated with avacincaptad pegol, including the ongoing GATHER2 trial, increased manufacturing activities and the initiation of the OLE study. In addition, the increase in research and development expenses was due to a $6.1 million increase in personnel costs, including share-based compensation associated with additional research and development staffing. The increase in research and development expenses was partially offset by a $0.4 million decrease in costs associated with IC-500. The decreased costs for IC-500 primarily reflect decreased manufacturing and preclinical development activities.
General and Administrative Expenses
Our general and administrative expenses were $31.8 million for the three months ended March 31, 2023, an increase of $19.6 million compared to $12.1 million for the three months ended March 31, 2022. The increase in general and administrative expenses for the three months ended March 31, 2023 was primarily due to increases in personnel costs, including share-based compensation associated with staffing for commercial preparation.
Interest Income, net
Interest income, net for the three months ended March 31, 2023 was $3.5 million compared to interest income of $133 thousand for the three months ended March 31, 2022. Interest income for the three months ended March 31, 2023 was partially offset by $3.0 million of interest expense which was due to our borrowings under the 2022 Term Loan Facility. There was no interest expense for the three months ended March 31, 2022. The increase in interest income for the three months ended March 31, 2023 was primarily due to rising interest rates and an increase in our cash equivalents and marketable securities average balances.
Other (Expense) Income, net
Other expense for the three months ended March 31, 2023 was $1.8 million compared to other income of $1 thousand for the three months ended March 31, 2022. During the quarter ended March 31, 2023, we recognized a $1.9 million expense associated with the impairment of our investment in Opus Genetics Inc. This expense was partially offset by income primarily related to exchange rate fluctuations associated with foreign currency transactions.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our operations primarily through private placements of our common stock and preferred stock, venture debt borrowings, funds received under our prior Fovista royalty purchase and sale agreement with
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Novo Holdings A/S, our initial public offering, which we closed in September 2013, funds we received under a prior agreement with Novartis Pharma AG related to the licensing and commercialization of Fovista, funds we received in connection with our acquisition of Inception 4, Inc., or Inception 4, in October 2018, our follow-on public offerings, which we closed in February 2014, December 2019, June 2020, July 2021, October 2021 and December 2022 and borrowings under the 2022 Term Loan Facility with Hercules and SVB.
In July 2022 we entered into a Loan and Security Agreement, or the Loan Agreement, with Hercules and SVB for the 2022 Term Loan Facility, which consists of several tranches of potential financing in an aggregate principal amount of up to $250.0 million. The first tranche consisted of a term loan advance in the amount of $50.0 million funded upon execution of the Loan Agreement on July 26, 2022. An aggregate of $150.0 million may be drawn at our option, in three separate tranches, subject to our achievement of specified performance milestones relating to development and regulatory events for avacincaptad pegol, as described below in “—Contractual Obligations and Commitments”. We met the first milestone under the Loan Agreement and in December 2022 drew the second tranche consisting of a term loan advance in the amount of $50.0 million. We believe we have met the second milestone under the Loan Agreement and can draw the third tranche consisting of a term loan in the amount of $25.0 million, which we plan to draw in 2023. An additional $50.0 million is available subject to the approval of the lenders’ investment committee in its discretion. Loans outstanding under facility bear interest at a floating interest rate per annum equal to the greater of either (i) (x) the lesser of the Wall Street Journal prime rate and 6.25% plus (y) 4.00% or (ii) 8.75%, capped at 10.25%. The facility matures in August 2027 and has an initial interest-only payment period of 42 months, which may be extended to up to 60 months upon the satisfaction of certain conditions.
We currently have an effective universal shelf registration statement on Form S-3, or the March 2021 Shelf Registration, on file with the SEC registering for sale from time to time up to $300.0 million of common stock, preferred stock, debt securities, depositary shares, subscription rights, warrants and/or units in one or more registered offerings, of which $100.0 million may be offered, issued and sold under an “at-the-market” Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC. We also have an automatically effective shelf registration statement on Form S-3, or the October 2021 Shelf Registration, pursuant to which we may offer and sell an indeterminate amount of shares of common stock, preferred stock, debt securities, depositary shares, subscription rights, warrants and/or units in one or more registered offerings.
In July 2021, we closed an underwritten public offering in which we sold 13,397,500 shares of our common stock under the March 2021 Shelf Registration, which included the exercise in full of the underwriters’ option to purchase an additional 1,747,500 shares of our common stock, at a price to the public of $8.60 per share and at a price to the underwriters of $8.084 per share. The net proceeds from the public offering, after deducting underwriting discounts and commissions and other offering expenses payable by us totaling approximately $7.4 million, were approximately $107.8 million.
In October 2021, we closed an underwritten public offering in which we sold 10,350,000 shares of our common stock, under the October 2021 Shelf Registration, which included the exercise in full of the underwriters’ option to purchase an additional 1,350,000 shares of our common stock, at a price to the public of $16.750 per share and at a price to the underwriters of $15.745 per share. The net proceeds from the public offering, after deducting underwriting discounts and commissions and other offering expenses payable by us totaling approximately $10.8 million, were approximately $162.6 million.
In December 2022, we completed an underwritten public offering in which we sold 15,352,500 shares of our common stock under the October 2021 Shelf Registration, which included the exercise in full of the underwriters’ option to purchase 2,002,500 shares of our common stock, at a price to the public of $22.50 per share and at a price to the underwriters of $21.150 per share. The net proceeds from the December 2022 public offering, after deducting underwriting discounts and commissions and other expenses payable by us totaling approximately $21.1 million, were approximately $324.3 million.
We have not yet issued and sold any shares of our common stock under the ATM Agreement.
Cash Flows
As of March 31, 2023, we had cash, cash equivalents and available-for-sale securities totaling $599.9 million. We currently have invested our cash, cash equivalents and available for sale securities in money market funds, U.S. Treasury securities, certain asset-backed securities and certain investment-grade corporate debt securities.
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The following table shows a summary of our cash flows for the three months ended March 31, 2023 and 2022:
 Three months ended March 31,
 20232022
 (in thousands)
Net cash (used in) provided by:
Operating Activities$(50,593)$(37,512)
Investing Activities39,272 (34,148)
Financing Activities2,589 2,080 
Net change in cash and cash equivalents$(8,732)$(69,580)
Cash Flows from Operating Activities
Net cash used in operating activities was $50.6 million and $37.5 million for the three months ended March 31, 2023 and 2022, respectively, which primarily related to net cash used to fund our avacincaptad pegol clinical trials and manufacturing activities and commercial planning for potential launch of avacincaptad pegol, if approved, our preclinical development of IC-500, our gene therapy research programs and to support our general and administrative operations.
See “—Funding Requirements” below for a description of how we expect to use our cash for operating activities in future periods.
Cash Flows from Investing Activities
Net cash provided by investing activities was $39.3 million for the three months ended March 31, 2023, which primarily related to the maturity of marketable securities. Net cash used in investing activities was $34.1 million for the three months ended March 31, 2022, which primarily related to the purchases of marketable securities.
Cash Flows from Financing Activities
Net cash provided by financing activities was $2.6 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively, which primarily consisted of proceeds related to stock option exercises and purchases made under our employee stock purchase plan.
Funding Requirements
ACP is in clinical development, IC-500 is in preclinical development, and we are exploring multiple sustained release delivery technologies for ACP and advancing multiple gene therapy research programs. We expect our research and development expenses to increase as we pursue these programs as currently planned. We could incur additional research and development expenses if we modify or further expand the scope of our clinical trials, such as our initiation of the OLE study for ACP in GA secondary to AMD, our preclinical development programs or our gene therapy research programs, or if we in-license or acquire, and undertake development of, additional product candidates and technologies, including additional sustained release delivery technologies for ACP and any promising product candidates that emerge from our gene therapy research programs. We could also incur additional research and development expenses if, for example, we are required by the FDA, the EMA or regulatory authorities in other jurisdictions, or if we otherwise decide, to perform clinical trials and/or nonclinical or other studies in addition to those we currently expect to conduct. If we experience delays or disruptions to our research and development programs, including delays in patient enrollment or issues with patient retention or patients missing scheduled visits and treatments, if we experience issues with our preclinical development programs, such as unfavorable toxicology or other preclinical data, if we experience issues with the manufacture and supply of product candidates, including issues with process development or manufacturing scale-up activities, whether such delays or disruptions are due to the COVID-19 pandemic or other reasons, we could incur additional and unexpected expenses as a result of such delays or disruptions and our business and financial results may be materially impacted. Furthermore, if we successfully develop and expect to obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. We have started incurring these expenses as we prepare for the potential commercialization of ACP. We are party to agreements with Archemix with respect to ACP, DelSiTech with respect to formulations of ACP with DelSiTech’s silica-based sustained release delivery technology, the former equityholders of Inception 4 with respect to IC-500, and UMass with respect to any potential product candidates from our miniCEP290 program, in each case, that impose significant milestone payment obligations on us if we or a potential collaborator achieves specified clinical, regulatory and commercial milestones with respect to these product candidates, as well as certain royalties on net sales with respect to formulations of ACP with DelSiTech’s silica-based sustained release delivery technology and any product candidates we choose to develop from our miniCEP290 program. It is likely that any future in-
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licensing or acquisition agreements that we enter into with respect to additional product candidates or technologies would include similar obligations. 
We expect that we will continue to incur significant expenses as we:
build our commercial operations and sales, marketing and distribution capabilities for ACP;
expand our outsourced manufacturing capabilities for ACP;
continue the development of ACP in GA, STGD1 and potentially other indications;
seek marketing approval for ACP and any other product candidates that successfully complete clinical trials;
in-license or acquire the rights to, and pursue the development of, other product candidates or technologies for retinal diseases, such as sustained release delivery technologies for ACP;
continue the development of IC-500 and pursue our gene therapy research programs;
maintain, expand and protect our intellectual property portfolio;
hire additional commercial, medical affairs, clinical, regulatory, pharmacovigilance, manufacturing, quality control, quality assurance and scientific personnel; and
expand our general and administrative functions to support our future growth.   
As of March 31, 2023, we had approximately $599.9 million in cash, cash equivalents and available-for-sale securities. We estimate that our cash, cash equivalents, available for sale securities and committed loan facilities will be sufficient to fund our planned capital expenditure requirements, debt service obligations and operating expenses through at least the next twelve months. These estimates do not include any potential new borrowings under the 2022 Term Loan Facility with Hercules and SVB beyond the $25.0 million that we plan to borrow during 2023 based on our achievement of the performance milestone related to the FDA's acceptance of our NDA for marketing approval of avacincaptad pegol for the treatment of GA secondary to AMD. In the event that SVB or any successor is unable to fund its portion of the commitments for the $25 million tranche that the we plan to borrow as a result of recent events, including the FDIC takeover of SVB and the subsequent sale of SVB’s successor, Silicon Valley Bridge Bank, to First-Citizens Bank & Trust Company in March 2023, we do not believe such failure to fund would have a material effect on our cash balances or financial condition.
Although we believe we have sufficient financial resources to launch ACP for GA secondary to AMD in the United States, if approved with labeling consistent with our expectations, we may need additional funding to continue to commercialize ACP for GA, if approved. We expect we will require substantial, additional funding in order to complete the activities necessary to develop and commercialize ACP for other indications, a sustained release delivery technology for ACP or any of our other product candidates. At this time, we cannot reasonably estimate the total remaining costs necessary to complete development, to complete process development and manufacturing scale-up and validation activities and to potentially seek marketing approval for ACP for any other indication, a sustained release delivery technology for ACP or for any of our other product candidates. 
Our future capital requirements will depend on many factors, including:
the costs, timing and outcome of regulatory filings and reviews of our product candidates, including regulatory review of our filed NDA and the planned submission of MAAs for ACP in GA secondary to AMD;
the timing, scope and costs of establishing a commercial infrastructure for potential commercialization of ACP, including the hiring and deployment of a sales force and the establishment of sales, marketing and distribution capabilities;
the scope, progress, costs and results of process development, manufacturing scale-up and validation activities, analytical method development and qualification, and stability studies associated with ACP and our other product candidates;
the scope, progress, costs and results of our current and future ACP clinical programs and any further development we may undertake;
the extent to which we in-license or acquire rights to, and undertake research or development of, additional product candidates or technologies, including sustained release delivery technologies for ACP;
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the extent of our debt service obligations and our ability, if desired, to refinance any of our existing debt on terms that are more favorable to us;
the scope, progress, costs and results of our efforts to develop IC-500, including activities to establish manufacturing capabilities and complete other preclinical development activities;
the scope, progress, costs and results from our gene therapy research programs, including costs related to the in-license and future development of any promising product candidates and technologies that emerge from these programs;
the timing and extent of delays or disruptions to our research and development programs as a result of the COVID-19 pandemic and other macro-economic events;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending intellectual property-related claims; and
subject to receipt of marketing approval, net revenue received from commercial sales of any of our product candidates, after milestone payments and royalty payments that we would be obligated to make.
Our ability to raise adequate additional financing when needed, and on terms acceptable to us, will depend on many factors. These factors include investors' perceptions of the potential success of our ongoing business, including the develop