Atea Pharmaceuticals, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2020

OR

For the transition period from _______________ to _______________

Commission File Number: 001-39661

ATEA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

(857) 284-8891

(Registrant’s telephone number, including area code)

N/A

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

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

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, 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.

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 December 10, 2020, the registrant had 82,616,937 shares of common stock, $0.001 par value per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors,” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” refer to Atea Pharmaceuticals, Inc. and its subsidiary.  All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. The principal risks and uncertainties affecting our business include the following:

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Table of Contents

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ATEA PHARMACEUTICALS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

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

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ATEA PHARMACEUTICALS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

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

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ATEA PHARMACEUTICALS, INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(in thousands, except share amounts)

(Unaudited)

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

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ATEA PHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

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

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ATEA PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

(Unaudited)

1. Nature of Business

Background

Atea Pharmaceuticals, Inc., together with its subsidiary Atea Pharmaceuticals Securities Corporation, is referred to on a consolidated basis as the “Company”.

The Company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing antiviral therapeutics to improve the lives of patients suffering from life-threatening viral infections.

The accompanying unaudited consolidated financial statements are presented as of September 30, 2020 and for the three-month and nine-month periods then ended.   As discussed further in Note 13, there were several material events that occurred after September 30, 2020 which are described below:

Series D-1 Convertible Preferred Stock

In October 2020, the Company issued 8,973,261 shares of Series D-1 Convertible Preferred Stock at a purchase price of $11.98 per share for gross proceeds of $107,500 (the “Series D-1 Closing”).  

Roche License Agreement

In October 2020, the Company entered into the Roche License Agreement, granting Roche an exclusive license to develop and commercialize AT-527 outside of the United States (other than for certain use in connection with the hepatitis C indication). The Company also granted Roche a global license to manufacture AT-527 and agreed that Roche would manufacture the global commercial supply of AT-527 for uses other than the hepatitis C indication. As part of the consideration, Roche agreed to pay the Company an upfront payment of $350,000 (the “Roche Upfront Payment”), which was received in November 2020.

Initial Public Offering

In November 2020, the Company completed an initial public offering of its common stock (the “IPO”).  In connection with the IPO, the Company issued 14,375,000 shares of its common stock, including the exercise in full of the underwriters’ option to purchase up to 1,875,000 shares, at $24.00 per share for aggregate gross proceeds of $345,000 before deducting underwriting discounts and commissions of $24,150 and offering expenses of approximately $3,200.  As a result of the IPO, all shares of Series A, B, C, D and D-1 convertible preferred stock converted into 57,932,090 shares of common stock.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to clinical stage biopharmaceutical companies. These risks include, but are not limited to, potential failure of preclinical and clinical studies, uncertainties associated with research and development activities generally, competition from technical innovations of others, dependence upon key personnel, compliance with governmental regulations, the need to obtain marketing approval for any product candidate that the Company may discover and develop, the need to gain broad acceptance among patients, payers and health care providers to successfully commercialize any product for which marketing approval is obtained and the need to secure and maintain adequate intellectual property protection for the Company’s proprietary technology and products. Further, the Company is currently dependent on third-party service providers for much of its preclinical research, clinical development and manufacturing activities. Product candidates currently under development will require significant amounts of additional capital, additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations. The Company is also subject to risks associated with the COVID-19 global pandemic,

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including actual and potential delays associated with certain of its ongoing and anticipated trials, and potential negative impacts on the Company’s business operations and its ability to raise additional capital to finance its operations.

Through September 30, 2020, the Company financed its operations from the sale of convertible preferred stock. Since its inception, the Company has incurred recurring operating losses and negative cash flows from operations. As of September 30, 2020, the Company had an accumulated deficit of $85,816. The Company expects to continue to generate operating losses for the foreseeable future. The Company believes that its cash and cash equivalents of $105,383 as of September 30, 2020, together with the net proceeds from the Series D-1 Closing, the Roche Upfront Payment and the net proceeds from the IPO will be sufficient to fund its operations as currently planned through at least 2023.

The Company may seek additional capital through one or more of a combination of financing through the sale of additional equity securities, debt financing, or funding in connection with any additional collaborative relationships it may enter into or other arrangements. There can be no assurance that the Company will be able to obtain such additional funding, on terms acceptable to the Company, on a timely basis or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s existing shareholders.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s final prospectus for its IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC on October 30, 2020.

The preparation of unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in these accompanying notes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors and assumptions that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, which include but are not limited to estimates of accrued research and development expenses and the valuation of common stock in connection with the issuance of stock-based awards. Changes in estimates are recorded in the period in which they become known.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Atea Pharmaceuticals, Inc. and its wholly owned subsidiary, Atea Pharmaceuticals Securities Corporation. All intercompany amounts have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of September 30, 2020, the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020, the consolidated statements of convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2020 and 2019, and the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The results for the nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

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Cash and Cash Equivalents

The Company considers all highly-liquid investments purchased with maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include bank demand deposits and money market funds that invest in U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Concentrations of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains its cash and cash equivalents with a financial institution that management believes is creditworthy. The Company’s investment policy includes guidelines on the quality of the financial institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk.

The Company is dependent on third-party manufacturers to supply products for its research and development activities. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to its research and development activities. These activities could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Fair Value Measurements

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Observable inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determination of fair value of the assets or liabilities.

Cash, cash equivalents and restricted cash are Level 1 assets which are comprised of funds held in checking and money market accounts. Cash, cash equivalents and restricted cash were recorded at fair value as disclosed in Note 3. The carrying amounts of accounts payable and accrued expenses approximate their fair values due to their short-term maturities.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the asset. The Company estimates the useful life of its assets as follows:

Maintenance and repairs that do not improve or extend the life of the respective asset are expensed to operations as incurred. Upon disposal of an asset, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

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Other Assets

The Company capitalizes incremental legal, professional, accounting and other third-party fees that are directly associated with its financing activities as deferred financing costs included in other non-current assets until a particular financing is consummated. After consummation of a financing, the applicable costs will be recorded in stockholders’ equity as a reduction of additional paid-in-capital generated as a result of the financing.  As of September 30, 2020, IPO-related equity issuance costs of $1,537 were included in Other assets in the accompanying consolidated balance sheet. Also included in Other assets is restricted cash of $107, to collateralize a letter of credit.

Impairment of Long-lived Assets

The Company reviews long-lived assets when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book value of the assets to the estimated undiscounted future net cash flows that the asset is expected to generate. If the estimated undiscounted future net cash flows are less than the book value, the asset is impaired, and the impairment loss to be recognized in the statement of operations is measured as the amount by which the book value of the asset exceeds its fair value, which is measured based on the estimated discounted future net cash flows that the asset is expected to generate. No impairment losses were recorded during the three and nine months ended September 30, 2020 and 2019.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist principally of costs associated with outsourced research and development activities, including preclinical and clinical development, manufacturing and research conducted by contract research organizations and academic institutions, employee compensation and consulting expenses together with related expenses, professional fees and facility and overhead costs. Facility and overhead costs primarily include the allocation of rent, utility and office-related expenses attributable to research and development personnel. In circumstances where amounts have been paid in advance or in excess of costs incurred, the Company records a prepaid expense, which is expensed as services are performed or goods are delivered.

The Company has entered into various research and development contracts with third parties. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase of completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Patent Costs

Costs to secure and maintain the Company’s patents are expensed as incurred and are classified as general and administrative expenses in the Company’s consolidated statements of operations.

Stock-based Compensation

Stock-based compensation expense is classified in the consolidated statement of operations in the same manner in which the award recipient’s payroll costs or service payments are classified. Stock-based awards granted to employees and non-employees are measured based on the estimated fair value of the awards using the Black-Scholes option pricing model (“Black-Scholes”). Stock-based compensation expense with respect to awards with service conditions is recognized using the straight-line method over the service period. Stock-based compensation with respect to awards with performance conditions is recognized when satisfaction of the performance conditions is probable. Stock-based compensation is based on awards ultimately expected to vest and, as such, it is reduced by forfeitures. The Company accounts for forfeitures as they occur.

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Black-Scholes requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Fair value of common stock—Through September 30, 2020, because there was no public market for the Company’s common stock, the fair value of the Company’s common stock underlying stock-based awards was estimated on each grant date by the board of directors.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of a stock-based award.

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. Given the Company’s lack of specific history, the expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—Since the Company was privately held through September 30, 2020 and did not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected dividend yield —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets, which relate primarily to the carrying amount of the Company’s net operating loss carryforwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax assets where, based upon the available evidence, the Company concludes that it is more-likely-than-not that the deferred tax assets will not be realized. In evaluating its ability to recover deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income.

Reserves are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying tax position is considered more-likely-than-not to be sustained on examination by a taxing authority. Interest and penalties related to uncertain tax positions are recognized in the provision of income taxes.

Comprehensive Loss

Comprehensive income (loss) includes net income (loss) as well as other changes in stockholder equity (deficit) that result from transactions and economic events other than those with equity holders. The Company did not have any items of comprehensive income or loss other than net loss for the three and nine months ended September 30, 2020 and 2019.

Net Loss Per Share Attributable to Common Stockholders

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company considers its convertible preferred stock to be participating securities as, in the event a dividend is paid on common stock, the holders of convertible preferred stock would be entitled to receive dividends on a basis consistent with the common stockholders. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the convertible preferred stock do not have a contractual obligation to share in losses.

Since inception, the Company has incurred recurring operating losses and, as such, under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock. Under the two-class method,

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for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed by using the weighted-average number of shares of common stock outstanding. Due to net losses for the three and nine months ended September 30, 2020 and 2019, basic and diluted net loss per share attributable to common stockholders were the same, as the effect of all potentially dilutive securities would have been anti-dilutive.

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision maker (the “CODM”), in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its chief executive officer, who manages and allocates resources to the operations on a total company basis. Accordingly, there is a single operating segment and one reportable segment.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the standard is effective for the Company beginning January 1, 2021. The Company is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the standard is effective for the Company beginning January 1, 2021, with early adoption permitted. The Company is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.

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Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle and will require companies to use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 such that the standard is effective for annual periods beginning after December 15, 2018. The FASB subsequently issued amendments to ASU 2014-09 that have the same effective date and transition date. The Company adopted ASU 2014-09 as of January 1, 2019 and the adoption did not have an impact on the Company’s consolidated financial statements as the Company did not have any revenue-generating arrangements through September 30, 2020.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC 820. The goal of the ASU is to improve the effectiveness of ASC 820’s disclosure requirements. The standard is applicable to the Company for fiscal years beginning January 1, 2020, and interim periods within those years. The Company elected to early adopt this guidance effective January 1, 2019. The adoption of this guidance did not have an effect the Company’s consolidated financial statements.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of September 30, 2020 and December 31, 2019.

There were no transfers among Level 1, Level 2 or Level 3 categories in the three and nine months ended September 30, 2020 and 2019.

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4. Property and Equipment, net

Property and equipment, net, consist of the following:

Depreciation and amortization expense was $5 and $4 for the three months ended September 30, 2020 and 2019, respectively.  Depreciation and amortization expense was $13 and $13 for the nine months ended September 30, 2020 and 2019, respectively.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

6. Commitments and Contingencies

Operating Lease Agreements

The Company leases an office facility under a non-cancelable operating lease that expires July 2022. The office lease includes commitments obligating the Company to pay a pro rata share of certain building operating costs and annual rent escalations which will result in higher lease payments in future years. Rent expense is recognized on a straight-line basis over the term of the lease with the difference between expense and the payments recorded as deferred rent, which is included in accrued expenses and other current liabilities and other liabilities.

As of September 30, 2020, future minimum payments for operating leases are as follows:

Rent expense recognized under all operating leases was $70 and $70 for the three months ended September 30, 2020 and 2019, respectively. Rent expense recognized under all operating leases was $211 and $211 for the nine months ended September 30, 2020 and 2019, respectively.

The Company is required to maintain a letter of credit for the duration of the office lease. The Company maintains bank deposits of $107 to collateralize the letter of credit which are classified as restricted cash and a long-term asset in the consolidated balance sheet as of September 30, 2020.

License Agreement with NovaMedica LLC

In May 2014, the Company entered into an exclusive license agreement with NovaMedica LLC, an affiliated entity of a stockholder, pursuant to which the Company granted NovaMedica a license to certain intellectual property rights for commercialization of a potential product for the treatment of hepatitis C. In connection with the license, the Company received a license fee of $200 in partial consideration for the grant of the license. Recognition of the

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license fee was deferred and recorded in other liabilities pending finalization by the Company and NovaMedica of certain other terms and conditions of the license agreement at which time the technology access fee was to have been evaluated, along with the license agreement broadly, for revenue recognition.

If the Company and NovaMedica failed to agree on the terms of an amendment to the license agreement covering certain terms and conditions, and the license agreement was thereafter terminated, such termination was to be subject to a payment by the Company of a termination fee of $400. This agreement was terminated in May 2020, and the Company paid a termination fee of $400.

Business Development Consulting Agreements

The Company is a party to a consulting agreement that provides for the payment by the Company of consideration, consisting of cash, up to a maximum of $1,750, and the vesting of equity awards, if a business development transaction that meets or exceeds certain thresholds is successfully concluded on or before December 31, 2020 (Note 9). As of September 30, 2020, the performance conditions were not yet probable of being met and, as a result, no expense has yet to be recognized in connection with the consulting agreement in the consolidated statement of operations.

In February 2020, the Company entered into an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5,000.

Indemnification

The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s bylaws, under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, and (iii) procurement, service or license agreements under which the Company may be required to indemnify vendors, service providers or licensees for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the Company’s products, technology, intellectual property or services.

From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount potentially payable under these contracts since the Company has no history of prior indemnification claims and the unique facts and circumstances involved in each particular claim will be determinative.

7. Convertible Preferred Stock

In May 2020, the Company filed an amendment to its certificate of incorporation to authorize 15,313,382 shares of Series D convertible preferred stock (“Series D Preferred”) and 8,973,261 shares of Series D-1 convertible preferred stock (“Series D-1 Preferred”). The Company entered into a stock purchase agreement with certain investors and issued 15,313,382 shares of Series D Preferred for gross proceeds of approximately $107,500. The Series D investors had the option to purchase up to 8,973,261 shares of Series D-1 Preferred at a price of $11.98 per share, including 2,991,087 shares which the Series D investors had an obligation to purchase if certain milestones were achieved. The Company concluded that the tranche features were not freestanding financing instruments as the right to purchase the future tranches was not legally detachable from the shares of Series D Preferred. Additionally, the Company concluded that no beneficial conversion features were present at initial issuance. As discussed in Note 13, the Series D investors purchased all 8,973,261 shares of Series D-1 at a price of $11.98 per share for aggregate gross proceeds of $107,500 in October 2020.

As of September 30, 2020, the Company had 57,932,090 shares of convertible preferred stock (“Convertible Preferred Stock”) authorized, of which 20,000,000 shares were designated as Series A convertible preferred stock, (“Series A Preferred”); 7,592,830 shares were designated as Series B convertible preferred stock (“Series B Preferred”); 6,052,617 shares were designated as Series C convertible preferred stock (“Series C Preferred”); 15,313,382 shares were designated as Series D Preferred; and 8,973,261 shares were designated as Series D-1 Preferred. The Company’s Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred were issued at $1.00, $3.03, $4.56 and $7.02 per share, respectively.

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The following table summarizes the Company’s outstanding Convertible Preferred Stock as of September 30, 2020:

The Company classifies Convertible Preferred Stock outside of stockholders’ deficit because the shares contain deemed liquidation rights in the event of a merger, consolidation, or reorganization involving the Company or a subsidiary or upon the sale, lease, transfer, exclusive license or other disposition by the Company or a subsidiary of all or substantially all assets of the Company that could trigger a distribution of cash or assets and therefore a contingent redemption feature not solely within the Company’s control.

Upon the closing of the Company’s IPO in November 2020, all outstanding Convertible Preferred Stock, including the Series D-1 Preferred issued in October 2020, automatically converted into 57,932,090 shares of common stock.

8. Common Stock

At September 30, 2020, the authorized capital of the Company included 80,529,575 shares of common stock, of which 10,109,847 shares of common stock were considered issued and outstanding for accounting purposes. As discussed in Note 9, restricted stock awards for an aggregate of 200,000 shares are excluded from issued and outstanding shares for accounting purposes. On all matters to be voted upon by the holders of common stock, holders of common stock are entitled to one vote per share. The holders of common stock are entitled to receive dividends, when declared by the board, and to share ratably in the Company’s assets legally available for distribution to the holders of the Company’s stock in the event of liquidation subject to the rights and preferences applicable to the outstanding shares of Convertible Preferred Stock prior to the conversion of the Convertible Preferred Stock in November 2020. The holders of common stock have no preemptive, redemption or conversion rights.

The Company had the following reserved shares of common stock:

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9. Stock-based Compensation

As of September 30, 2020, the Atea Pharmaceuticals 2013 Equity Incentive Plan, as amended (the “2013 Plan”), provided for the grant of incentive stock options, non-qualified stock options, restricted common stock awards and other awards for up to 10,979,971 shares of common stock to employees, officers, directors and consultants of the Company.

As of September 30, 2020, options to purchase 7,095,494 shares of common stock and 3,370,000 shares of restricted common stock had been granted under the 2013 Plan, and there were 514,477 shares of common stock remaining available for future issuance.

Restricted Common Stock

Restricted stock awards generally include vesting and risk of forfeiture provisions that lapse upon satisfaction of performance conditions or over time periods commencing on the grant date and concluding on the third or fourth anniversary of the grant date. The Company has granted awards totaling 200,000 shares of restricted common stock to a consultant pursuant to the 2013 Plan for consulting and business development services. The consultant paid $1.21 per share and an aggregate of $121 for 100,000 of the shares of restricted common stock in 2016 and $1.24 per share and an aggregate of $124 for 100,000 of the shares of restricted common stock in 2018. These awards of restricted common stock will vest, and the risk of forfeiture will lapse upon satisfaction of performance conditions detailed in each award. As of September 30, 2020, the performance conditions were not yet probable of being met and, as a result, no compensation expense has yet been recognized for these performance-based awards. The unvested and forfeitable common stock as of September 30, 2020, though legally issued, are excluded from issued and outstanding shares for accounting purposes. Amounts received for the unvested and forfeitable common stock totaling $245 are included in additional paid-in capital within stockholders’ deficit in the consolidated balance sheets. At September 30, 2020, total unrecognized compensation expense related to unvested restricted common stock was $370.

Stock Options

The following summarizes stock option activity:

The aggregate intrinsic value of options granted is calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.

Option grants generally vest over a service period of three or four years and have a contractual term of ten years. As of September 30, 2020, total unrecognized compensation expense related to stock option awards was $14,923, which amount is being recognized over a remaining weighted average period of 3.7 years.

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Stock-based Compensation Expense

Stock-based compensation expense is classified as follows:

10. Net Loss Per Share Attributable to Common Stockholders

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:

11. Income Taxes

The Company incurred net operating losses and recorded a full valuation allowance against net deferred tax assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.

12. Related Party Transactions

The Company recorded expense of $3 and $34 for the three months ended September 30, 2020 and 2019, respectively, for consulting services provided by an entity affiliated with its former interim Chief Financial Officer. This expense was $43 and $34 for the nine months ended September 30, 2020 and 2019, respectively.

Except as disclosed in Note 6 in the notes to the accompanying consolidated financial statements, there were no other material transactions with related parties.

13. Subsequent Events

Series D-1 Convertible Preferred Stock

The holders of the Series D Preferred had an option to purchase up to 8,973,261 shares of Series D-1 Preferred at a price of $11.98 per share. In October 2020, the investors exercised their option in full resulting in the issuance of 8,973,261 shares of Series D-1 Preferred at a purchase price of $11.98 per share for aggregate gross proceeds of $107,500.

Roche License Agreement

In October 2020, the Company entered into a license agreement, (the “Roche License Agreement”) with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively “Roche”), granting Roche an exclusive license to develop and commercialize AT-527 outside of the United States for all indications other than HCV.

The Company is responsible for completing certain ongoing non-clinical and clinical activities at its own expense and supplying certain clinical trial material under the Roche License Agreement. The parties will work collaboratively on a global development plan intended to support regulatory approval and will share joint development costs equally.

In connection with the Roche License Agreement, Roche paid the Company an upfront payment of $350,000. The License Agreement further provides that Roche is obligated to pay the Company up to an additional $330,000 in the aggregate upon the achievement of certain development and regulatory milestone events; up to an additional

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$320,000 in the aggregate upon the achievement of certain sales based milestone events and tiered royalties based on annual net sales of the products covered by the Roche License Agreement, ranging between low double-digit and mid-twenties, subject to certain adjustments and limitations. Roche has the right to terminate the Roche License Agreement for convenience pursuant to the terms of the agreement.

In connection with the Roche License Agreement, the Company became obligated to pay a $7,000 fee to a financial advisor for their services.  The fee was paid in December 2020.

Initial Public Offering

In November 2020, the Company completed its IPO and issued 14,375,000 shares of its common stock, including the exercise in full of the underwriters’ option to purchase up to 1,875,000 shares at $24.00 per share for aggregate gross proceeds of $345,000 before deducting underwriting discounts and commissions of $24,150 and offering expenses of approximately $3,200.  In connection with the IPO, all shares of Series A, B, C, D and D-1 Preferred converted into 57,932,090 shares of common stock. In addition, the Company filed a restated certificate of incorporation to increase the authorized number of shares of common stock to 300,000,000 shares and authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series.

2020 Plans

In October 2020, the Company’s shareholders approved the Company’s 2020 Incentive Award Plan (the “2020 Plan”), which became effective on October 29, 2020.  The 2020 Plan provides for the issuance of up to 7,924,000 shares of common stock.

In October 2020, the Company’s shareholders approved the 2020 Employee Stock Purchase Plan (the “ESPP”), which became effective on October 29, 2020.  The ESPP provides for the issuance of up to 1,187,000 shares of common stock.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our prospectus, dated October 29, 2020, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act on October 30, 2020 (the “Prospectus”) in connection with our initial public offering (“IPO”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biopharmaceutical company focused on discovering, developing and commercializing antiviral therapeutics to improve the lives of patients suffering from life threatening viral infections. Leveraging our deep understanding of antiviral drug development, nucleoside biology, and medicinal chemistry, we have built a proprietary purine nucleotide prodrug platform to develop novel product candidates to treat single stranded ribonucleic acid viruses, which are a prevalent cause of severe viral diseases. Currently, we are focused on the development of orally available, potent, and selective nucleotide prodrugs for difficult to treat, life-threatening viral infections, including SARS-CoV-2, the virus that causes COVID-19, chronic hepatitis C infection (“HCV”), dengue virus, and respiratory syncytial virus (“RSV”).

AT-527 for the treatment of COVID-19

Our lead product candidate, AT-527, is an orally administered, novel antiviral agent being evaluated for the treatment of patients infected with SARS-CoV-2, which causes COVID-19. AT-527 was specifically designed as a purine nucleotide prodrug to inhibit viral RNA-dependent RNA polymerase (“RdRp”).  The RdRps in SARS-CoV-2 support the transcription and replication of the approximately 30,000-nucleotide RNA viral genome. The RdRps in SARS-CoV-2 and severe acute respiratory syndrome coronavirus 1 (“SARS-CoV”), the virus that causes severe acute respiratory syndrome, are the largest and most complex RdRps among RNA viruses. In vitro preclinical studies measuring the antiviral activity of AT-527 in several assays against human coronavirus, including SARS-CoV and SARS-CoV-2, suggest that AT-527 is potent and highly selective against these viruses. We are currently evaluating AT-527 in a randomized, double blind, placebo-controlled Phase 2 clinical trial in approximately 190 adult patients hospitalized with moderate COVID-19 and one or more risk factors for poor outcomes and in a Phase 1 clinical trial in up to 20 healthy volunteers. AT-527 was well tolerated and exhibited highly potent antiviral activity in two clinical trials with HCV infected subjects. We have utilized the pharmacokinetics, safety and tolerability data we obtained from our clinical trials of AT-527 for the treatment of HCV to advance the clinical development of AT-527 for the treatment of COVID-19. HCV was the initial therapeutic indication for which we evaluated AT-527. We dosed our first patient with COVID-19 in September 2020 and expect to report topline data from this COVID-19 Phase 2 clinical trial in the first half of 2021. We anticipate initiating a Phase 3 clinical trial to study AT-527 in adult patients with mild to moderate COVID-19 requiring outpatient management in the first half of 2021. In October 2020, we entered into a license agreement (the “Roche License Agreement”) with F. Hoffman-La Roche Ltd and Genentech, Inc. (collectively “Roche”), granting Roche an exclusive license over the development and commercialization rights related to AT-527 outside of the United States (other than for certain HCV uses). We also granted Roche a license to manufacture AT-527 worldwide and agreed that Roche would manufacture the global commercial supply of AT-527. As part of the consideration, Roche agreed to pay us an upfront payment of $350.0 million (the “Roche Upfront Payment”) which was received in November 2020.

AT-787 for the treatment of hepatitis C

HCV is a blood-borne, positive sense, ssRNA virus, primarily infecting cells of the liver. HCV is a leading cause of chronic liver disease and liver transplants and spreads via blood transfusion, hemodialysis and needle sticks. We have created a novel combination of AT-527 with AT-777, a nonstructural protein 5A, inhibitor into a single, oral, pan-genotypic fixed dose combination product candidate, AT-787, being evaluated for the treatment of chronic HCV infection. Despite significant recent advances in treatment, HCV remains a global health burden due to the limitations of currently available treatment options. We believe that AT-787 has the potential to offer a shorter duration protease-sparing regimen for HCV-infected patients with or without cirrhosis. For patients with decompensated cirrhosis, a life-threatening stage of liver disease, AT-787 has the potential to treat these patients

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without the co-administration of ribavirin. Upon the resolution of industry wide clinical trial challenges associated with the COVID-19 pandemic, we expect to restart our Phase 1/2A clinical trial, which is designed to evaluate the safety and pharmacokinetics (“PK”), of different dosages of AT-777 in healthy adults and to evaluate the combination of AT-527 and AT-777 in HCV infected subjects.

AT-752 for the treatment of dengue

AT-752 is an oral, purine nucleotide prodrug being evaluated for the treatment of dengue virus – a mosquito-borne viral infection that infects up to 400 million people a year for which there are currently no therapies approved by either the U.S. Food and Drug Administration (the “FDA”), or European Medicines Agency. AT-752 targets the inhibition of the dengue viral polymerase and, in preclinical studies, AT-752 has shown potent in vitro activity against all serotypes tested as well as potent in vivo antiviral activity in a small animal model. We plan to submit a Clinical Trial Application to one or more competent authorities outside the United States in the fourth quarter of 2020. Contingent upon receipt of competent authority authorization, we expect to initiate a randomized, double-blind, placebo-controlled Phase 1 trial to analyze the safety and PK of several different dosages of AT-752 in healthy adult subjects in the first half of 2021. Following the completion of the Phase 1 trial, we expect to initiate a Phase 2 trial to evaluate the antiviral activity, safety and PK of AT-752 in adult patients with dengue in the first half of 2021. Under the Roche License Agreement, we retained rights to develop and manufacture AT-752 globally and to commercialize AT-752 in the United States for dengue, Japanese Encephalitis, West Nile virus, Yellow Fever and Zika. Rights to AT-752 for other indications outside the United States were exclusively licensed to Roche. Roche agreed to negotiate in good faith an amendment to the Roche License Agreement pursuant to which Roche may commercialize AT-752 for dengue outside of the United States, unless Roche offers such commercialization right to us. Neither Roche nor we may commercialize AT-752 outside of the United States for dengue until we agree to an amendment to the Roche License Agreement.

AT-889, AT-934 and other product candidates for the treatment of respiratory syncytial virus

We are evaluating two lead compounds, AT-889 and AT-934, second generation nucleoside pyrimidine prodrugs and other compounds for the treatment of RSV. RSV is a seasonal respiratory virus that can be serious for infants, older adults, and the immuno-compromised population. AT-889 and AT-934 inhibit RNA polymerase through both initiation of viral replication and viral transcription and have shown potent in vitro activity in several cell based assays against RSV. We expect to nominate a product candidate and to initiate clinical development of the selected product candidate in the second half of 2021. We believe that the product candidate we develop, if approved, could be the first therapy in over 30 years to be approved specifically for the treatment of RSV.

Financial Operations Overview

Since our formation in July 2012, we have devoted substantially all of our resources to developing our product candidates. We have incurred significant operating losses to date. Our net loss was $17.6 million and $31.6 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, we had an accumulated deficit of $85.8 million. We expect that our operating expenses will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to incur additional costs associated with operating as a public company.

Through September 30, 2020, we have funded our operations primarily from the sale and issuance of convertible preferred stock. As of September 30, 2020, we had cash and cash equivalents of $105.4 million. In October 2020, we issued 8,973,261 shares of Series D-1 Preferred for aggregate gross proceeds of $107.5 million (the “Series D-1 Closing”).  

In November 2020, we completed an initial public offering of our common stock (“IPO”), which resulted in the issuance and sale of 14,375,000 million shares of our common stock, including the exercise in full of the underwriters’ option to purchase up to 1,875,000 shares, at a public offering price of $24.00 per share.  The aggregate gross proceeds to the Company were $345.0 million before deducting underwriting discounts and commissions of $24.2 million and offering expenses of approximately $3.2 million payable by us. In connection with the IPO, all shares of Series A, B, C, D and D-1 Preferred converted into 57,932,090 shares of common stock.

We do not have any product candidates approved for sale and have not generated any revenue from inception through September 30, 2020. Our ability to generate product revenue will depend on the successful development,

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regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through public or private equity financings, debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

We believe that our cash and cash equivalents as of September 30, 2020, together with the net proceeds from the Series D-1 Closing, the Roche Upfront Payment and the net proceeds from the IPO will be sufficient to fund our planned operations through at least 2023.

In addition to relying upon Roche for certain clinical trial material and commercial supply of AT-527, we plan to continue to use other third-party service providers, including contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates.

We expect to continue to incur significant expenses and operating losses over the next several years. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

Components of Results of Operations

Revenue

Through September 30, 2020, we had not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. We expect to recognize license revenue related to the Roche License Agreement during the three months ending December 31, 2020. If our development efforts for our product candidates are successful and result in commercialization, we may generate additional revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Research and Development Expenses

Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to third parties to conduct certain research and development activities on our behalf, consulting costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities attributable to research and development personnel. We expense both internal and external research and development costs as they are incurred. In circumstances where amounts have been paid in advance or in excess of costs incurred, we record a prepaid expense, which is expensed as services are performed or goods are delivered.

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A significant portion of our research and development costs have been external costs, which we track by therapeutic area. Our internal research and development costs are primarily personnel-related costs, facility costs, including depreciation and lab consumables. We have not historically tracked our internal research and development expenses by therapeutic area as they are deployed across multiple programs. The following table summarizes our external research and development expenses by indication and internal research and development expenses:

We are focusing substantially all of our resources on the development of our product candidates, particularly AT-527. We expect our research and development expenses to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates, complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with Nasdaq Stock Market and SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company.

Interest Income and Other, Net

Interest income and other, net, consists primarily of interest income earned on our cash and cash equivalents.

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Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the periods indicated:

Research and Development Expenses

Research and development expenses increased by $11.2 million from $2.4 million for the three months ended September 30, 2019 to $13.6 million for the three months ended September 30, 2020. The increase in research and development expenses was primarily due to a $7.2 million increase in external expenses incurred related to the CRO and CMO services in conjunction with the advancement of product candidates for the treatment of COVID-19 and dengue and an increase of $4.0 million in internal spend primarily due to an increase in personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense of $2.4 million for our research and product development employees and consulting fees.

General and Administrative Expenses

General and administrative expenses increased by $2.6 million from $1.4 million for the three months ended September 30, 2019 to $4.0 million for the three months ended September 30, 2020. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase in payroll and personnel-related expenses, including salaries, benefits and stock-based compensation expense of $2.0 million; professional fees of $0.5 million; and an increase in other general and administrative expenses of $0.1 million.

Interest Income and Other, Net

Interest income and other, net, decreased by $0.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to lower interest rates.

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Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the periods indicated:

Research and Development Expenses

Research and development expenses increased by $17.5 million from $6.7 million for the nine months ended September 30, 2019 to $24.2 million for the nine months ended September 30, 2020. The increase in research and development expenses was primarily due to the increase in external expenses incurred related to CRO and CMO services of $12.8 million for the advancement of product candidates for the treatment of COVID-19 and dengue and a $4.7 million increase in internal spend such as payroll and personnel-related expenses, including salaries and bonuses, benefits, stock-based compensation expense of $2.4 million for our research and product development employees and consulting fees.

General and Administrative Expenses

General and administrative expenses increased by $4.3 million from $3.2 million for the nine months ended September 30, 2019 to $7.5 million for the nine months ended September 30, 2020. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase in payroll and personnel-related expenses, including salaries, benefits and stock-based compensation expense, of $2.3 million; professional fees of $1.7 million; a license termination fee of $0.2 million; and an increase in other general and administrative expenses of $0.1 million.

Interest Income and Other, Net

Interest income and other, net, decreased by $0.4 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to lower interest rates.

Liquidity and Capital Resources

Sources of Liquidity

From our formation in 2012 through September 30, 2020, we funded our operations with an aggregate of $178.1 million in gross cash proceeds from the sale of convertible preferred stock. As of September 30, 2020, we had cash and cash equivalents of $105.4 million. In October 2020, the Series D investors exercised their right and purchased the fully authorized 8,973,261 shares of the Series D-1 convertible preferred stock at a purchase price of $11.98 per share for an aggregate purchase price of $107.5 million.

In November 2020, we completed our IPO and issued 14,375,000 shares of our common stock, including the exercise in full of the underwriters’ option to purchase up to 1,875,000 shares, at a price to the public of $24.00 per share, generating aggregate gross proceeds of $345.0 million before deducting underwriting discounts and commissions of $24.2 million and offering expenses of approximately $3.2 million payable by us.

In addition, we received the $350.0 million Roche Upfront Payment in November 2020.

Future Funding Requirements

We have incurred net losses since our inception. For the three and nine months ended September 30, 2020 we incurred a net loss of $17.6 million and $31.6 million, respectively, and expect to incur substantial additional losses in future periods. As of September 30, 2020, we had an accumulated deficit of $85.8 million. Based on our

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current business plan, we believe that our cash and cash equivalents as of September 30, 2020, together with the net proceeds from the Series D-1 Closing, the Roche Upfront Payment and the net proceeds from the IPO, will be sufficient to fund our planned operations at least through 2023.

To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when, or if, this will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional costs associated with operating as a public company.

We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through public or private equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. We anticipate that we may need to raise substantial additional capital, the requirements for which will depend on many factors, including:

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.

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See Part II, Item 1A, “Risk Factors” for additional risks associated with our substantial capital requirements.

Summary Statement of Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below:

Cash Flows from Operating Activities

Net cash used in operating activities was $21.8 million for the nine months ended September 30, 2020. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates, resulting in a net loss of $31.6 million, offset by stock-based compensation of $4.6 million. Additional uses of cash during the period included an increase in prepaid expenses and other current assets of $2.8 million offset by an increase in accounts payable and accrued expenses of $7.9 million.

Net cash used in operating activities was $8.9 million for the nine months ended September 30, 2019. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates, resulting in a net loss of $9.4 million, offset by stock-based compensation of $0.5 million.

Cash Flows from Investing Activities

Net cash used in investing activities consisted of purchased of property and equipment for the nine months ended September 30, 2020 and 2019.

Cash Flows from Financing Activities

Net cash provided by financing activities was $105.5 million for the nine months ended September 30, 2020, which consisted primarily of $106.6 million of net proceeds from the sale of Series D convertible preferred stock partially offset by payment of IPO-related deferred offering costs of $1.1 million.

There were no cash flows from financing activities for the nine months ended September 30, 2019.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the nine months ended September 30, 2020 from those previously disclosed in our Prospectus for the year ended December 31, 2019.

In connection with the Roche License Agreement, the Company became obligated to pay a $7.0 million fee to a financial advisor in connection with their advisory services, which was paid in December 2020.

We enter into contracts in the normal course of business with third-party contract organizations for preclinical and clinical studies and testing, manufacture and supply of our preclinical materials and other services and products used for operating purposes. These contracts do not contain any minimum purchase commitments and generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

We have an agreement with a consultant that requires payment of a success fee of up to a maximum of $1.75 million if a business development transaction that meets or exceeds certain thresholds is executed on or before December 31, 2020. We also have an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5.0 million.

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Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Use of Estimates” in our Prospectus. During the three months ended September 30, 2020 there were no material changes to our critical accounting policies from those discussed in our Prospectus.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Indemnification Agreements

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

We have also agreed to indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not specified in the agreements; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of our first fiscal year in which we have total annual revenues of more than $1.07 billion; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) December 31, 2025.

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Recently Issued Accounting Pronouncements

See the section titled “Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates or exchange rates. As of September 30, 2020, we had cash and cash equivalents of $105.4 million, consisting of interest-bearing money market funds for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our cash equivalents, an immediate 10% relative change in interest rates would not have a material effect on the fair value of our cash equivalents or on our future interest income.

We do not believe that inflation, interest rate changes or foreign currency exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein.

Item 4. Controls and Procedures.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2020, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not subject to any material legal proceedings.

Item 1A. Risk Factors.

You should carefully consider the risks and uncertainties described below, as well as the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition.” Our business, financial condition, results of operations or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.

Risks Related to COVID-19

There is significant uncertainty around our development of AT-527 as a potential treatment for COVID-19.

Our development of AT-527 for the treatment of COVID-19 is in its early stages, and we may not be successful in our development of AT-527 as a potential treatment for COVID-19. We are conducting a Phase 2 clinical trial of AT-527 in hospitalized patients with moderate COVID-19 and at least one risk factor for complications related to COVID-19. We have committed and plan to continue to commit significant financial and personnel resources to the development of AT-527 as a potential treatment for COVID-19. If we are unable to successfully develop AT-527 for the treatment of COVID-19, we will have taken resources away from other development programs and will not be able to recuperate the resources dedicated to developing AT-527 as a potential treatment for COVID-19, which could have a material adverse impact on our business. If the topline data from our Phase 2 clinical trial are not supportive of further development of AT-527 as a treatment for COVID-19 or the market has a negative reaction to the topline data, the demand for our common stock could decrease significantly, and the price of our common stock could decline substantially, which could result in significant losses for our stockholders.

Further, while there is currently an urgent need for a treatment for COVID-19, the longevity and extent of the COVID-19 pandemic is uncertain. If the pandemic were to dissipate, whether due to a significant decrease in new infections, due to the availability of vaccines, or otherwise, the need for a treatment could decrease significantly. If the need for a treatment decreases before or soon after commercialization of AT-527, if approved, or other treatments for COVID-19 are developed before AT-527, our business could be adversely impacted.

We may expend resources in anticipation of clinical trials and potential commercialization of AT-527, which we may not be able to recover if AT-527 is not approved for the treatment of COVID-19 or we are not successful at commercializing AT-527.

We believe that there is an urgent unmet need for effective COVID-19 treatments. Accordingly, if the data from our ongoing and planned clinical trials of AT-527 in COVID-19 patients are positive, we may pursue certain expedited development, review and approval programs offered by the FDA to sponsors of drugs designed to treat serious diseases and conditions. These programs may offer the potential for a more rapid approval and commercialization process than traditional FDA review pathways. In order to prepare for the possibility that we may be required to develop and rapidly commercialize AT-527, we may enter into agreements with, and make payments to, CMOs prior to obtaining any approval to market AT-527 for the treatment of COVID-19. As a result, we may not be able to recover these costs if AT-527 is not approved for the treatment of COVID-19, which could have a material adverse effect on our business.

We currently expect that the market for a treatment for COVID-19 will be large, and we cannot be certain that our CMOs we will be able to meet any commercial demand for AT-527. If we are unable to meet commercial demand, we may not be able to fully capitalize on our development of AT-527, which could have an adverse effect on our business.

Furthermore, we have never commercialized a product and may not be successful in establishing the capabilities required for commercialization. In order to commercialize AT-527, we will need to rapidly establish and build sales and marketing capabilities prior to obtaining approval to market AT-527. If we do not obtain approval for AT-527, we will have expended those resources prematurely, and our business could be adversely affected.

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There has also been significant media coverage regarding the pricing of any vaccine or treatment for COVID-19. For example, Gilead Sciences, Inc. has recently come under scrutiny regarding its pricing of remdesivir, after having donated its initial supply of the drug. Pricing for drugs to treat COVID-19 continues to evolve, and we cannot be certain of the factors that will determine the sales price of AT-527, if approved. If we are unable to sell AT-527 at a sufficient price point, our ability to commercialize AT-527, if approved, may be adversely affected.

AT-527 may face significant competition from vaccines and other treatments for COVID-19 that are in development.

Many biotechnology and pharmaceutical companies are developing treatments for COVID-19 or vaccines against SARS-CoV-2, the virus that causes COVID-19. Many of these companies, which include large pharmaceutical companies, have greater resources for development and established commercialization capabilities. For example, in October 2020, the FDA approved the antiviral drug Veklury (remdesivir) marketed by Gilead Sciences for the treatment of COVID-19 for certain patients requiring hospitalization and in November 2020 the FDA granted an emergency use authorization to Regeneron for the treatment of certain patients with mild to moderate COVID-19 with an antibody cocktail comprised of casirivimab and imdevimab administered together. Other examples include Pfizer Inc. and BioNTech and Moderna, Inc. announcing preliminary results indicating that each of their vaccine candidates was found to be more than 90% effective in preventing COVID-19 and that they have submitted applications to the FDA for emergency use authorization. As a result, any treatment we may develop could face significant competition. In addition to vaccines and therapies currently approved or authorized for use, other companies may develop treatments more rapidly or effectively than we do, may develop a treatment that becomes the standard of care, may develop a treatment at a lower cost, or may be more successful at commercializing an approved treatment, all of which could adversely impact our business. As a result, we may not be able to successfully commercialize AT-527 for the treatment of COVID-19, even if approved, or compete with other treatments or vaccines, which could adversely impact our business and operations.

COVID-19 may materially and adversely affect our business and financial results.

In December 2019, SARS-CoV-2 surfaced in China. Since then, COVID-19 has spread globally. In the United States, travel bans and government stay-at-home orders have caused widespread disruption in business operations and economic activity. Governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures, including suggested or mandated “shelter-in-place” orders, have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in the United States. In response to the public health directives and orders and to help minimize the risk of COVID-19 for our employees, we have taken precautionary measures, including implementing work-from-home policies for all our employees. Many of our third-party collaborators, such as our CMOs, CROs, suppliers and others, have taken similar precautionary measures. These measures have disrupted our business and delayed certain of our clinical programs and timelines. For example, our Phase 1/2A clinical trial of AT-787 for the treatment of HCV was paused until the clinical trial sites are able to re-open and we elect to resume patient enrollment, which has not yet occurred. Certain countries, including the United States, that had begun the process of re-opening are now responding to a new surge of infection and have in some areas reinstated stay at home and other containment measures. Efforts to re-open could take a significant amount of time, require additional resources to implement social-distancing and other containment measures, or may not be successful.

The impact to our operations due to the COVID-19 pandemic could be severe and could negatively affect our business, financial condition and results of operations. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risk factors described in this “Risk Factors” section, such as those relating to our clinical trial timelines, our ability to enroll subjects for clinical trials and obtain materials that are required for the production of our product candidates, and our ability to raise capital.

COVID-19 may materially and adversely affect our clinical trials.

As a result of the COVID-19 pandemic, we may experience additional disruptions that could severely impact our clinical trials, including:

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For example, our HCV program has been delayed until the clinical trial sites conducting our Phase 1/2A trial are able to re-open and resume enrollment, and our other development programs may be delayed or otherwise negatively impacted. As a result, the expected timeline for data readouts of our clinical trials and certain regulatory filings will likely be negatively impacted, which would adversely affect and delay our ability to obtain regulatory approvals for our product candidates, increase our operating expenses, and have a material adverse effect on our financial condition. Moreover, SARS-CoV-2 is a novel pathogen, and information regarding the symptoms, progression, and spread of COVID-19 continues to rapidly evolve, which may present additional challenges for the conduct of our clinical trials in COVID-19 patients. For example, COVID-19 patients have presented with a wide range of symptoms and side effects, which may make it more difficult for clinical trial investigators to determine whether any adverse events observed in our clinical trials are related to AT-527 or are consistent with the underlying disease. Any increase in the severity or incidence of adverse events deemed to be related to AT-527 could delay or prevent its regulatory approval, which could have a material adverse effect on our financial condition.

Risks Related to Our Financial Condition and Capital Requirements

We have a limited operating history and no history of successfully developing or commercializing any approved antiviral products, which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability.

We are a clinical-stage biopharmaceutical company. Our operations to date have been limited to financing and staffing our company, developing our technology and identifying and developing our product candidates. Our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by biopharmaceutical companies in their early stages of operations. We have not yet demonstrated an ability to complete any late-stage or pivotal clinical trials, obtain marketing approval, manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful product commercialization, or arrange for third parties to do these activities on our behalf. Consequently, predictions about our future success or viability

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may not be as accurate as they could be if we had a longer operating history or a history of successfully developing, obtaining marketing approval for and commercializing antiviral therapies.

In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. If we successfully develop a product candidate, we will eventually need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in this transition. For example, we may need to rapidly develop our commercialization capabilities if AT-527 is approved for the treatment of COVID-19.

As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any particular quarterly or annual period as indications of future operating performance.

We have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future. We have no products that have generated any commercial revenue and we may never achieve or maintain profitability.

We have incurred significant operating losses since our inception, including operating losses of $9.5 million, $14.6 million and $31.7 million for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020, respectively. As of September 30, 2020, we had an accumulated deficit of $85.8 million. In addition, we have not commercialized any products and have never generated any revenue from product sales. We have devoted almost all of our financial resources to research and development, including our clinical trials and preclinical development activities.

We expect to continue to incur significant additional operating losses for the foreseeable future as we seek to advance product candidates through clinical development, continue preclinical development, expand our research and development activities, develop new product candidates, complete preclinical studies and clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our products. In order to obtain FDA approval to market any product candidate in the United States, we must submit to the FDA a New Drug Application (“NDA”) demonstrating to the FDA’s satisfaction that the product candidate is safe and effective for its intended use(s). This demonstration requires significant research and extensive data from animal tests, which are referred to as nonclinical or preclinical studies, as well as human tests, which are referred to as clinical trials. Furthermore, the costs of advancing product candidates into each succeeding clinical phase tend to increase substantially over time. The total costs to advance any of our product candidates to marketing approval in even a single jurisdiction would be substantial and difficult to accurately predict. Because of the numerous risks and uncertainties associated with the development of drug products, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of products or achieve or maintain profitability. Our expenses will also increase substantially if or as we:

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Furthermore, our ability to successfully develop, commercialize and license any products and generate product revenue is subject to substantial additional risks and uncertainties. Each of our product candidates will require additional preclinical and/or clinical development, regulatory approval in not less than one jurisdiction, the securing of manufacturing supply, capacity, distribution channels and expertise, the use of external vendors, the building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. As a result, we expect to continue to incur operating losses and negative cash flows for the foreseeable future. These operating losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

The amount of future losses and when, if ever, we will achieve profitability are uncertain. We have no products that have generated any commercial revenue, do not expect to generate revenues from the commercial sale of products in the foreseeable future until we have successfully developed one or more product candidates, and might never generate revenues from the sale of products. Our ability to generate product revenue and achieve profitability will depend on, among other things, successful completion of the clinical development of our product candidates; obtaining necessary regulatory approvals from the FDA and foreign regulatory authorities; establishing manufacturing and sales capabilities; market acceptance of our products, if approved, and establishing marketing infrastructure to commercialize our product candidates for which we obtain approval; and raising sufficient funds to finance our activities. We might not succeed at any of these undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations may be materially adversely affected.

We will require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our operations have incurred substantial expenses since inception. We expect to continue to incur substantial expenses to continue the clinical development of AT-527 and AT-787, to initiate the clinical development of AT-752, for future clinical trials for our other product candidates and to continue to identify new product candidates.

We will continue to need additional capital to fund future clinical trials and preclinical development, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources. Additional sources of financing might not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we might be unable to initiate or complete planned clinical trials or seek regulatory approvals of any of our product candidates from the FDA, or any foreign regulatory authorities, and could be forced to discontinue product development. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts.

Based on our current operating plan, we believe that our cash and cash equivalents as of September 30, 2020, together with the net proceeds from the closing of our Series D-1 Convertible Preferred Stock, the upfront payment under our Roche License Agreement and the net proceeds from our IPO will be sufficient to fund our operating expenses and capital expenditure requirements through at least 2023. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We will require significant additional funds in order to launch and commercialize our current and any future product candidates to the extent that such launch and commercialization are not the responsibility of a collaborator. In addition, other unanticipated costs may arise in the course of our development efforts. Because the design and outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop.

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Our future capital requirements depend on many factors, including:

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, on terms acceptable to us, or on a timely basis, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives.

We have not generated any revenue and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. Prior to the execution of the Roche License Agreement, we have not generated any revenue and do not expect to generate significant product revenue unless or until we successfully complete clinical development and obtain regulatory approval of, and then successfully commercialize, at least one of our product candidates. Our product candidates are in varying stages of development which may necessitate additional preclinical studies in some cases and in all cases will require additional clinical development as well as regulatory review and approval, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. Our ability to generate revenue depends on a number of factors, including, but not limited to:

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Many of the factors listed above are beyond our control, and could cause us to experience significant delays or prevent us from obtaining regulatory approvals or commercialize our product candidates. Even if we are able to commercialize our product candidates, we may not achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue through the sale of our product candidates or any future product candidates, we may be unable to continue operations without continued funding.

Our ability to use our net operating loss carryforwards and other tax attributes to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had U.S. federal net operating loss carryforwards (“NOLs”), of $49.3 million, which may be available to offset future taxable income, if any, of which $27.5 million begin to expire in 2033 and of which $21.8 million do not expire but are limited in their usage (for taxable years beginning after December 31, 2020) to an annual deduction equal to 80% of annual taxable income. In addition, as of December 31, 2019, we had state NOLs of $49.2 million, which may be available to offset future taxable income, if any, and begin to expire in 2033. As of December 31, 2019, we also had federal and state research and development credit carryforwards of $0.35 million and $0.14 million, respectively, which begin to expire in 2033. In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre-change NOLs and its research and development credit carryforwards to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Sections 382 and 383 of the Code. For these reasons, we may not be able to utilize a material portion of the NOLs or research and development credit carryforwards even if we attain profitability.

Risks Related to the Discovery, Development, Preclinical and Clinical Testing, Manufacturing and Regulatory Approval of Our Product Candidates

Our business is highly dependent on the success of our most advanced product candidates, particularly AT-527, each of which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales. If these product candidates do not receive regulatory approval or are not successfully commercialized, or are significantly delayed in doing so, our business will be harmed.

A substantial portion of our business and future success depends on our ability to develop, obtain regulatory approval for and successfully commercialize our most advanced product candidates, AT-527 for the treatment of COVID-19, AT-787 for the treatment of HCV, and AT-752 for the treatment of dengue fever. We currently have no products that are approved for commercial sale and have not completed the development of any of our product candidates, and we may never be able to develop marketable products. Other than our development of AT-527

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for the treatment of COVID-19, for which we expect to expend resources in the near term, we expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to our most advanced product candidates, which will require additional clinical development, management of clinical, medical affairs and manufacturing activities, obtaining regulatory approvals in multiple jurisdictions, securing of manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts before we can generate any revenues from any commercial sales from any product candidate, if approved. We cannot be certain that any of our product candidates will be successful in clinical trials, receive regulatory approval or be successfully commercialized even if we receive regulatory approval. Further, our development of any product candidate may be delayed, which may affect our ability to successfully commercialize such product. For example, enrollment in our Phase 1/2A trial of AT-787 for the treatment of HCV has been delayed due to the COVID-19 pandemic. Additionally, if our competitors develop any products to treat COVID-19, HCV, RSV, dengue, or any other diseases which our current or future product candidates are designed to treat, before we are able to successfully develop a product candidate, or if our competitors develop any products that are superior to our product candidates, our potential market share could become smaller or non-existent. Even if we receive approval to market these product candidates from the FDA or other regulatory bodies, we cannot be certain that such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Nor can we be certain that, if approved, the safety and efficacy profile of these product candidates will be consistent with the results observed in clinical trials. If we are not successful in the clinical development of our most advance product candidates, the required regulatory approvals for these product candidates are not obtained, there are significant delays in the development or approval of these product candidates, or any approved products are not commercially successful, our business, financial condition and results of operations may be materially harmed.

The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, expensive, time-consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be seriously harmed.

We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities impose similar requirements. The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Although we believe that our ongoing and planned Phase 2 and Phase 3 clinical trials of AT-527 in patients with mild to moderate COVID-19, if successful, may enable us to submit an NDA seeking accelerated approval of AT-527 for the treatment of mild to moderate COVID-19, we have not yet discussed potential registration pathways with the FDA, and there is no guarantee that the FDA will agree with any strategy we may propose. We have not submitted an NDA for, or obtained regulatory approval of, any product candidate. We must complete additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates in humans to the satisfaction of the regulatory authorities before we will be able to obtain these approvals, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

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This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would seriously harm our business. In addition, even if we or our collaborators were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may impose significant limitations in the form of narrow indications, warnings, or a Risk Evaluation and Mitigation Strategy (“REMS”). Regulatory authorities may not approve the price we or our collaborators intend to charge for products we may develop, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could seriously harm our business.

Clinical development is lengthy and uncertain. We may encounter substantial delays and costs in our clinical trials, or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all.

Before obtaining marketing approval from the FDA or other comparable foreign regulatory authorities for the sale of our product candidates, we must complete preclinical development and extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive, time-consuming and subject to uncertainty. A failure of one or more clinical trials can occur at any stage of the process, and the outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their drugs. To date, we have not completed any late-stage or pivotal clinical trials for any of our product candidates. We cannot guarantee that any of our planned or ongoing clinical trials will be initiated or conducted as planned or completed on schedule, if at all. We also cannot be sure that submission of any future IND or similar application will result in the FDA or other regulatory authority, as applicable, allowing future clinical trials to begin in a timely manner, if at all. Moreover, even if these trials begin, issues may arise that could cause regulatory authorities to suspend or terminate such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include: