Satsuma Pharmaceuticals, Inc. - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2022

OR

For the transition period from _____________ to ____________

Commission File Number: 001-39041

Satsuma Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (650) 410-3200

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 August 4, 2022, the registrant had 31,587,493 shares of common stock, $0.0001 par value per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, 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, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate and you should not rely upon forward-looking statements as predictions of future events. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section of this Quarterly Report on Form 10-Q titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. These forward-looking statements speak only as of the date of this Form Quarterly Report on 10-Q. 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. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

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SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (SEC) before making investment decisions regarding our common stock.

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Table of Contents

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

SATSUMA PHARMACEUTICALS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

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

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SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

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

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SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

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

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SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

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

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SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements

Description of the Business

Satsuma Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company developing a novel therapeutic for the acute treatment of migraine. The Company’s product candidate, STS101, is a drug-device combination of a proprietary dry-powder formulation of dihydroergotamine mesylate, or DHE, which can be quickly and easily self-administered by a proprietary pre-filled, single-use, nasal delivery device. The Company, headquartered in South San Francisco, was incorporated in 2016 in the state of Delaware.

Private Placement

In February 2021, the Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company agreed to sell and issue to certain purchasers an aggregate of 14,084,507 shares of its common stock at a per share purchase price of $5.68, the closing price of its common stock on the Nasdaq Global Market on February 26, 2021, for gross proceeds of $80.0 million (“Private Placement”). The Private Placement closed in March 2021 and the Company received $75.2 million in net proceeds after deducting commissions and offering expenses.

Liquidity

The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, risks of clinical delays or failure, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on contract manufacturing organizations (“CMOs”), contract research organizations (“CROs”), compliance with government regulations and the need to obtain additional financing to fund operations. STS101 is an investigational product candidate that will require additional clinical development prior to any submission for regulatory approval and commercialization, if approved. These efforts require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance and reporting.

The Company has incurred significant losses and negative cash flows from operations in all periods since its inception and had an accumulated deficit of $173.5 million as of June 30, 2022. The Company has historically financed its operations primarily through its initial public offering (“IPO”), and private placements of its equity securities and borrowings under its long-term debt facility. The Company has no products approved for sale, and the Company has not generated any revenue since its inception. The Company expects to incur significant additional operating losses over at least the next several years. There can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations or raise additional capital to support its operations would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As of June 30, 2022, the Company had cash, cash equivalents and marketable securities of $68.1 million. The Company’s management believes that the Company’s current cash, cash equivalents and marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these unaudited interim condensed financial statements as of and for the three and six months ended June 30, 2022.

Basis of Presentation

The unaudited interim condensed financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), as defined by the Financial Accounting Standards Board, or the FASB.

Unaudited Interim Financial Information

The accompanying condensed balance sheet as of June 30, 2022, the condensed statements of operations and comprehensive loss, the condensed statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and the condensed statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited. The unaudited interim condensed 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 June 30, 2022 and the results of its operations for the three and six months ended June 30, 2022 and 2021 and its cash flows for the six months ended June 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2022 and 2021 are also unaudited. The results for the three and six months ended June 30, 2022 are not

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necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the unaudited interim condensed financial statements.

The accompanying interim unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission, or the SEC, on March 15, 2022.

Use of Estimates

The preparation of unaudited interim condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed financial statements and the reported amounts of income and expenses during the reporting period. Such estimates include the accrual of research and development expenses, useful lives of property and equipment and the fair value of stock-based awards. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the impact of the COVID-19 pandemic which may delay the enrollment of subjects for our clinical trials and may disrupt our supply chain for development and manufacturing activities, and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.

Concentration of Credit Risk

The Company has no significant off-balance sheet concentrations of credit risk. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities. Substantially all the Company’s cash is held by one financial institution that management believes to be of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company invests its cash equivalents in marketable securities and money market funds. The Company has not experienced any credit losses on its deposits of cash or cash equivalents.

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease requirements in Accounting Standards Codification (“ASC”) Topic 840, "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. In July 2018, the FASB issued ASU 2018-11, “Leases (ASC 842): Targeted Improvements,” which provides companies an optional adoption method to ASU 2016-02 whereby a company does not have to adjust comparative period financial statements for the new standard.

The reported results for the three and six months ended June 30, 2022 reflect the application of ASC 842, while the comparative information has not been restated and continues to be reported under the related lease accounting standards in effect for those periods. The adoption of this update represents a change in accounting principle and resulted in the recognition of right-of-use ("ROU") assets and operating lease liabilities. The Company elected the package of practical expedients, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs incurred. The Company also elected the practical expedient to combine lease and non-lease components when determining the ROU asset and lease liability, as well as the practical expedient to exclude leases with an initial term of 12 months or less. The primary effect of adopting this standard relates to the recognition of operating leases on the condensed balance sheets and providing additional disclosures about the Company’s leasing activities.

The Company adopted ASC 842 effective January 1, 2022 using a modified retrospective method and did not restate comparative periods. The Company recognized ROU assets of $0.1 million and lease liabilities of $0.1 million for its operating leases as of January 1, 2022. The adoption of these ASUs did not have any impact on the condensed statements of operations and comprehensive loss and condensed statements of cash flows. See Note 8 for more information related to the Company’s lease obligations.

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Recent Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more useful information about expected credit losses, which was subsequently updated by ASU 2019-04, Codification Improvements to Topic 326, Financial Instrument - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, the FASB issued ASU No. 2019-10, according to which, the new standard is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, the new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. Early adoption is permitted. The Company is a SRC for fiscal year 2021. For the Company this standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. The adoption of this standard is not expected to have a material impact on the Company’s financial statements and related disclosures.

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the unaudited interim condensed financial statements on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

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

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of June 30, 2022, financial assets measured and recognized at fair value were as follows (in thousands):

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As of December 31, 2021, financial assets measured and recognized at fair value were as follows (in thousands):

There were no financial liabilities measured and recognized at fair value as of June 30, 2022 and December 31, 2021.

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Property and Equipment, Net

Depreciation is computed using the straight-line method. Depreciation expense was $0.2 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively. Depreciation expense was $0.1 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively. Accumulated depreciation as of June 30, 2022 and December 31, 2021 was $0.8 million and $0.6 million, respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

On October 26, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank. The Loan Agreement provides for loan advances of up to $10.0 million. The first advance (the “Term A Loan”) of $5.0 million was available for draw down by the Company as of the effective date of the Loan Agreement. The remaining $5.0 million under the facility was never drawn down and is no longer available for draw. Interest on the loan advances were payable monthly at a floating per annum rate equal to the greater of 1.5% above the prime rate or 6.5%. Upon the occurrence of an event of default, interest would increase to 5.0% above the rate that is otherwise applicable. The maturity date of the loan advances was May 1, 2022. The effective interest rate of the Term Loan approximated its stated interest rates.

The Company accreted the final payment due at maturity using the effective interest rate method. The accrued liabilities related to the accretion of the final payment were $0.2 million as of December 31, 2021 and were included in the current portion of long-term debt on the Company’s condensed balance sheets.

On May 3, 2022, the Company repaid its entire obligation under the Loan Agreement amounting to $0.4 million, including outstanding loan amount of $0.2 million and final payment of $0.2 million.

5.Stock-Based Compensation

A summary of stock option activity for the six months ended June 30, 2022 is set forth below:

The weighted-average grant-date fair value of options granted during the six months ended June 30, 2022 and 2021 was $2.76 and $3.85 per share, respectively.

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As of June 30, 2022, the total unrecognized stock-based compensation expense for stock options was $12.9 million, which is expected to be recognized over a weighted-average period of 2.8 years.

The total fair value of options vested for the six months ended June 30, 2022 and 2021 was $2.8 million and $4.9 million, respectively.

2019 Employee Share Purchase Plan

In September 2019, the Company adopted the 2019 Employee Share Purchase Plan (“ESPP”), which became effective on the day of effectiveness of the Company’s registration statement on Form S-1 filed in connection with its IPO. As of June 30, 2022, 750,802 shares under the ESPP remain available for purchase. On June 15, 2022, the Company issued 41,929 shares under the ESPP. The offering period and purchase period is determined by the board of directors (the “Board”). The Board authorized a new offering period of six months beginning June 16, 2022 through December 15, 2022.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded related to options granted to employees and non-employees was as follows (in thousands):

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

Two existing stockholders of the Company that are affiliated with directors of the Company purchased a total of 2,464,788 shares of the Company’s common stock, with an aggregate purchase price of $14.0 million, in the Private Placement.

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Operating Leases

Rent expense for the three and six months ended June 30, 2021 was $0.1 million and 0.1 million, respectively.

Operating lease cost consists of the following (in thousands):

Future minimum lease payments under non-cancelable operating leases as of December 31, 2021 were as follows (in thousands):

The maturities of operating lease liabilities as of June 30, 2022 are as follows (in thousands):

As of June 30, 2022, the remaining term for the operating lease in North Carolina was 1.1 years, and the discount rate used to measure the lease liability for such operating lease upon recognition was 4.9%. During the six months ended June 30, 2022, cash paid for amounts included in operating lease liabilities of $0.1 million was included in cash flows from operating activities on the condensed statements of cash flows.

For the six months ended June 30, 2022 and 2021, the Company did not record an income tax provision. The U.S. federal and California deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is more likely than not the benefit will not be realized.

For the purposes of the unaudited interim condensed financial statements as of June 30, 2022 and for the three and six months ended, the Company has evaluated the subsequent events through August 9, 2022, the date the unaudited interim condensed financial statements were issued.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission, or SEC, on March 15, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q and the Form 10-K, our actual results could differ materially from the results described, in or implied, by these forward-looking statements. Please also see the section of this Quarterly Report on Form 10-Q titled “Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company developing a novel therapeutic product for the acute treatment of migraine. Our product candidate, STS101, is a drug-device combination of a proprietary dry-powder formulation of dihydroergotamine mesylate, or DHE, which is designed to be quickly and easily self-administered with a proprietary pre-filled, single-use, nasal delivery device. DHE products have long been recommended as a first-line therapeutic option for the acute treatment of migraine and have significant advantages over other therapeutics for many patients. However, broad use has been limited by invasive and burdensome administration and/or sub-optimal clinical performance of available injectable and liquid nasal spray products. STS101 is specifically designed to deliver the clinical advantages of DHE while overcoming these shortcomings. If approved, we believe STS101 has the potential to be an important and differentiated option for the acute treatment of migraine that can address the unmet needs of many people living with migraines.

In September 2020, we announced topline data from the EMERGE Phase 3 efficacy trial, or EMERGE trial, which randomized 1,201 migraine subjects to one of two STS101 dose strengths or placebo. Although STS101 3.9 mg and 5.2 mg showed favorable numerical differences versus placebo on the pre-specified co-primary endpoints of freedom from pain and freedom from most bothersome symptom (from among photophobia, phonophobia and nausea) at two hours post-administration, these differences did not achieve statistical significance for either dose strength. Both dose strengths of STS101 did, however, demonstrate significant effects on both freedom from pain and most bothersome symptom by three hours post-dose and later time points. Both STS101 dose strengths were well-tolerated in the EMERGE trial, with low adverse event rates and no serious adverse events reported.

In March 2021, we announced an update to our development plan for STS101 that takes into account the findings from our analyses of results from our EMERGE efficacy trial and results from our ongoing ASCEND open-label, Phase 3 long-term safety trial of STS101 5.2 mg, or ASCEND trial. Our updated development plan for STS101 included a Phase 1 trial, which we completed in June 2021, to evaluate the pharmacokinetics, safety and tolerability of STS101 5.2 mg and two higher dose strengths, as well as a new pivotal Phase 3 efficacy trial, or SUMMIT trial, of STS101 5.2 mg that we initiated in June 2021, with topline results expected in the fourth quarter of 2022. If successful, we plan to file an NDA for STS101 in the first quarter of 2023.

Our net losses were $31.8 million and $22.3 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $173.5 million.

As we continue the development of STS101, our expenses will increase substantially over recent periods, as we advance STS101 through clinical development, manufacturing scale-up and seek to obtain regulatory approval, and prepare for commercialization of STS101, if approved.

Since our inception in June 2016, we have invested substantially all of our efforts and financial resources in the development of STS101 for the acute treatment of migraine. We have incurred significant operating losses to date and expect that our operating expenses will increase significantly as we advance STS101 through clinical development, manufacturing and regulatory approval, and as we prepare for commercialization of STS101, if approved; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to continue to incur increasing costs associated with operating as a public company.

In October 2020, we entered into a sales agreement (the “Sales Agreement”) with SVB Leerink LLC (“SVB”) to sell shares of our common stock, from time to time, through an at-the-market equity offering program under which SVB will act as its sales agent and pursuant to which we may sell common stock for aggregate gross sales proceeds of up to $50.0 million. The issuance and sale of shares of common stock by us pursuant to the Sales Agreement is deemed an “at-the-market” offering under the Securities Act of 1933, as amended. SVB is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common

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stock sold through SVB under the Sales Agreement. As of June 30, 2022, we had not received any proceeds from the sale of shares of common stock pursuant to the Sales Agreement.

In February 2021, we entered into a Securities Purchase Agreement with certain purchasers, pursuant to which we agreed to sell and issue to certain purchasers an aggregate of 14,084,507 shares of our common stock at a per share purchase price of $5.68, the closing price of our common stock on the Nasdaq Global Market on February 26, 2021, for gross proceeds of $80.0 million (“Private Placement”). We closed the Private Placement in March 2021 and received $75.2 million in net proceeds after deducting commissions and offering expenses.

We do not have any products approved for sale and have not generated any product revenue since our inception. Our ability to generate product revenue will depend on the successful development and eventual commercialization of STS101. Until such time as we can generate significant revenue from sales of STS101, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. 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 STS101.

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $68.1 million. Based on our current operating plans, we believe that those cash, cash equivalents and marketable securities will be sufficient to fund our projected operations for at least 12 months from the date of the issuance of these condensed financial statements.

COVID-19

COVID-19 has placed strains on the providers of healthcare services, including the healthcare clinics and institutions where we conduct our ongoing clinical trials and may conduct planned clinical trials. To date, we have initiated and enrolled subjects in our planned STS101 clinical trials in accordance with our previously communicated timeline objectives. We will continue to follow the U.S. Food and Drug Administration (“FDA”) guidance on clinical trial conduct during the COVID-19 pandemic, including with respect to remote monitoring of clinical data. To date, subjects in our clinical trials have generally been able to complete their scheduled visits or treatments and we have been able to collect the essential data from those visits or treatments, as well as from the internet-connected electronic diary devices, as applicable, subjects in our trials may use to record efficacy and other key data.

To date, we have not experienced any disruption in our supply of investigational product necessary to conduct our clinical trials and, given our investigational product inventories, believe we will be able to supply the needs of our clinical trials. We are supporting our employees by utilizing remote work when necessary and appropriate, leveraging virtual meeting technology and encouraging employees to follow local guidelines.

The following summarizes our priorities and actions to address the COVID-19 disruption and its impact on our operations:

Health & Safety

Business Continuity

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Components of Operating Results

Operating Expenses

Research and Development Expenses

All of our research and development expenses consist of expenses incurred in connection with the development of STS101 for the acute treatment of migraine. These expenses include:

We expense both internal and external research and development expenses as they are incurred. We have entered into various agreements with third party vendors and CMOs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events or tasks, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we adjust the accrual accordingly. Payments made to CROs and CMOs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed.

As we continue the development of STS101, our research and development expenses will increase substantially over recent periods, as we seek to advance STS101 through clinical development, manufacturing and regulatory approval, and prepare for commercialization of STS101, if approved. Predicting the timing or the cost to complete our clinical trials 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, if we experience significant delays in enrollment in any of our clinical trials or if we experience delays in manufacturing with any of our CMOs, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict with certainty when or if STS101 will receive regulatory approval.

General and Administrative Expenses

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

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including salaries, benefits and stock-based compensation expenses, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with stock exchange listing and Securities and Exchange Commission, or SEC, requirements, expenses associated with pre-commercialization activities, investor relations costs and director and officer insurance premiums associated with being a public company.

Interest Income

Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities.

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Interest Expense

Interest expense consists primarily of interest related to our long-term debt and accretion of debt discount and debt issuance costs.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Research and Development Expenses

Research and development expenses increased from the three months ended June 30, 2021 to the three months ended June 30, 2022 primarily due to an increase of $3.8 million in clinical trial costs, which was the net of increase of $4.7 million for the SUMMIT efficacy trial, $0.4 million for the ASCEND safety trial, and $0.2 million in EMERGE efficacy trial costs offset by a decrease of $1.6 million for the STS101 Phase 1 trials, as well as increases of $0.5 million in payroll and personnel expenses, partly offset by a decrease of $0.3 million in manufacturing activities.

General and Administrative Expenses

General and administrative expenses increased from the three months ended June 30, 2021 to the three months ended June 30, 2022 primarily due to an increase of $0.7 million due to increased pre-commercialization activity, and an increase of $0.2 million of payroll and personnel expenses, including salaries, benefits and stock-based compensation expenses, partly offset by a decrease of $0.2 in professional services for consulting, accounting, tax and other administrative fees, and a decrease of $0.1 million in allocated facilities related expenses.

Interest Income

Interest income increased from the three months ended June 30, 2021 to the three months ended June 30, 2022 primarily as a result of the lower interest yields in the three months ended June 30, 2021, partly offset by a decrease in average balances of our cash, cash equivalents and marketable securities in the three months ended June 30, 2022.

Interest Expense

Interest expense decreased from the three months ended June 30, 2021 to the three months ended June 30, 2022 primarily attributable to decrease of outstanding debt balances, which was fully repaid in May 2022.

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Comparison of the Six Months Ended June 30, 2022 and 2021

Research and Development Expenses

Research and development expenses increased from the six months ended June 30, 2021 to the six months ended June, 2022 primarily due to an increase of $8.7 million in clinical trial costs, which was the net of increase of $9.8 million for the SUMMIT efficacy trial, $0.7 million for the ASCEND safety trial, $0.2 million in EMERGE efficacy trial costs, and $0.3 million for NDA preparation work offset by a decrease of $2.2 million for the STS101 Phase 1 trials, as well as increases of $0.9 million in payroll and personnel expenses, partly offset by a decrease of $1.2 million in manufacturing activities.

General and Administrative Expenses

General and administrative expenses increased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily due to an increase of $1.5 million due to increased pre-commercialization activity, and an increase of $0.3 million of payroll and personnel expenses, including salaries, benefits and stock-based compensation expenses, partly offset by a decrease of $0.5 in professional services for consulting, accounting, tax and other administrative fees, and a decrease of $0.1 million in allocated facilities related expenses.

Interest Income

Interest income increased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily as a result of the lower interest yields in the six months ended June 30, 2021, partly offset by a decrease in average balances of our cash, cash equivalents and marketable securities in the six months ended June 30, 2022.

Interest Expense

Interest expense decreased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily attributable to decrease of outstanding debt balances, which was fully repaid in May 2022.

Liquidity and Capital Resources

Sources of Liquidity

We have historically financed our operations primarily through the issuance of common stock in our IPO, and private placements of equity securities and borrowings under its long-term debt facility. We have no products approved for sale, and we have not generated any revenue since inception. We expect to incur significant additional operating losses over at least the next several years.

In October 2020, we entered into the Sales Agreement with SVB to sell shares of our common stock, from time to time, through an at-the-market equity offering program under which SVB will act as its sales agent and pursuant to which we may sell common stock for aggregate gross sales proceeds of up to $50.0 million. To date we have not received any proceeds from the sale of shares of common stock pursuant to the Sales Agreement.

In February 2021, we entered into a Securities Purchase Agreement with certain purchasers, pursuant to which we agreed to sell and issue to certain purchasers an aggregate of 14,084,507 shares of our common stock at a per share purchase price of $5.68, the closing price of our common stock on the Nasdaq Global Market on February 26, 2021 for aggregate gross proceeds of approximately $80.0 million. We closed the Private Placement in March 2021 and received $75.2 million in net proceeds after deducting commissions and offering expenses.

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Credit Facility

In October 2018, we entered into the Loan Agreement with Silicon Valley Bank. The Loan Agreement provided for loan advances of up to $10.0 million. We drew down the first advance of $5.0 million as of the effective date of the Loan Agreement. The remaining $5.0 million under the facility was never drawn down and is no longer available for draw. Interest on the loan advances was payable monthly at a floating per annum rate equal to the greater of 1.5% above the prime rate and 6.5%. Upon the occurrence of an event of default, interest would increase to 5.0% above the rate that is otherwise applicable. Principal on the outstanding loan advance was repayable commencing on December 1, 2019 in 30 monthly payments through maturity. The maturity date of the loan advances was May 1, 2022.

In May 2022, we repaid our entire obligation under the Loan Agreement amounting to $0.4 million, including outstanding loan amount of $0.2 million and final payment of $0.2 million.

Future Funding Requirements

We have incurred net losses since our inception. Our net losses were $31.8 million and $22.3 million for the six months ended June 30, 2022 and 2021, respectively. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operations for at least 12 months from the date of the issuance of these condensed financial statements.

As we continue the development of STS101, our operating expenses may increase substantially, as we seek to advance STS101 through clinical development, manufacturing and regulatory approval, and prepare for commercialization of STS101, if approved.

To the extent we continue development of STS101, we will continue to require additional capital to fund operations for the foreseeable future. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize STS101 or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue the development and commercialization of STS101. Our need for additional capital will depend on many factors, including:

We are subject to the risks typically related to the development of new drug product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Despite our implementation of a new development plan for STS101, such plan may change, which could significantly change the costs and timing associated with its development of STS101 and our operations. Furthermore, our operating plans may change in the future, and we

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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 debt financing into which we enter may impose upon us 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. For example, the Loan Agreement contained many of these restrictions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate our development program and clinical trials. We may also be required to sell or license to others rights to STS101 in certain territories or indications that we would prefer to develop and commercialize ourselves. Adequate additional funding may not be available to us on acceptable terms or at all. See “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 and cash equivalents for each of the periods presented below (in thousands):

Cash Flows Used in Operating Activities

Net cash used in operating activities was $26.0 million for the six months ended June 30, 2022. Cash used in operating activities was primarily due to the use of funds in our operations to develop STS101, which resulted in a net loss of $31.8 million, which amounts were partially offset by a decrease in prepaid expenses and other assets of $2.3 million, an increase in accounts payable of $0.2 million, an increase in accrued and other liabilities of $0.2 million, stock-based compensation expense of $2.6 million, net amortization of premiums and discounts on marketable securities of $0.3 million, and depreciation expense of $0.2 million. The decrease in prepaid expenses and other assets and increase in accounts payable and accrued and other liabilities were primarily the result of the timing of payments to our vendors.

Net cash used in operating activities was $19.6 million for the six months ended June 30, 2021. Cash used in operating activities was primarily due to the use of funds in our operations to develop STS101, which resulted in a net loss of $22.3 million, adjusted for an increase in prepaid expenses and other assets of $0.7 million, and a decrease in accrued and other liabilities of $0.3 million, which amounts were partially offset by an increase in accounts payable by $0.4 million, stock-based compensation expense of $2.9 million, depreciation expense of $0.2 million, and net amortization of premiums and discounts on marketable securities of $0.2 million. The increase in accounts payable and prepaid expenses and other assets and decrease in accrued and other liabilities were primarily the result of the timing of payments to our vendors.

Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities was $34.9 million for the six months ended June 30, 2022, which consisted of proceeds from maturities of marketable securities of $59.0 million, which amounts were partially offset by purchases of marketable securities of $23.8 million and purchases of property and equipment of $0.3 million.

Net cash used in investing activities was $37.1 million for the six months ended June 30, 2021, which consisted of purchases of marketable securities of $53.9 million and purchases of property and equipment of $1.5 million, which amounts were partially offset by proceeds from maturities of marketable securities of $18.3 million.

Cash Flows (Used in) Provided by Financing Activities

Net cash used in financing activities was $1.0 million for the six months ended June 30, 2022, which primarily related to repayment of debt of $1.1 million partially offset by proceeds from the issuance of common stock under employee share purchase plan of $0.1 million.

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Net cash provided by financing activities was $74.2 million for the six months ended June 30, 2021, which consisted of $75.2 million of net cash proceeds from our Private Placement, partially offset by repayment of debt of $1.0 million.

Critical Accounting Policies, Significant Judgments and Estimates

Our unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these unaudited interim condensed 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.

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 Annual Report on Form 10-K for the year ended December 31, 2021. During the six months ended June 30, 2022, there were no material changes to our critical accounting policies from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2021. See Note 1 to the unaudited interim condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for related discussions on updates on recently issued accounting pronouncements.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012, or 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 use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

Recent Accounting Pronouncements

See “Organization and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in Note 1 to our unaudited interim condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $68.1 million, consisting of interest-bearing money market funds, investments in corporate bonds and asset backed securities 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 and marketable securities, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents and marketable securities.

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

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the six months ended June 30, 2022 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.

Legal Proceedings

We are not currently involved in any litigation or legal proceedings that, in management’s opinion, are likely to have any material adverse effect on our company.

Item 1A. Risk Factors.

Our business involves significant risks, some of which are described below. You should carefully consider these risks, as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Business

We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have incurred significant losses since our inception, and we anticipate that we will continue to incur significant losses for the foreseeable future, which, together with our limited operating history, makes it difficult to assess our prospects.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage biopharmaceutical company, and we have only a limited operating history upon which you can evaluate our business and prospects. We have no products approved for commercial sale, have not generated any revenue from product sales and have incurred losses in each year since our inception in June 2016. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry.

In September 2020, we announced topline data from the EMERGE Phase 3 efficacy trial, which randomized 1,201 migraine subjects to one of two STS101 dose strengths or placebo. Although STS101 3.9 mg and 5.2 mg showed favorable numerical differences versus placebo on the pre-specified co-primary endpoints of freedom from pain and freedom from most bothersome symptom (from among photophobia, phonophobia and nausea) at two hours post-administration, these differences did not achieve statistical significance for either dosage strength. In March 2021, we announced an update to our development plan for STS101 that takes into account the findings from our detailed analyses of results and data from our EMERGE efficacy trial. Our updated development plan for STS101 included a Phase 1 trial, which we completed in June 2021, to evaluate the pharmacokinetics, safety and tolerability of STS101 5.2 mg and two higher dose strengths, the ongoing ASCEND Phase 3 long-term safety trial, and the ongoing pivotal SUMMIT Phase 3 efficacy trial that we initiated in June 2021 and for which we expect topline results in the fourth quarter of 2022.

We have limited experience as a company conducting Phase 3 clinical trials, submitting applications for regulatory approvals, such as an NDA, or commercializing any products.

We have had significant operating losses since our inception. Our net losses for the six months ended June 30, 2022 and 2021 were approximately $31.8 million and $22.3 million, respectively. As of June 30, 2022, we had an accumulated deficit of $173.5 million. Substantially all of our losses have resulted from expenses incurred in connection with the development of STS101 and general and administrative costs associated with our operations.

STS101 will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. In addition, we expect to continue to incur increasing costs associated with operating as a public company. We also do not yet have a sales organization or commercial infrastructure and, accordingly, we will incur significant expenses to establish a sales organization and associated commercial infrastructure in advance of generating any commercial product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue to develop STS101 through clinical trials and regulatory submissions. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

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We will require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Since our inception, we have invested substantially all of our efforts and financial resources in the development of STS101 for the acute treatment of migraine. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the clinical development of STS101. These expenditures will include costs associated with clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as commercializing STS101, if approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of STS101.

As of June 30, 2022, we had resources consisting of cash, cash equivalents and marketable securities of $68.1 million. Based on our current operating plan, we believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operations into the second half of 2023. However, our operating plans may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned. Adequate funding may not be available to us on acceptable terms, or at all, particularly in light of the current COVID-19 pandemic and associated economic uncertainty and potential local and/or global economic recession. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize STS101 or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue the development and commercialization of STS101.

Our future capital requirements depend on many factors, including: