(Registrant’s ~~Telephone Number, Including Area Code)~~telephone number, including area code)

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 ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 and post such files). Yes ☒ No ☐

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

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 ~~October 30, 2017,~~August 10, 2020, the registrant had ~~30,005,462~~12,207,973 shares of common stock, ~~($0.0001~~$0.0001 par ~~value)~~value, outstanding.

September 30,

December 31,

2017

2016

Assets

Current assets:

Cash and cash equivalents

$
14,360,452

$
58,083,409

Marketable securities

70,823,435

18,931,715

Other receivables

—

2,500,000

Prepaid and other current assets

1,339,208

937,436

Total current assets

86,523,095

80,452,560

Property and equipment, net

204,914

261,446

Other assets

2,538,211

1,609,834

Total assets

$
89,266,220

$
82,323,840

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and accrued expenses

$
10,937,851

$
5,311,093

Accrued compensation

1,810,919

2,351,703

Current portion of deferred revenue

19,454,795

30,897,192

Note payable

—

1,000,000

Total current liabilities

32,203,565

39,559,988

Deferred revenue, less current portion

12,673,762

20,803,762

Convertible note payable

12,968,493

—

Deferred rent

139,392

171,544

Stockholders’ equity:

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares
   issued and outstanding
��

—

—

Common stock, $0.0001 par value; 200,000,000 shares authorized; 30,005,462 shares
   issued and outstanding at September 30, 2017; 26,118,722 shares issued
   and outstanding at December 31, 2016

3,001

2,612

Additional paid-in capital

194,951,562

172,424,531

Accumulated other comprehensive loss

(23,093
)

(6,145
)
Accumulated deficit

(163,650,462
)

(150,632,452
)
Total stockholders’ equity

31,281,008

21,788,546

Total liabilities and stockholders’ equity

$
89,266,220

$
82,323,840

	June 30, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,394		$	2,065
Restricted cash		10			10
Accounts receivable, net		136			110
Inventories		431			106
Prepaid and other current assets		693			167
Total current assets		11,664			2,458
Restricted cash		250			—
Property and equipment, net		318			320
Right-of-use assets		4,468			95
Other assets		1,073			69
Total assets	$	17,773		$	2,942
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	2,659		$	808
Accrued liabilities		950			446
Current portion of lease liabilities		116			108
Current portion of deferred revenue		157			19
Total current liabilities		3,882			1,381
Paycheck Protection Program loan		467			—
Noncurrent portion of lease liabilities		4,666			—
Noncurrent portion of deferred revenue		128			138
Other liabilities		317			321
Total liabilities		9,460			1,840
Commitments and contingencies (Note 10)
Convertible preferred stock, $0.001 par value; no shares and 73,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares and 5,046,154 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively; liquidation preference of $0 and $40,294 at June 30, 2020 and December 31, 2019, respectively		—			39,070
Stockholders’ Equity (Deficit)
Preferred stock, $0.0001 par value; 10,000,000 shares and no shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares issued and outstanding at June 30, 2020 and December 31, 2019		—			—
Common stock, $0.0001 par value; 200,000,000 shares and 105,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 11,812,493 shares and 3,343,356 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		1			—
Additional paid-in capital		65,176			6,864
Accumulated deficit		(55,945	)		(43,933	)
Total Histogen Inc. stockholders’ equity (deficit)		9,232			(37,069	)
Noncontrolling interest		(919	)		(899	)
Total equity (deficit)		8,313			(37,968	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	17,773		$	2,942

See accompanying notes to the unaudited condensed consolidated financial statements.

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
License	$	5		$	5		$	872		$	7,510
Product		—			1,184			—			1,766
Grant		—			150			—			150
Professional services		103			86			214			153
Total revenues		108			1,425			1,086			9,579
Operating expenses:
Cost of product revenue		—			513			161			792
Cost of professional services revenue		89			75			186			133
Acquired in-process research and development		7,144			2,250			7,144			2,250
Research and development		1,437			985			2,828			2,043
General and administrative		1,588			1,551			2,771			3,405
Total operating expenses		10,258			5,374			13,090			8,623
Income (loss) from operations		(10,150	)		(3,949	)		(12,004	)		956
Other income (expense):
Change in fair value of warrant liabilities		—			25			—			47
Interest income (expense), net		(28	)		17			(28	)		18
Net income (loss)		(10,178	)		(3,907	)		(12,032	)		1,021

Net loss attributable to noncontrolling interest		10			8			20			17
Net income attributable to preferred stockholders		—			—			—			(624	)
Net income (loss) attributable to common stockholders	$	(10,168	)	$	(3,899	)	$	(12,012	)	$	414
Net income (loss) per share attributable to common stockholders:
Basic	$	(1.52	)	$	(1.17	)	$	(2.39	)	$	0.12
Diluted	$	(1.52	)	$	(1.17	)	$	(2.39	)	$	0.11
Weighted-average common shares used to compute net income (loss) per share attributable to common stockholders:
Basic		6,710,490			3,327,376			5,026,923			3,321,023
Diluted		6,710,490			3,327,376			5,026,923			3,833,835

See accompanying notes to the unaudited condensed consolidated financial statements.

	Convertible Preferred Stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders’ Equity			Noncontrolling			Total Equity
	Shares			Amount			Shares		Amount		Capital		Deficit			(Deficit)			Interest			(Deficit)
Balance at March 31, 2020		5,046,154		$	39,070			3,343,356	$	—	$	6,965	$	(45,777	)	$	(38,812	)	$	(909	)	$	(39,721	)
Issuance of common stock upon exercise of stock options		—			—			28,684		—		40		—			40			—			40
Issuance of common stock to former stockholders of Conatus upon Merger		—			—			3,394,299		—		18,872		—			18,872			—			18,872
Conversion of convertible preferred stock into common stock upon Merger		(5,046,154	)		(39,070	)		5,046,154		1		39,069		—			39,070			—			39,070
Stock-based compensation		—			—			—		—		230		—			230			—			230
Net loss		—			—			—		—		—		(10,168	)		(10,168	)		(10	)		(10,178	)
Balance at June 30, 2020		—		$	—			11,812,493	$	1	$	65,176	$	(55,945	)	$	9,232		$	(919	)	$	8,313

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’ Equity			Noncontrolling			Total Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)			Interest			(Deficit)
Balance at March 31, 2019		4,878,831	$	37,320		3,327,198	$	—	$	6,524	$	(36,030	)	$	(29,506	)	$	(873	)	$	(30,379	)
Issuance of Series D for PUR settlement		167,323		1,750		—		—		—		—			—			—			—
Issuance of common stock upon net exercise of stock options		—		—		16,158		—		—		—			—			—			—
Stock-based compensation		—		—		—		—		116		—			116			—			116
Net loss		—		—		—		—		—		(3,899	)		(3,899	)		(8	)		(3,907	)
Balance at June 30, 2019		5,046,154	$	39,070		3,343,356	$	—	$	6,640	$	(39,929	)	$	(33,289	)	$	(881	)	$	(34,170	)

See accompanying notes to the unaudited condensed consolidated financial statements.

	Convertible Preferred Stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders’ Equity			Noncontrolling			Total Equity
	Shares			Amount			Shares		Amount		Capital		Deficit			(Deficit)			Interest			(Deficit)
Balance at December 31, 2019		5,046,154		$	39,070			3,343,356	$	—	$	6,864	$	(43,933	)	$	(37,069	)	$	(899	)	$	(37,968	)
Issuance of common stock upon exercise of stock options		—			—			28,684		—		40		—			40			—			40
Issuance of common stock to former stockholders of Conatus upon Merger		—			—			3,394,299		—		18,872		—			18,872			—			18,872
Conversion of convertible preferred stock into common stock upon Merger		(5,046,154	)		(39,070	)		5,046,154		1		39,069		—			39,070			—			39,070
Stock-based compensation		—			—			—		—		331		—			331			—			331
Net loss		—			—			—		—		—		(12,012	)		(12,012	)		(20	)		(12,032	)
Balance at June 30, 2020		—		$	—			11,812,493	$	1	$	65,176	$	(55,945	)	$	9,232		$	(919	)	$	8,313

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’ Equity			Noncontrolling			Total Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)			Interest			(Deficit)
Balance at December 31, 2018		4,813,274	$	36,683		3,292,104	$	—	$	6,311	$	(40,967	)	$	(34,656	)	$	(864	)	$	(35,520	)
Issuance of Series B convertible preferred stock for Lordship Indemnification		16,413		124		—		—		—		—			—			—			—
Issuance of common stock for Lordship Indemnification		—		—		21,885		—		115		—			115			—			115
Issuance of Series D convertible preferred stock, net of issuance costs		49,144		513		—		—		—		—			—			—			—
Issuance of Series D for PUR settlement		167,323		1,750		—		—		—		—			—			—			—
Issuance of common stock upon net exercise of stock options		—		—		29,367		—		—		—			—			—			—
Stock-based compensation		—		—		—		—		214		—			214			—			214
Net income		—		—		—		—		—		1,038			1,038			(17	)		1,021
Balance at June 30, 2019		5,046,154	$	39,070		3,343,356	$	—	$	6,640	$	(39,929	)	$	(33,289	)	$	(881	)	$	(34,170	)

See accompanying notes to the unaudited condensed consolidated financial statements.

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities
Net income (loss)	$	(12,032	)	$	1,021
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Acquired in-process research and development		7,144			1,750
Depreciation and amortization		51			74
Stock-based compensation		331			214
Write-off of inventory		161			—
Change in fair value of warrant liabilities		—			(47	)
Changes in operating assets and liabilities:
Accounts receivable		(26	)		155
Inventories		(486	)		100
Prepaid expenses and other current assets		(116	)		(69	)
Other assets		(102	)		82
Accounts payable		7			668
Accrued liabilities		462			(250	)
Right-of-use asset and lease liabilities, net		248			(37	)
Deferred revenue		128			(821	)
Net cash (used in) provided by operating activities		(4,230	)		2,840
Cash flows from investing activities
Cash acquired in connection with the Merger		12,835			—
Cash paid for acquisition related costs		(481	)		—
Cash paid for property and equipment		(49	)		(112	)
Net cash provided by (used in) investing activities		12,305			(112	)
Cash flows from financing activities
Repayment of finance lease obligations		(3	)		(16	)
Proceeds from promissory notes		500			—
Payments on promissory notes		(500	)		—
Proceeds from the exercise of stock options		40			—
Proceeds from Payroll Protection Program Loan		467			—
Proceeds from the issuance of Series D convertible preferred stock, net		—			513
Net cash provided by financing activities		504			497
Net increase in cash, cash equivalents and restricted cash		8,579			3,225
Cash, cash equivalents and restricted cash, beginning of period		2,075			3,037
Cash, cash equivalents and restricted cash, end of period	$	10,654		$	6,262
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets
Cash and cash equivalents	$	10,394		$	6,252
Restricted cash		260			10
Total cash, cash equivalents and restricted cash	$	10,654		$	6,262
Noncash investing and financing activities
Right-of-use asset obtained in exchange for operating lease liability	$	4,481		$	619
Conversion of convertible preferred stock into common stock	$	39,070		$	—
Issuance of common stock to Conatus stockholders	$	18,872		$	—
Net assets acquired in Merger	$	710		$	—
Acquisition related costs included in accounts payable	$	1,336		$	—
Issuance of Series B preferred stock for Lordship Indemnification (Note 11)	$	—		$	124
Issuance of common stock for Lordship Indemnification (Note 11)	$	—		$	115

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Condensed Statements~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of ~~Operations~~Business, Basis of Presentation and ~~Comprehensive Loss~~Summary of Significant Accounting Policies

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

Collaboration revenue

$
9,565,890

$
—

$
26,572,397

$
—

Total revenues

9,565,890

—

26,572,397

—

Operating expenses:

Research and development

11,165,150

4,825,421

32,308,786

13,770,371

General and administrative

2,449,382

2,069,447

7,406,591

6,883,708

Total operating expenses

13,614,532

6,894,868

39,715,377

20,654,079

Loss from operations

(4,048,642
)

(6,894,868
)

(13,142,980
)

(20,654,079
)
Other income (expense):

Interest income

258,623

33,640

648,103

94,995

Interest expense

(189,041
)

(17,500
)

(473,354
)

(52,500
)
Other (expense) income

(21,318
)

11,818

(71,779
)

1,645

Total other income

48,264

27,958

102,970

44,140

Net loss

(4,000,378
)

(6,866,910
)

(13,040,010
)

(20,609,939
)
Other comprehensive income (loss):

Net unrealized (losses) gains on marketable securities

(455
)

(9,999
)

(16,948
)

12,885

Comprehensive loss

$
(4,000,833
)

$
(6,876,909
)

$
(13,056,958
)

$
(20,597,054
)
Net loss per share, basic and diluted

$
(0.13
)

$
(0.31
)

$
(0.46
)

$
(0.96
)
Weighted average shares outstanding used in computing
net loss per share, basic and diluted

30,004,037

22,410,702

28,104,199

21,527,993

Histogen Inc. (the “Company,” “Histogen,” or the “combined company”), formerly known as Conatus Pharmaceuticals Inc.

Nine Months Ended September 30,

2017

2016

Operating activities

Net loss

$
(13,040,010
)

$
(20,609,939
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

81,023

79,877

Stock-based compensation expense

3,049,181

2,456,196

Amortization of premiums and discounts on marketable securities, net

(13,260
)

6,323

Accrued interest included in convertible note payable

468,493

—

Changes in operating assets and liabilities:

Other receivables

2,500,000

—

Prepaid and other current assets

(458,038
)

844,647

Other assets

(872,111
)

—

Accounts payable and accrued expenses

5,617,193

(97,396
)
Accrued compensation

(540,784
)

175,197

Deferred revenue

(19,572,397
)

—

Deferred rent

(22,587
)

(13,313
)
Net cash used in operating activities

(22,803,297
)

(17,158,408
)
Investing activities

Maturities of marketable securities

57,257,000

30,847,000

Purchase of marketable securities

(109,152,408
)

(24,958,424
)
Capital expenditures

(24,491
)

(107,165
)
Net cash (used in) provided by investing activities

(51,919,899
)

5,781,411

Financing activities

Proceeds from issuance of convertible promissory note, net

12,500,000

—

Principal payment on promissory note

(1,000,000
)

—

Proceeds from issuance of common stock, net

30,609,789

11,781,626

Repurchase of common stock

(11,202,542
)

—

Proceeds from stock issuances related to exercise of stock options and
employee stock purchase plan

92,992

32,898

Net cash provided by financing activities

31,000,239

11,814,524

Net (decrease) increase in cash and cash equivalents

(43,722,957
)

437,527

Cash and cash equivalents at beginning of period

58,083,409

13,876,090

Cash and cash equivalents at end of period

$
14,360,452

$
14,313,617

Supplemental disclosure of cash flow information:

Cash paid for interest

$
4,861

$
52,500

~~Conatus Pharmaceuticals Inc. (the Company)~~, was incorporated in the state of Delaware on July 13, 2005. The Company is a ~~biotechnology~~ therapeutics company focused on developing potential first-in-class restorative therapeutics that ignite the body’s natural process to repair and maintain healthy biological function. The therapeutics are designed for aesthetic and therapeutic applications based upon the Company’s unique technology that utilizes proteins and growth factors produced by hypoxia-induced multipotent cells. The Company has a robust portfolio of products derived from one core technology process that fulfills market needs without using embryonic stem cells or animal components. The Company’s products are all covered by patented technologies which focus on replacing and regenerating tissues in the body.

The Company’s lead drug candidate, HST-001, is a hair stimulating complex (“HSC”) intended to be a physician-administered therapeutic for alopecia (hair loss). Phase 1 and Phase 1/2 clinical trials of HSC have been completed outside the United States, with results that produced significant efficacy and a clear safety profile and margin. A Phase 1 clinical trial of HSC in the United States under a Food and Drug Administration (“FDA”) approved Investigational New Drug (“IND”) has been completed and reports filed with the FDA in 2019. In 2019, the Company established HST-001 as the program identifier for HSC development and ~~commercialization~~expanded its product pipeline to include HST-002 (dermal filler) and HST-003 (knee cartilage) as its other lead development programs. The Company has also developed a non-prescription topical skin care ingredient that currently generates revenue from customers who formulate the ingredient into their skin care product lines.

Merger between Private Histogen and Conatus Pharmaceuticals Inc. and Name Change

On January 28, 2020, the Company, then operating as Conatus Pharmaceuticals Inc. (“Conatus”), entered into an Agreement and Plan of ~~novel medicines~~Merger and Reorganization, as amended (the “Merger Agreement”), with privately-held Histogen Inc. (“Private Histogen”) and Chinook Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Private Histogen, with Private Histogen surviving as a wholly-owned subsidiary of the Company (the “Merger”). On May 26, 2020, the Merger was completed. Conatus changed its name to ~~treat liver disease.~~Histogen Inc., and Private Histogen, which remains as a wholly-owned subsidiary of the Company, changed its name to Histogen Therapeutics Inc. On May 27, 2020, the combined company’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “HSTO”.

Except as otherwise indicated, references herein to “Histogen,” “the Company,” or the “combined company”, refer to Histogen Inc. on a post-Merger basis, and the term “Private Histogen” refers to the business of privately-held Histogen Inc., prior to completion of the Merger. References to Conatus refer to Conatus Pharmaceuticals Inc. prior to completion of the Merger.

Pursuant to the terms of the Merger Agreement, each outstanding share of Private Histogen common stock outstanding immediately prior to the closing of the Merger was converted into approximately 0.14342 shares of Company common stock (the “Exchange Ratio”), after taking into account the Reverse Stock Split, as defined below. Immediately prior to the closing of the Merger, all shares of Private Histogen preferred stock then outstanding were exchanged into shares of common stock of Private Histogen. In addition, all outstanding options exercisable for common stock of Private Histogen and warrants exercisable for common stock of Private Histogen became options and warrants exercisable for the same number of shares of common stock of the Company multiplied by the Exchange Ratio. Immediately following the Merger, stockholders of Private Histogen owned approximately 71.3% of the outstanding common stock of the combined company.

The transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Under this method of accounting, Private Histogen was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Private Histogen’s stockholders owned a substantial majority of the voting rights in the combined company, (ii) Private Histogen designated a majority of the members of the initial board of directors of the combined company, and (iii) Private Histogen’s senior management holds all key positions in the senior management of the combined company. As a result, as of ~~September~~the closing date of the Merger, the net assets of the Company were recorded at their acquisition-date relative fair values in the accompanying condensed consolidated financial statements of the Company and the reported operating results prior to the Merger are those of Private Histogen.

On May 26, 2020, in connection with, and prior to the completion of, the Merger, the Company effected a one-for-ten reverse stock split of its then outstanding common stock (the “Reverse Stock Split”). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All of the Company’s issued and outstanding common stock have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. All issued and outstanding Private Histogen common stock, convertible preferred stock, options and warrants prior to the effective date of the Merger have been retroactively adjusted to reflect the Exchange Ratio for all periods presented.

From inception and through June 30, ~~2017,~~2020, the Company has ~~devoted substantially all~~accumulated losses of ~~its efforts~~$55.9 million and expects to ~~product development~~incur operating losses and ~~has not realized product sales revenues~~generate negative cash flows from ~~its planned principal operations.~~operations for the foreseeable future. As of June 30, 2020, the Company had $10.4 million in cash and cash equivalents.

The Company has not yet established ongoing sources of revenues sufficient to cover its operating costs and will need to continue to raise additional capital to support its future operating activities, including progression of its development programs, preparation for commercialization, and other operating costs. Management’s plans with regard to these matters include entering into a ~~limited operating history,~~combination of additional debt or equity financing arrangements, government funding, strategic partnerships, collaboration and licensing arrangements, or other similar arrangements. In addition, the ~~sales and income potential~~Company may fund its losses from operations through the common stock purchase agreement the Company entered into with Lincoln Park in July 2020, for the purchase of up to $10.0 million of the Company’s ~~business and market are unproven. The Company has experienced net losses since its inception and,~~common stock over the 24 month period of the purchase agreement, $9.0 million of which remains available for sale as of ~~September 30, 2017, had an accumulated deficit~~the date these condensed consolidated financial statements were available to be issued (see Note 12), subject to limitations on the amount of $163.7 million. The Company expects to continue to incur net losses for at least the next several years. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. If the Company is unable to generate revenues adequate to support its cost structure,securities the Company may ~~need~~sell under its effective registration statement on Form S-3 within any 12 month period. There can be no assurance that the Company will be able to ~~raise~~obtain additional ~~equity~~financing on terms acceptable to the Company, on a timely basis or ~~debt financing.~~at all. As stated above and more fully discussed in Note 6, the Merger with Conatus was completed on May 26, 2020, which provided the Company approximately $12.8 million in cash and cash equivalents. However, additional funding will be required for the Company to sustain operations beyond twelve months from the date these condensed consolidated financial statements were available to be issued as the Company expects an increase in cash outflows as compared to its historical spend for its planned clinical trial activities over the next twelve months.

The ~~accompanying unaudited interim~~ condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Based on the above, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date the condensed consolidated financial statements are available to be issued. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries, including Histogen Therapeutics, Inc., and have been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles (GAAP)~~in the United States (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation.

The Company acquired Centro De Investigacion de Medicina Regenerativa, S.A. de C.V. (“CIMRESA”), a company in Mexico, during 2018 to facilitate a potential clinical development program for HSC. This is a wholly-owned subsidiary intended to pursue registration with the COFEPRIS (Mexico equivalent to FDA). CIMRESA had no operational or financial activity for the three and six months ended June 30, 2020 and 2019.

The Company holds a majority interest in Adaptive Biologix, Inc. (“AB”, formerly Histogen Oncology, LLC). AB was formed to develop and market applications for the treatment of cancer. The Company consolidates AB into our condensed consolidated financial statements.

Certain prior period amounts related to the acquisition of in-process research and development assets from the Company’s former unconsolidated affiliate, PUR Biologics, LLC (“PUR”), have been reclassified from research and development expense to acquired in-process research and development expense on the accompanying condensed consolidated statements of operations and cash flows to conform to the current period presentation. This reclassification had no effect on previously reported net income (loss), Stockholders’ equity (deficit) or cash flows from operating activities.

The unaudited condensed consolidated financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) ~~related to a quarterly report on Form 10-Q. Certain~~and GAAP. Accordingly, these condensed consolidated financial statements do not include all of the information and ~~note disclosures normally included in annual~~footnotes required by GAAP for complete financial ~~statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The~~statements. In the opinion of Management, these unaudited interim condensed consolidated financial statements ~~reflect~~contain all adjustments ~~which, in the opinion~~necessary, all of ~~management, are necessary for a fair statement of the results for the periods presented. All such adjustments~~which are of a normal and recurring ~~nature. The operating~~nature, to present fairly the Company’s financial position, results ~~presented in these unaudited interim condensed financial statements~~of operations and cash flows. Interim results are not necessarily indicative of ~~the~~ results ~~that may be expected~~ for ~~any~~a full year or future periods. These ~~unaudited interim~~ 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, 2016~~ included in ~~the Company’s annual report on Form 10-K~~our prospectus dated April 1, 2020, filed with the ~~SEC~~Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act, relating to the Registration Statement on ~~March 16, 2017.~~Form S-4, as amended (File No. 333-236332).

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, ~~and~~ liabilities and the disclosure of contingent assets and liabilities and contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the ~~reporting period.~~periods presented. Management believes that these estimates and assumptions are reasonable, however, actual results may differ and could have a material effect on future results of operations and financial position. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates.

Significant estimates and assumptions include the useful lives of property and equipment, discount rates used in recognizing contracts containing leases, unrecognized tax benefits, reserves for excess or obsolete inventory, stock-based compensation, and best estimate of standalone selling price of revenue deliverables. Actual results ~~could~~may materially differ from those estimates.

The Company determined that AB is a variable interest entity (“VIE”) and that Histogen is its primary beneficiary. The Company holds greater than 50% of the shares and has the authority to manage the business and affairs of the VIE. AB’s other shareholder does not have a controlling interest.

On January 12, 2018, AB was converted into a traditional C corporation, a Delaware corporation, under a Plan of Conversion agreement between the Company and the other member of the limited liability company, Wylde, LLC (“Wylde”). The entity structure change eliminated some of the special rights Wylde had under the LLC charter and gave the Company more control over the voting rights under the new corporate structure. The Plan of Conversion called for 3,800,000 common stock shares of AB to be issued to the Company and Wylde in proportion to their interest in the LLC immediately before the agreement was executed. Contemporaneously, the Company offered to purchase, and Wylde agreed to sell, 100,000 of the AB common shares for $1.00 per share for a total price of $0.1 million. The completion of this transaction among the stockholders of AB resulted in Histogen owning 2,600,000 common shares or approximately 68% of AB.

A VIE is typically an entity for which the Company has less than a 100% equity interest but controls the decision making over the business and affairs of the entity, directs the decisions driving the economic performance of such entity and participates in the profit and losses of such an entity. The Company weighed both quantitative and qualitative information about the different risks and reward characteristics of each entity and the significance of that entity to the consolidating group in the aggregate.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.

The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking, money market accounts and brokerage accounts.

The Company’s current restricted cash consists of cash held as collateral for the issuer of its credit card accounts. Noncurrent restricted cash consists of collateral for a letter of credit issued as a security deposit for the lease of the Company’s headquarters and is required to be held throughout the lease term.

~~Financial instruments that potentially subject~~At certain times throughout the year, the Company ~~to significant concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains~~may maintain deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its ~~cash. Additionally,~~cash balances due to the ~~Company established guidelines regarding approved investments~~financial position of the depository institutions in which those deposits are held.

During the three months ended June 30, 2020 and ~~maturities~~2019, one customer accounted for 100% and 71% of ~~investments, which are designed~~total revenues, respectively. During the six months ended June 30, 2020 and 2019, one customer accounted for 100% and 96% of total revenues, respectively. Accounts receivable from the customer was $0.1 million at June 30, 2020 and December 31, 2019.

~~Cash and Cash Equivalents~~the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

The Company classifies its marketable securities as available-for-sale and records such assets at estimated fair value in the condensed balance sheets, with unrealized gains and losses, if any, reported as a component of other comprehensive income (loss) within the condensed statements of operations and comprehensive loss and as a separate component of stockholders’ equity. The Company classifies marketable securities with remaining maturities greater than one year as current assets because such marketable

securities are available to fund the Company’s current operations. The Company invests its excess cash balances primarily in corporate debt securities and money market funds with strong credit ratings. Realized gains and losses are calculated on the specific identification method and recorded as interest income. There were no realized gains and losses for the nine-month periods ended September 30, 2017 and 2016.

At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is other-than-temporary. The Company considers factors including: the significancefull impact of the ~~decline in value compared~~COVID-19 outbreak continues to the cost basis, underlying factors contributing to a decline in the prices of securities in a single asset class, the length of time the market value of the security has been less than its cost basis, the security’s relative performance versus its peers, sector or asset class, expected market volatility and the market and economy in general. When the Company determines that a decline in the fair value below its cost basis is other-than-temporary, the Company recognizes an impairment loss in the period in which the other-than-temporary decline occurred. There have been no other-than-temporary declines in the value of marketable securities, as it is more likely than not the Company will hold the securities until maturity or a recovery of the cost basis.

~~The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.~~

~~Stock-based compensation expense for stock option grants under the Company’s stock option plans is recorded at the estimated fair value of the award~~evolve as of the ~~grant~~ date these condensed consolidated financial statements were available to be issued. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is ~~recognized as expense~~actively monitoring the situation on ~~a straight-line basis over~~its financial condition, liquidity, operations, customers, suppliers, industry, and workforce. Given the ~~requisite service period~~daily evolution of the ~~stock-based award. Stock-based compensation expense for employee stock purchases under~~COVID-19 outbreak and the ~~Company’s 2013 Employee Stock Purchase Plan (the ESPP)~~response to curb its spread, the Company is ~~recorded at~~not able to estimate the ~~estimated fair value~~effects of the ~~purchase as~~COVID-19 outbreak to its results of operations, financial condition, or liquidity for fiscal year 2020.

On March 27, 2020, President Trump signed into law the ~~plan enrollment date~~Coronavirus Aid, Relief and ~~is recognized as expense on a straight-line basis over the applicable six-month ESPP offering period.~~Economic Security Act (the “CARES Act”). The ~~estimation of stock option and ESPP fair value requires management to make estimates and judgments about,~~CARES Act, among other things, ~~employee exercise behavior, forfeiture rates~~includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and ~~volatility~~technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impact that the CARES Act may have on its business. Currently, the Company is unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity. The CARES Act also appropriated funds for the U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. Refer to Note 8 – Paycheck Protection Program Loan for further information.

Accounts receivable are generally due within 30 days and are recorded net of the allowance for doubtful accounts. The allowance is based on an analysis of historical bad debt, current receivables aging and expected future write-offs of uncollectible accounts, as well as an assessment of specific identifiable accounts considered at risk or uncollectible. Additions to the allowance for doubtful accounts include provisions for bad debt and deductions from the allowance for doubtful accounts include customer write-offs. Provision for doubtful accounts was not material for all periods presented.

Inventories, consisting of raw materials, work in process, and finished goods, are valued at the lower of cost (first-in, first-out method) or net realizable value. The Company writes down excess and obsolete inventory to its estimated net realizable value based on management’s review of inventories on hand compared to estimated future usage and sales, shelf-life and assumptions about the likelihood of obsolescence. The cost components of work in process and finished goods inventories include raw materials, direct labor and an allocation of the Company’s ~~common stock. The judgments directly affect the amount of compensation expense that will be recognized.~~overhead.

Property and equipment ~~which consists~~are reported net of accumulated depreciation and amortization and are comprised of office furniture and ~~fixtures, computers~~equipment, lab and ~~office~~manufacturing equipment, and leasehold ~~improvements,~~improvements. Ordinary maintenance and repairs are ~~stated at cost~~charged to expense, while expenditures that extend the physical or economic life of the assets are capitalized. Furniture and all equipment are depreciated over ~~the~~their estimated useful lives, ~~of the assets (three to~~or five ~~years)~~years, using the straight-line method. Leasehold improvements are amortized over ~~the shorter of~~ their estimated useful lives orand limited by the remaining term of the building lease, ~~term.~~using the straight-line method.

~~The Company regularly reviews the carrying value~~Long-lived assets to be held and ~~estimated lives of all of its long-lived assets,~~used, including property and equipment, ~~to determine whether indicators of~~are reviewed for impairment ~~may exist which warrant adjustments to carrying values~~whenever events or ~~estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow~~changes in ~~future periods, as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of~~circumstances indicate that the carrying amount of the ~~asset’s fair value. The~~assets may not be recoverable. As of June 30, 2020, the Company has not recognized any impairment to long-lived assets.

In late 2011, Private Histogen contracted for research services from EPS Global Research Pte. Ltd. (“EPS”) to conduct clinical trials and compile data from a study that took place in 2011 and 2013. The unpaid amount due for the services was approximately $0.3 million.

On January 26, 2017, Private Histogen and EPS entered into a Debt Settlement and Conversion Agreement (“Settlement Agreement”) whereby Private Histogen paid $50,000 and issued EPS 14,342 shares of Series D convertible preferred stock. The Company is required to repurchase the shares at the higher of the remaining balance due, approximately $0.3 million at June 30, 2020 and December 31, 2019, or the market price of the shares at the time of repurchase, but no later than December 31, 2021. Histogen has the sole option to initiate the timing of the repurchase of the shares (which were converted into shares of common stock upon the Merger) before the deadline date.

The Settlement Agreement was treated as debt subject to Accounting Standards Codification (“ASC”) 470, Debt, and a repurchase commitment under ASC 480, Distinguishing Liabilities from Equity, which includes forward purchase contracts. In measuring the gain or loss on the extinguishment of debt under ASC 470, the Company has compared the difference between the net carrying value of the remaining liability against the fair value of the noncash securities, in this case the shares of Series D convertible preferred stock issued to EPS and the forward purchase contract. Based on these parameters, the Company has determined that no gain or loss has been created by the extinguishment of the original liability at January 26, 2017, the date of the agreement, and no effect has been recorded in the accompanying condensed consolidated statements of operations.

The Company determined the fair value of the liability to be approximately $0.3 million which is the value as if the repurchase commitment was exercised immediately. As of June 30, 2020 and December 31, 2019, the fair value of the EPS forward contract remained at approximately $0.3 million and is included in other liabilities in the accompanying condensed consolidated balance sheets.

Prior to the Merger, Private Histogen had shares of convertible preferred stock outstanding that were conditionally redeemable, as the redemption rights were either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, and were classified as temporary equity.

The Company is required to report all components of comprehensive income (loss), including net income (loss), in the accompanying condensed consolidated financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses ~~through September 30, 2017.~~on investments and foreign currency translation adjustments. Net income (loss) and comprehensive income (loss) were the same for all periods presented.

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers, whereby revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. A five-step model is used to achieve the core principle: (1) identify the customer contract, (2) identify the contract’s performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenue when or as a performance obligation is satisfied. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of product revenue. The Company applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances (See Note 5).

In March 2017, the National Science Foundation (“NSF”), a government agency, awarded the Company a research and development grant to develop a novel wound dressing for infection control and tissue regeneration. The Company has concluded this government grant is not within the scope of ASC 606, as government entities generally do not meet the definition of a “customer” as defined by ASC 606. Payments received under the grant are considered conditional, non-exchange contributions under the scope of ASC 958-605, Not-for-Profit Entities – Revenue Recognition, and are recorded as revenue in the period in which such conditions are satisfied. In reaching the determination that such payments should be recorded as revenue, management considered a number of factors, including whether the Company is a principal under the arrangement, and whether the arrangement is significant to, and part of, the Company’s ongoing operations.

The Company recognizes revenue for professional services which are based upon negotiated rates with the counterparty. Professional services fees are recognized as revenue over time when ~~each of~~ the ~~following four criteria is met: (i) persuasive evidence of an arrangement exists; (ii) products are delivered or as~~underlying services are ~~rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.~~

The Company recognizes revenue under its Option, Collaboration and License Agreement (the Collaboration Agreement) with Novartis Pharma AG (Novartis) based on the relevant accounting literature. Under this guidance, multiple elements or deliverables may include (i) grants of licenses, or options to obtain licenses, to intellectual property, (ii) research and development services, (iii) participation on joint research and/or joint development committees, and/or (iv) manufacturing or supply services. The payments entities may receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; amounts due upon the achievement of specified objectives; and/or royalties on future product sales.

Multiple-element arrangements require the separability of deliverables included in an arrangement into different units of accounting and the allocation of arrangement consideration to the units of accounting. The evaluation of multiple-element arrangements requires management to make judgments about (i) the identification of deliverables, (ii) whether such deliverables are separable from the other aspects of the contractual relationship, (iii) the estimated selling price of each deliverable, and (iv) the expected period of performance for each deliverable.

To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances for each arrangement. Management then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit using the relative selling price method. The allocated consideration for each unit of accounting is recognized based on the method most appropriate for that unit of account andperformed, in accordance with ASC 606, and none of the revenue ~~recognition criteria detailed above.~~recognized to date is refundable.

~~If there are deliverables in an arrangement that are not separable from other aspects~~Cost of Product Revenue

Cost of product revenue represents direct and indirect costs incurred to bring the ~~contractual relationship, they are treated as a combined unit~~product to saleable condition.

Cost of professional services revenue for the combined unit recognized in a manner consistent with the revenue recognition applicable to the final deliverable in the combined unit. Payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets and recognized as revenue when the related revenue recognition criteria are met.

The Collaboration Agreement provides for non-refundable milestone payments. The Company recognizes revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to the Company for such milestone (i) is consistent withrepresents the Company’s ~~performance necessary to achieve the milestone or the increase in value to the collaboration resulting from the Company’s performance, (ii) relates solely to the Company’s past performance~~costs for full-time employee equivalents and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, the Company considers all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.

The Company periodically reviews the estimated performance periods under the Collaboration Agreement, which provides for non-refundable upfront payments and fees. The Company will adjust the periods over which revenue should be recognized when appropriate to reflect changes in assumptions relating to the estimated performance periods. The Company could accelerate revenue recognition in the event of early termination of programs or if the Company’s expectations change. Alternatively, the Company could decelerate revenue recognition if programs are extended or delayed. While such changes to the Company’s estimates have no impact on the Company’s reported cash flows, the amount of revenue recorded in future periods could be materially impacted.

The Company records revenues related to the reimbursement of costs incurred under the Collaboration Agreement where the Company acts as a principal, controls the research and development activities and bears credit risk. Under the Collaboration Agreement, the Company is reimbursed for associatedactual out-of-pocket costs and for a certain amount of the Company’s full-time equivalent (FTE) costs based on an agreed-upon FTE rate. The gross amount of these pass-through reimbursed costs is reported as revenue in the accompanying statements of operations and comprehensive loss, while the actual expenses for which the Company is reimbursed are reflected as research and development costs.

~~See Note 8 – Collaboration and License Agreements for further information.~~

All research and development costs are charged to expense as incurred. Research and development expenses primarily include (i) payroll and related costs associated with research and development performed, (ii) costs related to clinical and preclinical testing of the Company’s technologies under development, and (iii) other research and development costs including allocations of facility costs.

The Company has acquired and may continue to acquire the rights to drug candidates in various stages of development. The up-front payments to acquire a drug candidate are immediately expensed as ~~incurred.~~acquired in-process research and development, provided that the drug candidate has not obtained regulatory approval for marketing and, absent obtaining such approval, have no alternative future use.

General and administrative expenses represent personnel costs for employees involved in general corporate functions, including finance, accounting, legal and human resources, among others. Additional costs included in general and administrative expenses consist of professional fees for legal (including patent costs), audit and other consulting services, travel and entertainment, charitable contributions, recruiting, allocated facility and general information technology costs, depreciation and amortization, and other general corporate overhead expenses.

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. No income tax expense or benefit was recorded for the three and six months ended June 30, 2020 and 2019, due to the full valuation allowance on the Company’s net deferred tax assets. A valuation allowance is provided if it is more likely than not that some or all the deferred tax assets will not be realized.

The ~~Company’s policy related to~~Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a ~~recognition threshold and measurement attribute criteria~~model for the ~~financial statement~~ recognition and measurement of a tax ~~positions~~position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. As of December 31, 2016, there are no unrecognized tax benefits included in the condensed balance sheet that would, if recognized, affect the Company’s effective tax rate,return, and ~~the Company has noted no material changes through September 30, 2017. The Company has not recognized~~provides guidance on derecognition, classification, interest and penalties, ~~in the condensed balance sheets or condensed statements of operations~~disclosure and ~~comprehensive loss. The Company is subject to U.S. and California taxation. As of December 31, 2016, the Company’s tax years beginning 2005 to date are subject to examination by taxing authorities.~~

The ~~Company~~Company’s policy is ~~required~~ to ~~report all components of comprehensive loss, including net loss,~~recognize interest or penalties related to income tax matters in ~~the condensed financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions~~income tax expense. Interest and ~~other events and circumstances from nonowner sources, including unrealized gains and losses on marketable securities. Comprehensive gains (losses) have been reflected in~~penalties related to income tax matters were not material for the ~~condensed statements of operations and comprehensive loss for all~~ periods presented.

Operating segments are identified as components of an enterprise about which separate discrete financial information is used in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily in the United States.

Basic net ~~loss~~income (loss) per share attributable to common stockholdersis ~~calculated~~computed by dividing ~~the~~ net ~~loss~~income (loss) attributable to common stockholders by the ~~weighted average number of~~weighted-average common shares outstanding during the ~~period. Diluted~~period, without consideration for potentially dilutive securities.

The Company follows the two-class method when computing net income (loss) per share attributable to common stockholders, which is an earnings allocation formula that determines net income (loss) per share for holders of the Company’s common stock and participating securities. The Company’s convertible preferred stock contained participation rights in any dividend paid by the Company and are deemed to be participating securities. Net income attributable to common stockholders and participating securities is allocated to each share on an as-converted basis as if all of the earnings for the period have been distributed. The participating securities did not include a contractual obligation to share in the losses of the Company and are not included in the calculation of net income (loss) per share attributable to common stockholders for periods that have a net loss. Potentially dilutive securities are excluded from the computation in periods in which they have an anti-dilutive effect on net loss per share attributable to common stockholders.

Diluted net income (loss) per share attributable to common stockholdersis computed ~~by dividing~~using the more dilutive of (a) the two-class method or (b) the if-converted method. For periods in which the Company reports a net loss ~~by the weighted average number of~~attributable to common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities have been excluded from the computation ofstockholders, diluted net loss per share inattributable to common stockholders is the ~~periods in which they would be~~same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. For ~~all periods presented, there~~the three and six months ended June 30, 2020, and the three months ended June 30, 2019, diluted net loss per share attributable to common stockholders is ~~no difference in~~equal to basic net loss per share attributable to common stockholders as common stock equivalent shares from stock options and convertible preferred stock were anti-dilutive. For the ~~number~~six months ended June 30, 2019, diluted net income per share attributable to common stockholders included dilutive common stock equivalent shares from outstanding stock options.

The following table sets forth the calculation of ~~shares used~~the Company’s net income (loss) per share attributable to ~~compute~~common stockholders, basic and diluted ~~shares outstanding due to the Company’s net loss position.~~(in thousands, except share and per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Numerator:
Net income (loss) attributable to common stockholders	$	(10,168	)	$	(3,899	)	$	(12,012	)	$	414
Denominator:
Weighted-average common shares used for basic		6,710,490			3,327,376			5,026,923			3,321,023
Weighted-average effect of potentially dilutive securities:
Stock options		—			—			—			512,812
Weighted-average common shares used for diluted		6,710,490			3,327,376			5,026,923			3,833,835
Net income (loss) per share attributable to common stockholders:
Basic	$	(1.52	)	$	(1.17	)	$	(2.39	)	$	0.12
Diluted	$	(1.52	)	$	(1.17	)	$	(2.39	)	$	0.11

The following table sets forth ~~the~~ outstanding potentially dilutive ~~securities~~shares that have been excluded infrom the calculation of diluted net ~~loss~~income (loss) per share attributable to common stockholders because ~~to do so would be anti-dilutive.~~of their anti-dilutive effect (in common stock equivalents):

Prior to the Merger, the Company was required to periodically estimate the fair value of common stock with the assistance of an independent third-party valuation expert when issuing stock options and computing its estimated stock-based compensation expense. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of significant levels of management judgment.

In order to determine the fair value, the Company considered, among other things, contemporaneous valuations of the Company’s common stock, the Company’s business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving various liquidity events; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.

The Company recognizes stock-based compensation expense over the requisite service period on a straight-line basis. Employee and director stock-based compensation for stock options is measured based on estimated fair value as of the grant date, using the Black-Scholes option pricing model, in calculating the fair value of option grants as of the grant date. The Company uses the following assumptions for estimating fair value of option grants:

Fair Value of Common Stock – The fair value of common stock underlying the option grant is determined based on observable market prices of the Company’s common stock.

Expected Volatility – Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility) during a period. Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and a lack of adequate company-specific historical and implied volatility data, volatility has been estimated and based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, the Company has selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry, and with historical share price information sufficient to meet the expected term of the stock-based awards.

Expected Term – This is the period of time during which the options are expected to remain unexercised. Options have a maximum contractual term of ten years. The Company estimates the expected term of stock options using the “simplified method”, whereby the expected term equals the average of the vesting term and the original contractual term of the underlying option.

Risk-Free Interest Rate – This is the observed yield on zero-coupon U.S. Treasury securities, as of the day each option is granted, with a term that most closely resembles the expected term of the option.

Stock-based compensation expense for performance-based options is recognized based on amortizing the fair market value as of the grant date over the periods during which the achievement of the performance is probable. Performance-based options require certain performance conditions to be achieved in order for these options to vest. These options vest on the date of achievement of the performance condition.

Stock-based compensation expense for market-based options is recognized on a straight-line basis over the derived service period, regardless of whether the market condition is satisfied. Market-based options subject to market-based performance targets require achievement of the performance target in order for these options to vest. The Company estimates the fair value of market-based options as of the grant date and expected term using a Monte Carlo simulation that incorporates option-pricing inputs covering the period from the grant date through the end of the derived service period. The expected volatility as of the grant date is estimated and based on the historical volatility of a group of similar companies that are publicly traded. The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities, as of the day the option is granted, with a term that most closely resembles the expected term of the option.

In ~~May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ This guidance requires that an entity recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public companies, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. The Company is continuing to assess the impact of the new guidance on its accounting policies and procedures and is evaluating the new requirements as applied to existing revenue contracts. While this assessment is still in progress, the Company believes the most significant impact will relate to the timing of collaboration revenues, where the recognition of variable consideration such as milestone payments may be accelerated. In conjunction with its continuing assessment of the impact of the new guidance, the Company is also evaluating its method of adoption and reviewing and updating its internal controls over financial reporting to ensure that information required to implement the new standard is appropriately captured and recorded. The Company will implement any changes as required to facilitate adoption of the new guidance beginning in the first quarter of 2018.

~~In February 2016,~~2019, the FASB issued ASU No. ~~2016-02,~~ 2019-12~~Leases~~, Income Taxes (Topic ~~842)~~740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ~~This guidance requires organizations that lease assets with lease terms~~ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves the consistent application, and the simplification, of ~~more than 12 months to recognize on the balance sheet the assets~~other areas of Topic 740 by clarifying and ~~liabilities for the rights and obligations created by those leases. The~~amending existing guidance. ASU also requires disclosures to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases, including qualitative and quantitative information. For public companies, ASU No. 2016-022019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, ~~beginning after December 15, 2018. Early~~with early adoption is permitted. The Company is currently evaluating the potential impact ~~of the pending adoption of ASU No. 2016-02~~that this standard may have on its consolidated financial statements and related disclosures.

In ~~March~~June 2016, the FASB issued ASU ~~No. 2016-09,~~2016-13, ~~Compensation—Stock Compensation~~Financial Instruments Credit Losses (Topic ~~718).~~326): Measurements of Credit Losses on Financial Instruments ~~This guidance~~(“ASU 2016-13”), which changes the ~~accounting~~impairment model for most financial assets and certain ~~aspects~~other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of ~~stock-based compensation, including income taxes, forfeitures, tax withholding and classification on~~allowances for losses. For available-for-sale debt securities with unrealized losses, the ~~statement~~losses will be recognized as allowances rather than as reductions in the amortized cost of ~~cash flows. For public companies,~~the securities. ASU ~~No. 2016-09~~2016-13 is effective for ~~annual~~fiscal years beginning after December 15, 2019, and interim periods ~~beginning after~~

~~December 15, 2016.~~within those periods, with early adoption permitted. The Company adopted ~~this guidance effective March 31, 2017, as required.~~ASU 2016-13 on January 1, 2020. The adoption of this ~~guidance had an immaterial~~standard did not have a material impact on the Company’s condensed consolidated financial statements ~~and~~or related disclosures.

In August ~~2016,~~2018, the FASB issued ASU No. ~~2016-15,~~ 2018-13, ~~Statement~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes the valuation processes for Level 3 fair value measurements and adds the disclosure for the range and weighted-average of ~~Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This guidance addresses the presentation and classification of certain cash flow items, including the classification of cash receipts and payments that have aspects of more than one class of cash flows,significant unobservable inputs used to ~~reduce the existing diversity in practice.~~develop Level 3 fair value measurements. ASU ~~2016-15~~2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, ~~beginning after December 15, 2017. Early~~with early adoption is permitted. The Company ~~early~~ adopted ~~this guidance effective June 30, 2017.~~ASU 2018-13 on January 1, 2020. The adoption of this ~~guidance had no~~standard did not have an impact on the Company’s condensed consolidated financial statements ~~and~~or related disclosures.

As of June 30, 2020 and December 31, 2019, no finished goods were included in inventories. During the six months ended June 30, 2020, the Company recorded a write-off of inventory totaling $0.2 million. This amount was recognized as a component of cost of product revenue in the accompanying condensed consolidated statements of operations.

Depreciation and amortization expense for the three months ended June 30, 2020 and 2019 were $23,000 and $37,000, respectively. Depreciation and amortization expense for the six months ended June 30, 2020 and 2019 was $0.1 million.

The following is a summary description of the material revenue arrangements, including arrangements that generated revenues during the three and six months ended June 30, 2020 and 2019.

In 2014, the Company entered into a license and supply agreement (the “Edge Agreement”), amended May 17, 2018, with Edge Systems LLC (“Edge”), which was terminated in October 2019, to incorporate Histogen’s CCM skin care ingredient into Edge’s cosmetic products. The quantities to be delivered by the Company to Edge under the agreement were variable and the price per unit of CCM supplied to Edge was fixed with no variable consideration. Product returns to date have not been significant and the Company has not considered it necessary to record a reserve for product returns. The Company’s product revenues were recognized at a point in time when the underlying product was delivered to the customer which was when the customer obtained control of the product. Product revenue under this arrangement was $0.3 million for the three months and six months ended June 30, 2019, and no product revenue from sales to Edge was recognized during 2020.

In 2017, the ~~FASB issued ASU No. 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718).~~ ~~This guidance amends~~Company entered into a series of agreements (collectively, the ~~scope~~“2017 Allergan Agreement”), which ultimately transferred Suneva Medical, Inc.’s license and supply rights of ~~modification accounting for share-based payment arrangements~~Histogen’s CCM skin care ingredient in the medical aesthetics market to Allergan Sales LLC (“Allergan”) and ~~addresses~~granted Allergan an exclusive, royalty-free, perpetual, irrevocable, non-terminable and transferable license, including the ~~types~~right to sublicense to third parties, to use the Company’s CCM skin care ingredient in the medical aesthetics market. The 2017 Allergan Agreement also obligated the Company to deliver CCM to Allergan (the “Supply of ~~changes~~CCM to Allergan”) in the future as well as share with Allergan any potential future improvements to the ~~terms~~Company’s CCM skin care ingredients identified through the Company’s research and development efforts (“Potential Future Improvements”). In consideration for the execution of the agreements, Histogen received a cash payment of $11.0 million and a potential additional payment of $5.5 million if Allergan’s net sales of products containing the Company’s CCM skin care ingredient exceeds $60.0 million in any calendar year through December 31, 2027.

In March 2019, Histogen entered into a separate agreement with Allergan (the “2019 Allergan Amendment”) to amend the 2017 Allergan Agreement in exchange for a one-time payment of $7.5 million to the Company. The agreement broadened Allergan’s license rights, expanding Allergan’s access to certain sales channels where its products incorporating the CCM ingredient can be sold. Specifically, the license was broadened to provide Allergan the exclusive right to sell through the “Amazon Professional” website, or ~~conditions~~any website or digital platform owned or licensed by Allergan or under the Allergan brand name, and non-exclusive rights to sell on other websites and through brick-and-mortar medical spas and wellness centers (excluding websites and brick-and-mortar stores of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. For public companies, ASU No. 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. luxury brands).

The Company ~~early adopted~~evaluated the 2019 Allergan Amendment under ASC 606 and concluded that Allergan continues to be a customer and that the expanded license is distinct from the 2017 Allergan Agreement. The Company determined the expanded license under the 2019 Allergan Amendment to be functional intellectual property as Allergan has the right to utilize the Company’s CCM skin care ingredient, and that ingredient is functional to Allergan at the time the Company transferred the expanded license.

The standalone selling price of the expanded license was not readily observable since the Company has not yet established a price for this ~~guidance effective~~expanded license and the expanded license has not been sold on a standalone basis to any customer. The Company accounted for the 2019 Allergan Amendment as a modification to the 2017 Allergan Agreement. The contract modification was accounted for as if the 2017 Allergan Agreement had been terminated and the new contract included the expanded license as well as the remaining performance obligations that arose from the 2017 Allergan Agreement related to the Supply of CCM to Allergan and Potential Future Improvements.

The total transaction price for the new contract included the $7.5 million from the 2019 Allergan Amendment as well as the amounts deferred as of the 2019 Allergan Amendment execution date for each the Supply of CCM to Allergan and Potential Future Improvements.

The standalone selling price for the Supply of CCM to Allergan was determined based on comparable sales transactions. The standalone selling price of the Potential Future Improvements was estimated at the fully burdened rate of research and development employees cost plus a commercially reasonable markup. The amount of the total transaction price allocated to the expanded license was determined using the residual approach, as a result of not having a standalone selling price for the expanded license; that is, the total transaction price less the standalone selling prices of the Supply of CCM to Allergan and Potential Future Improvements.

Revenue related to the Supply of CCM to Allergan has been deferred and recognized at the point in time in which deliveries are completed while revenue related to the Potential Future Improvements has been deferred and amortized ratably over the remaining 9-year life of the patent. The Supply of CCM to Allergan under the 2019 Allergan Amendment was entirely fulfilled during the year ended December 31, 2019, resulting in recognized revenue of $0.9 million ($0.5 million of which was previously deferred) and $1.5 million ($0.8 million of which was previously deferred) during the three months and six months ended June 30, ~~2017.~~2019, respectively. The ~~adoption~~$7.5 million residual amount of the total transaction price allocated to the expanded license was recognized as license revenue upon transfer of the license to Allergan in March 2019.

In January 2020, the Company further amended the 2019 Allergan Amendment in exchange for a one-time payment of $1.0 million to the Company (the “2020 Allergan Amendment”). The 2020 Allergan Amendment further broadened Allergan’s exclusive and non-exclusive license rights to include products used for or in connection with microdermabrasion. In addition, the Company agreed to provide Allergan with an additional 200 kilograms of CCM (the “Additional Supply of CCM to Allergan”).

The Company evaluated the 2020 Allergan Amendment under ASC 606 and concluded that Allergan continues to be a customer and that the expanded license is distinct from the 2019 Allergan Amendment. The Company determined the expanded license under the 2020 Allergan Amendment to be functional intellectual property as Allergan has the right to utilize the Company’s CCM skin care ingredient, and that ingredient is functional to Allergan at the time the Company transferred the expanded license.

The standalone selling price of the expanded license was not readily observable since the Company has not yet established a price for this ~~guidance~~expanded license and the expanded license has not been sold on a standalone basis to any customer. The Company accounted for the 2020 Allergan Amendment as a modification to the 2019 Allergan Amendment (which had ~~no impact~~modified the 2017 Allergan Agreement, as noted above). The contract modification was accounted for as if the 2019 Allergan Amendment had been terminated and the new contract included the expanded license and Additional Supply of CCM to Allergan, as well as the remaining performance obligation related to Potential Future Improvements.

The total transaction price for the new contract included the $1.0 million from the 2020 Allergan Amendment, the future payment for the Additional Supply of CCM to Allergan, as well as the amounts deferred as of the 2020 Allergan Amendment execution date for Potential Future Improvements.

The standalone selling price for the Additional Supply of CCM to Allergan was determined using the observable inputs of historical comparable sales transactions, including the margin from such sales. The Company also considered its reduced expected cost of satisfying this performance obligation based on the current efficiencies within its CCM manufacturing processes. Due to significant efficiencies in the Company’s ~~financial~~CCM manufacturing processes, the forecasted cost of CCM production has decreased, while the applied margin was determined by comparison to similar sales transactions in prior years. The standalone selling price of the Potential Future Improvements was estimated at the fully burdened rate of research and development employees cost plus a commercially reasonable markup. The amount of the total transaction price allocated to the expanded license was determined using the residual approach, as a result of not having a standalone selling price for the expanded license; that is, the total transaction price less the standalone selling prices of the Additional Supply of CCM to Allergan and Potential Future Improvements.

Revenue related to the Additional Supply of CCM to Allergan has been deferred and will be recognized at the point in time in which deliveries are completed, for which no previously deferred revenue was recognized as revenue during the three months and six months ended June 30, 2020. Revenue related to the Potential Future Improvements has been deferred and amortized ratably over the remaining 9-year life of the patent, for which $5,000 of previously deferred revenue was recognized in revenue during each of the three month periods ended June 30, 2020 and 2019, and for which $10,000 of previously deferred revenue was recognized in revenue during each of the six month periods ended June 30, 2020 and 2019. As of June 30, 2020, the Company had not yet delivered any portion of the Additional Supply of CCM to Allergan. The $0.9 million residual amount of the total transaction price allocated to the expanded license was recognized as license revenue upon transfer of the license to Allergan in January 2020.

The remaining performance obligations are the Company’s obligations to (1) deliver Additional Supply of CCM to Allergan and (2) share with Allergan any Potential Future Improvements to CCM identified through the Company’s research and development efforts. Deferred revenue recorded for the Additional Supply of CCM to Allergan was $0.1 million and $0 as of June 30, 2020 and December 31, 2019, respectively, while deferred revenue recorded for the Potential Future Improvements was $0.1 million and $0.2 million as of June 30, 2020 and December 31, 2019, respectively. Deferred revenue is classified in current liabilities when the Company’s obligations to supply CCM or provide research for Potential Future Improvements are expected to be satisfied within twelve months of the balance sheet date.

In March 2017, the National Science Foundation, a government agency, awarded the Company a research and development grant to develop a novel wound dressing for infection control and tissue regeneration. Grant revenue recognized was $0.2 million for the three and six months ended June 30, 2019, and no grant revenue was recognized during 2020.

The Company recognizes revenue for professional services which are based upon negotiated rates with the counterparty and are nonrefundable. Professional services fees are recognized as revenue over time as the underlying services are performed. Professional services revenue related to the Company’s assistance in establishing Allergan’s alternative manufacturing facility was $0.1 million for the three months ended June 30, 2020 and 2019 and $0.2 million for the six months ended June 30, 2020 and 2019.

The Merger, which closed on May 26, 2020, was accounted for as a reverse asset acquisition pursuant to Topic 805, Clarifying the Definition of a Business, as substantially all of the fair value of the assets acquired were concentrated in a group of similar non-financial assets, and the acquired assets did not have outputs or employees. As the assets had not yet received regulatory approval, the fair value attributable to these assets was recorded as acquired in-process research and development (“IPR&D”) expenses in the Company’s condensed consolidated statements of operations for the three and ~~related disclosures.~~six months ended June 30, 2020.

The total purchase price paid in the Merger has been allocated to the net assets acquired and liabilities assumed based on their fair values as of the completion of the Merger. The following summarizes the purchase price paid in the Merger (in thousands, except share and per share amounts):

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair valueallocation of the purchase price is ~~defined~~ as 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, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:follows (in thousands):

~~Below is~~In April 2019, Private Histogen entered into a ~~summary~~Settlement, Release and Termination Agreement (“PUR Settlement”) with PUR Biologics, LLC and its members which terminated the License, Supply and Operating Agreements between Private Histogen and PUR, eliminated Private Histogen’s membership interest in PUR and returned all in-process research and development assets to Private Histogen (the “Development Assets”). The agreement also provided indemnifications and complete releases by and among the parties. The acquisition of ~~assets measured at~~the Development Assets was accounted for as an asset acquisition in accordance with ASC 805-50-50, Acquisition of Assets Rather than a Business.

As consideration for the reacquisition of the Development Assets, Private Histogen compensated PUR with both equity and cash components, including 167,323 shares of Series D convertible preferred stock with a fair value as of ~~September~~$1.75 million and a potential cash payout of up to $6.25 million (the “Cap Amount”). Private Histogen paid PUR $0.5 million in upfront cash, forgave approximately $22,000 of accounts receivable owed by PUR to Private Histogen, and settled an outstanding payable of PUR of approximately $23,000 owed to a third-party. The Company is also obligated to make milestone and royalty payments, including (a) a $0.4 million payment upon the unconditional acceptance and approval of a New Drug Application or Pre-Market Approval Application by the US FDA related to the Development Assets, (b) a $0.4 million commercialization milestone upon reaching gross sales (by the Company or licensee) of the $0.5 million of products incorporating the Development Assets, and (c) a five percent (5%) royalty on net revenues collected by Histogen from commercial sales (by the Company or licensee) of products incorporating the Development Assets. The aforementioned cash payments, along with any future milestone and royalty payments, are all applied against the Cap Amount. In accordance with ASC 450, Contingencies, amounts for the milestone and royalty payments will be recognized when it is probable that the related contingent liability has been incurred and the amount owed is reasonably estimated. No amounts for the milestone and royalty payments have been recorded during the periods ended June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

For the acquisition of the Development Assets, Private Histogen recognized approximately $2.27 million of in-process research and development expense (including the cash payments of $0.5 million and Series D preferred stock issuance of $1.75 million) on the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019.

In April 2020, the Private Histogen applied for and received loan proceeds in the amount of $0.5 million (the “PPP Loan”) under the PPP as government aid for payroll, rent and utilities. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The certification made by the Company did not contain any objective criteria and is subject to interpretation. Based in part on the Company’s assessment of other sources of liquidity, the uncertainty associated with future revenues created by the COVID-19 pandemic and related governmental responses, and the going concern uncertainty reflected in the Company’s consolidated financial statements, the Company believed in good faith that it met the eligibility requirements for the PPP Loan. If, despite the good-faith belief that given the Company’s circumstances all eligibility requirements for the PPP Loan were satisfied, it is later determined that the Company had violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, it may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties and potential liabilities.

On June 5, 2020, the Paycheck Protection Program Flexibility Act was signed into law, extending the PPP Loan forgiveness period from eight weeks to 24 weeks after loan origination, extending the initial deferral period of principal and interest payments from six months to ten months after the loan forgiveness period, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years.

As of June 30, 2020, the PPP Loan is classified as non-current on the accompanying condensed consolidated balance sheets.

Prior to the Merger, Conatus entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (“Stifel”), pursuant to which the Conatus could sell from time to time, at its option, up to an aggregate of $35.0 million of shares of its common stock through Stifel, as sales agent. As of June 30, 2020, no shares were issued pursuant to the Sales Agreement. In July 2020, the Company terminated the Sales Agreement with Stifel.

In connection with the Merger, all of the outstanding shares of Private Histogen’s convertible preferred stock were converted into 5,046,154 shares of the Company’s common stock. As of December 31, 2019, Private Histogen’s convertible preferred stock is classified as temporary equity on the accompanying condensed consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of Private Histogen’s control, including liquidation, sale or transfer of control of Private Histogen. Private Histogen did not adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because the occurrence of any such change of control event was not deemed probable.

The authorized, issued and outstanding shares of convertible preferred stock as of December 31, 2019 consisted of the following:

Fair Value Measurements Using

September 30, 2017

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets

Money market funds

$
12,875,586

$
12,875,586

$
—

$
—

Corporate debt securities

70,823,435

—

70,823,435

—

Total

$
83,699,021

$
12,875,586

$
70,823,435

$
—

	Shares Authorized		Shares Issued and Outstanding		Liquidation Preference		Carrying Value
					(in thousands)
Series A		10,000,000		1,360,547	$	9,486	$	9,486
Series B		35,000,000		1,144,567		7,981		9,356
Series C		8,000,000		1,075,637		7,500		5,550
Series D		20,000,000		1,465,403		15,327		14,678
Total		73,000,000		5,046,154	$	40,294	$	39,070

During the six months ended June 30, 2020, the Company issued no convertible preferred stock. During the three months ended June 30, 2019, the Company issued 167,323 shares of Series D convertible preferred stock at $10.46 per share in connection with the PUR Settlement. During the six months ended June 30, 2019, the Company issued 16,413 shares of Series B convertible preferred stock at $6.97 per share and 216,468 shares of Series D convertible preferred stock, of which 167,323 shares related to the PUR Settlement, at $10.46 per share.

The holders of each series of convertible preferred stock were entitled to receive noncumulative dividends at a rate of 6% per share per annum based on the original issue price. The preferred stock dividends were payable in preference and in priority to any dividends on common stock if or when any dividends had been declared by the Board of Directors. The Company’s Board of Directors have not declared any dividends during the periods presented.

The holders of the Series A, B and C convertible preferred stock were entitled to receive liquidation preferences at the rate of $6.97 per share. The Series D holders were entitled to liquidation preferences at a rate of $10.46 per share. All series holders also had a right to receive declared but unpaid dividends upon a liquidation event. The liquidation preferences to all holders of preferred stock were to have been made pari passu with payments to other series of convertible preferred stockholders and made in preference to any payments to the holders of common stock.

The shares of each series of convertible preferred stock were convertible into an equal number of shares of common stock, at the option of the holder. Likewise, at the election of the holders of the majority of the then outstanding shares of convertible preferred stock, all shares would have automatically converted to an equal number of shares of common stock. Finally, each share of preferred stock was automatically converted into common stock immediately upon the Company’s sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, resulting in the receipt by the Company of at least $20.0 million in which the per share price is at least $31.38. The conversion from the public offering would result in the convertible preferred stockholders receiving less than one common share for each of their shares being converted.

The holders of each series of preferred stock were entitled to one vote for each share of common stock into which such preferred stock could then be converted; and with respect to such vote, such holders shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

In 2016, Private Histogen issued warrants to purchase common stock as consideration for settlement of prior liability claims. The warrants for the purchase of up to 3,583 common shares at an exercise price of $23.08 a share expire on July 31, 2021. The warrants remain outstanding and unexercised for the periods presented.

In addition, at June 30, 2020, warrants to purchase 1,346 shares of common stock with an exercise price of $74.30 a share remain outstanding that were issued by Conatus in connection with obtaining financing in 2016. These warrants expire on July 3, 2023.

On December 18, 2017, Private Histogen established the Histogen Inc. 2017 Stock Plan (the “2017 Plan”). Under the 2017 Plan, Private Histogen was authorized to issue a maximum aggregate of 837,208 shares of common stock with adjustments for unissued or forfeited shares under the predecessor plan (the Histogen Inc. 2007 Stock Plan). In April 2019, Private Histogen amended the 2017 Plan, which increased the number of common stock available for grants by 326,711 shares. The 2017 Plan permitted the issuance of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”) and Stock Purchase Rights. NSOs could be granted to employees, directors or consultants, while ISOs could be granted only to employees. Options granted vest over a maximum period of four years and expire ten years from the date of grant. In connection with the closing of the Merger, no further awards will be made under the 2017 Plan.

In May 2020, in connection with the closing of the Merger, the Company’s stockholders approved the Company’s 2020 Incentive Award Plan (the “2020 Plan”). The maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan equals the sum of (a) 850,000 shares; (b) any shares of common stock of the Company which are subject to awards under the Conatus 2013 Equity Incentive Plan (the “Conatus 2013 Plan”) as of the effective date of the 2020 Plan which become available for issuance under the 2020 Plan after such date in accordance with its terms; and (c) an annual increase on the first day of each calendar year beginning with the January 1 of the calendar year following the effectiveness of the 2020 Plan and ending with the last January 1 during the initial ten year term of the 2020 Plan, equal to the lesser of (i) five percent of the number of shares of the Company’s common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (ii) such lesser number of shares of the Company’s common stock as determined by the Company’s board of directors.

Additionally, in connection with the closing of the Merger, no further awards will be made under the Conatus 2013 Plan. As of June 30, 2020, 116,091 fully vested options remain outstanding under the Conatus 2013 Plan with a weighted average exercise price of $37.59 per share.

The following summarizes activity related to the Company’s stock options under the 2017 Plan and the 2020 Plan for the six months ended June 30, 2020:

On January 24, 2019, the Company issued 485,178 stock options to its newly appointed Chief Executive Officer. In accordance with the original award agreement, 40% of the options would vest immediately upon an initial public offering or 45 days following a change in control, as defined in the award agreement, while the remaining 60% are subject to vesting, of which 25% vest on the first anniversary of the grant date and then ratably over the remaining 36 months.

On January 28, 2020, the award agreement was amended, which became effective upon the close of the Merger in May 2020, whereby the 40% of stock options (“Liquidity Option Shares”) subject to vesting upon an initial public offering or 45 days following a change in control will now vest immediately upon meeting certain performance and market condition-based criteria. The vesting of the Liquidity Option Shares is divided into four separate tranches, each vesting 25% of the Liquidity Option Shares, upon: (1) the closing of the proposed merger with Conatus; (2) the date that the market capitalization of the Company exceeds $200.0 million; (3) the date that the market capitalization of the Company exceeds $275.0 million, and; (4) the date that the market capitalization of the Company exceeds $300.0 million. Each vesting tranche represents a unique derived service period and therefore stock-based compensation expense for each vesting tranche is recognized on a straight-line basis over its respective derived service period. Additionally, in the event that the Chief Executive Officer’s employment with the Company is terminated without cause or he resigns for good reason, an additional portion of the stock options award will vest equal to the number of such options which would have vested in the 12 months following the date of such termination.

On May 26, 2020, in connection with the closing of the Merger, 48,517 options of the Liquidity Option Shares became fully vested as the performance condition was achieved. For the three and six months ended June 30, 2020, the Company recognized $0.1 million and $1,000 in compensation expense related to the performance and market-based options, respectively, all of which is recorded in general and administrative expense in the accompanying condensed consolidated statements of operations. As of June 30, 2020, there was $0.4 million of total unrecognized compensation cost related to unvested market condition-based options.

The following assumptions were used to calculate the fair value of awards granted to employees, non-employees and directors:

The ~~Company’s marketable securities, consisting principally of debt securities, are classified as available-for-sale, are stated at fair value, and consist of Level 2 financial instruments~~compensation cost that has been included in the ~~fair value hierarchy. The Company determines the fair value~~accompanying condensed consolidated statements of its debt security holdings based on pricing from a service provider. The service provider values the securities based on using market prices from a variety of industry-standard independent data providers. Such market prices may be quoted prices in active marketsoperations for ~~identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs), such~~all stock-based compensation arrangements is detailed as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.follows (in thousands):

The Company invests its excess cash in money market funds and debt instruments of financial institutions, corporations, government sponsored entities and municipalities. The following tables summarize the Company’s marketable securities:

As of December 31, 2016

Maturity
(in years)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value

Corporate debt securities

1 or less

$
18,937,860

$
901

$
(7,046
)

$
18,931,715

Total

$
18,937,860

$
901

$
(7,046
)

$
18,931,715

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cost of product revenue	$	10	$	8	$	19	$	17
Research and development		2		10		6		21
General and administrative		218		98		306		176
Total	$	230	$	116	$	331	$	214

~~In July 2010, the Company issued~~June 30, 2020, total unrecognized compensation cost related to ~~Pfizer Inc. (Pfizer) a $1.0~~unvested options, including unvested market condition-based options, was approximately $1.3 million promissory note (the Pfizer Note). The Pfizer Note bore interest at a rate of 7% per annum and was scheduled to mature on July 29, 2020. Interest was payable on a quarterly basis. In July 2013, the Pfizer Note was amended to become convertible into shares of the Company’s common stock following the completion of the Company’s initial public offering (IPO), at the option of the holder, at a price per share equal to the fair market value of the common stock on the date of conversion. On January 24, 2017, the Company voluntarily prepaid the entire balance of the outstanding principal and accrued and unpaid interest of the Pfizer Note in the amount of $1,004,861.

Prior to the prepayment of the Pfizer Note, the Company recorded the Pfizer Note on the balance sheet at face value. Based on borrowing rates available to the Company for loans with similar terms, the Company believed that the fair value of the Pfizer Note approximated its carrying value. The fair value measurement was categorized within Level 3 of the fair value hierarchy.

On February 15, 2017, the Company issued a convertible promissory note (the Novartis Note) in the principal amount of $15.0 million, pursuant to the Investment Agreement entered into between the Company and Novartis on December 19, 2016 (the Investment Agreement). The Novartis Note bears interest on the unpaid principal balance at a rate of 6% per annum and has a scheduled maturity date of December 31, 2019. The Company may prepay or convert all or part of the Novartis Note into shares of the Company’s common stock, at its option, until December 31, 2019. Novartis has the option to convert all or part of the Novartis Note into shares of the Company’s common stock upon a change in control of the Company or termination of the Collaboration Agreement by Novartis pursuant to certain provisions. If converted, the principal and accrued interest under the Novartis Note will convert into the Company’s common stock at a conversion price equal to 120% of the 20-day trailing average closing price per share of the common stock immediately prior to the conversion date. In the event the aggregate number of shares of common stock issued upon the

conversion would exceed the lesser of 19.0% of the Company’s outstanding shares on a fully-diluted basis (i) at the inception of the Investment Agreement or (ii) on the conversion date, then only the lesser amount shall convert into shares of common stock and Novartis shall be repaid in cash for any remaining principal and unpaid interest after such conversion. Upon the occurrence of certain events of default, the Novartis Note requires the Company to repay the principal balance of the Novartis Note and any unpaid accrued interest. The ability to borrow and repay the debt at a discount using shares of the Company’s common stock was deemedwhich is expected to be additional, foregone revenue attributable to the Collaboration Agreement, which the Company imputed and recorded as both a receivable from Novartis and a liability (deferred revenue) of $2.5 million at the inception of the Collaboration Agreement and the Investment Agreement. On February 15, 2017, the Company recorded the $15.0 million proceeds from the issuance of the Novartis Note as a convertible note payable in the amount of $12.5 million and a reduction of the outstanding receivable from Novartis of $2.5 million. The convertible note payable, along with the related accrued interest, totaled $13.0 million as of September 30, 2017.

The Company elected to account for the Novartis Note under the fair value option. At September 30, 2017, the Company concluded that the fair value of the Novartis Note remained at $13.0 million due to its conversion features. The fair value measurement is categorized within Level 3 of the fair value hierarchy.

In May 2017, the Company completed a public offering of 5,980,000 shares of its common stock at a public offering price of $5.50 per share. The shares were registered pursuant to a registration statement on Form S-3 filed on August 14, 2014. The Company received net proceeds of $30.6 million, after deducting underwriting discounts and commissions and offering-related transaction costs. Immediately following the offering, the Company used $11.2 million of the net proceeds to repurchase and retire 2,166,836 shares of its common stock ~~from funds affiliated with Advent Private Equity (collectively Advent) at a price of~~ ~~$5.17 per share, which is equal to the net proceeds per share that the Company received from the offering, before expenses, pursuant to a stock purchase agreement the Company entered into with Advent in May 2017.~~

In 2013, the Company issued warrants exercisable for 1,124,026 shares of Series B preferred stock, at an exercise price of $0.90 per share, to certain existing investors in conjunction with a private placement (the 2013 Warrants) and warrants exercisable for 111,112 shares of Series B preferred stock, at an exercise price of $0.90 per share, to Oxford Finance LLC and Silicon Valley Bank in conjunction with the Company’s entry into a loan and security agreement (the Lender Warrants). Upon completion of the IPO, the 2013 Warrants and the Lender Warrants became exercisable for 136,236 and 13,468 shares of common stock, respectively, at an exercise price of $7.43 per share. The 2013 Warrants and the Lender Warrants will expire on May 30, 2018 and July 3, 2023, respectively.

~~The following table summarizes the Company’s stock option activity under all stock option plans for the nine months ended September 30, 2017:~~

On August 31, 2017, in connection with the appointment of its new Executive Vice President, Chief Operating Officer and Chief Financial Officer, the Company granted stock options to purchase 525,000 shares of the Company’s common stock outside of its stock option plans. The grant was made as an inducement that was a material component of the executive’s compensation and acceptance of employment with the Company and was granted as an employment inducement award pursuant to NASDAQ Listing Rule 5635(c)(4). While granted outside of the Company’s stock option plans, the terms and conditions of this award are consistent with awards granted to the Company’s executive officers pursuant to the Company’s 2013 Incentive Award Plan. The stock options

~~will vest~~recognized over a ~~four-year~~weighted-average period ~~with a quarter~~ of ~~the options vesting on the first anniversary of the date of grant and the remainder of the options vesting monthly over the subsequent three~~3.2 years.

The Company recorded stock-based compensation of $1.0 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $3.0 million and $2.5 million for the nine months ended September 30, 2017 and 2016, respectively.

~~The following shares of common~~Common stock ~~were~~ reserved for future issuance at ~~September~~June 30, ~~2017:~~2020 is as follows:

In ~~December 2016, the Company~~January 2020, Private Histogen entered into a long-term operating lease with San Diego Sycamore, LLC (“Sycamore”) for its headquarters that includes office and laboratory space. The lease commenced on March 1, 2020 and expires on August 31, 2031, with no options to renew or extend. The lease was accounted for as a modification of Private Histogen’s existing lease with Sycamore as the ~~Collaboration Agreement with Novartis, pursuant~~lease agreement did not grant Private Histogen an additional right-of-use asset.

The terms of the lease agreement include six months of rent abatement at lease commencement and a tenant improvement allowance of up to ~~which~~$2.2 million. The tenant improvements are required to be permanently affixed to the ~~Company granted Novartis an exclusive option to collaborate with~~leased office and laboratory space and do not constitute leasehold improvements of the Company. During the construction period of the tenant improvements, the lease agreement requires the Company to ~~develop products containing emricasan. Pursuant~~relocate its operations to a similar Sycamore property whereby monthly rent is substantially reduced for the duration of the construction period. The lease is subject to additional variable charges for common area maintenance, insurance, taxes and other operating costs. At lease commencement, the Company recognized a right-of-use asset and operating lease liability totaling approximately $4.5 million. The Company used a discount rate based on its estimated incremental borrowing rate to determine the right-of-use asset and operating lease liability amounts to be recognized. The Company determined its incremental borrowing rate based on the term and lease payments of the new operating lease and what it would normally pay to borrow, on a collateralized basis, over a similar term for an amount equal to the ~~Collaboration Agreement, the Company received a non-refundable upfront payment of $50.0 million from Novartis.~~

In May 2017, Novartis exercised its option under the Collaboration Agreement. In July 2017, the Company received a $7.0 million option exercise payment, at which time the license under the Collaboration Agreement became effective (the License Effective Date). Under the Collaboration Agreement, the Company will be eligible to receive up to an aggregate of $650.0 million in milestone payments over the term of the Collaboration Agreement, contingent on the achievement of certain development, regulatory and commercial milestones, as well as royalties or profit and loss sharing on future product sales in the United States, if any.

~~Pursuant to the Collaboration Agreement, the Company~~lease payments. Operating lease expense is responsible for completing its four ongoing Phase 2b trials. Novartis will generally pay 50% of the Company’s Phase 2b emricasan development costs pursuant to an agreed upon budget. Novartis will assume full responsibility for emricasan’s Phase 3 development and all combination product development.

Unless terminated earlier, the Collaboration Agreement will remain in effect on a product-by-product and country-by-country basis until Novartis’ royalty obligations expire. Novartis has certain termination rights in the event of a mandated clinical trial hold for any product containing emricasan as its sole active ingredient. Additionally, Novartis has the right to terminate the Collaboration Agreement without cause upon 180 days prior written notice to the Company. In such event, the license granted to Novartis will be terminated and revert to the Company. In the event Novartis terminates the Collaboration Agreement due to the Company’s uncured material breach or insolvency, the license granted to Novartis pursuant to the Collaboration Agreement will become irrevocable, and Novartis will be required to continue to make all milestone and royalty payments otherwise due to the Company under the Collaboration Agreement, provided that if the Company materially breaches the Collaboration Agreement such that the rights licensed to Novartis or the commercial prospects of the emricasan products are seriously impaired, the milestone and royalty payments will be reduced by 50%.

Under the relevant accounting literature, the Collaboration Agreement meets the definition of a collaborative arrangement and a multiple-element arrangement. The Company concluded that there were two significant deliverables under the Collaboration Agreement – the option to obtain the license and the research and development services – but that the license does not have stand-alone value as Novartis cannot obtain value from the license without the research and development services, which the Company is uniquely able to perform. As such, the Company expects to recognize as collaboration revenue a portion of the upfront payment received of $50.0 million, the option exercise fee of $7.0 million, and the imputed income from the Investment Agreement as described belowrecognized on a straight-line basis ~~between~~over the ~~inception~~lease term.

In connection with the closing of the ~~agreement (or with respect to the option exercise fee, upon exercise of the option) through mid-2019 – the estimated period over which~~Merger, the Company expects to perform the research and development services. Due to the inherently unpredictable nature of product development activities, the Company periodically reviews the performance period of the research and development services and will adjust the period over which revenue is recognized when appropriate. The Company could accelerate revenue recognition in the event of early termination of programs or if the Company’s expectations change. Alternatively, the Company could decelerate revenue recognition if programs are extended or delayed. While

such changes to the Company’s estimates have no impact on the Company’s reported cash flows, the amount of revenue recorded in future periods could be materially impacted. Expense reimbursements for the Company’s Phase 2b emricasan development costs will be recognized as collaboration revenue when the related expenses are incurred.

Under the Investment Agreement, the Company is able to borrow up to $15.0 million at a rate of 6% per annum, under one or two notes, which will mature on December 31, 2019. The Company may elect at its sole discretion to convert all or part of the outstanding principal and accrued interest into fully paid shares of common stock, at 120% of the 20-day trailing average closing price per share of the common stock immediately prior to the conversion date. Novartis has the option to convert all or part of the note(s) into shares of the Company’s common stock upon a change in control of the Company or termination of the Collaboration Agreement by Novartis pursuant to certain provisions. In the event the conversion of the notes would exceed the lesser of 19.0% of the Company’s outstanding shares on a fully-diluted basis (i) at the inception of the Investment Agreement or (ii) on the conversion date, then only the lesser amount shall convert into shares of common stock and Novartis shall be repaid in cash for any remaining principal and unpaid interest after such conversion. This ability to borrow and repay the debt at a discount using shares of the Company’s common stock was deemed to be additional, foregone revenue attributable to the Collaboration Agreement, which the Company imputed and recorded as both a receivable from Novartis and a liability (deferred revenue) of $2.5 million at the inception of the Collaboration Agreement and the Investment Agreement. On February 15, 2017, the Company issued the Novartis Note in the principal amount of $15.0 million and recorded the $15.0 million proceeds as a convertible note payable in the amount of $12.5 million and a reduction of the outstanding receivable from Novartis of $2.5 million.

~~In February 2014, the Company entered into a~~assumed Conatus’ noncancelable operating lease agreement, ~~(the Lease)~~as amended, for certain office space with a lease term ~~from July 2014~~that expires on September 30, 2020. Upon close of the Merger, the Company recognized a right-of-use asset and operating lease liability in the amount of $0.1 million and $0.2 million, respectively, related to the Conatus lease. Prior to the Merger, Conatus entered into a sub-lease agreement with a third-party to lease the whole office space for the remainder of the lease term. Sublease income was not material for all periods presented.

The Company leases certain office equipment that is classified as a finance lease. As of June 30, 2020, the weighted-average remaining term of the Company’s operating and finance lease was 11 years and four years, respectively.

The Company recognizes right-of-use assets and lease liabilities at the lease commencement date based on the present value of future minimum lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future minimum lease payments. As of June 30, 2020, the weighted-average discount rate for the Company’s operating and finance lease was 12.2% and 10.0%, respectively.

The Company does not record leases with an initial term of 12 months or less on the consolidated balance sheets. Expense for these short-term leases is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to combine lease and nonlease components into a single component for all classes of underlying assets.

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s consolidated financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.

The Company has entered into numerous financing arrangements with Lordship Ventures Histogen Holdings LLC (“Lordship”), a related party (See Note 11). During subsequent financing events, Lordship asserted that it has certain rights and that are in some cases detrimental to other existing or future investors in the Company. Although the Company believes it has no further obligation to Lordship with respect to prior financing arrangements, there is no guarantee that, if requested, concessions will not be granted or that disputes will not arise with Lordship in the future.

Lordship, with its predecessor entities along with its principal owner, Jonathan Jackson, have invested and been affiliated with the Private Histogen since 2010. As of June 30, 2020 and December 31, 2019, Lordship controlled approximately 20% and 28% of the Company’s outstanding voting shares, respectively, and currently holds two Board of Director seats.

In January 2012, the Private Histogen entered into an Indemnification Agreement (the “Lordship Indemnification”) with Lordship whereby Private Histogen granted Lordship special non-dilutive rights. Pursuant to the Indemnification Agreement, Private Histogen was obligated to issue to Lordship additional common stock based on payments or issuance of common stock the Company may make to Proteus Advisors, LLC (“Proteus”). Private Histogen had contracted with Proteus for various advisory services dating back to 2009, and settled the compensation for such services with Proteus in January 2016 through ~~December 2019~~the immediate issuance of freestanding warrants to purchase 64,539 shares of Private Histogen’s Series B convertible preferred stock and a ~~renewal~~one-time cash payment of $0.3 million upon Private Histogen receiving additional accumulated capital investments of $10.0 million, beginning after May 1, 2015. In January 2019, Private Histogen issued 21,885 shares of common stock and 16,413 shares of Series B convertible preferred stock to Lordship, to settle its obligation under the Indemnification Agreement.

In November 2012, Private Histogen entered into a Strategic Relationship Success Fee Agreement with Lordship (the “Success Fee Agreement”). The Success Fee Agreement causes certain payments to be made from the Company to Lordship equal to 1% of certain product revenues and 10% of certain license and royalty revenues. The Success Fee Agreement also stipulates that if the Company engages in a merger or sale of all or substantially all (defined as 90% or more) of its assets or equity to a third party, then the Company has the option to terminate the agreement by paying Lordship the fair market value of future payments with the minimum payment being at least equal to the most recent annual payments Lordship has received. The Success Fee Agreement was amended in August 2016 but continues to carry the same rights to certain payments. Private Histogen recognized an expense to Lordship for ~~an additional five years.~~ the three months ended June 30, 2020 and 2019 of $0 and $0.1 million, respectively, and $0.1 million and $0.8 million for the six months

ended June 30, 2020 and 2019, respectively, all of which is included in general and administrative expenses on the accompanying condensed consolidated statements of operations. As of June 30, 2020 and December 31, 2019, there was a balance of $15,000 and $16,000, respectively, paid to Lordship included in other assets on the accompanying condensed consolidated balance sheet in connection with the deferral of revenue from the Allergan license transfer agreements.

In ~~May 2015,~~April 2020, the Company entered into two promissory notes (the “Notes”), each for $0.3 million, with two stockholders, one of which was a principal owner of the Company. The Notes carried a fixed return of $25,000, due upon maturity. All outstanding principal and interest were due upon the earlier of (1) June 13, 2020 or (ii) 15 days following the consummation of the Merger. In June 2020, the Notes, including principal and interest, was repaid.

Dr. Chang is a Board member and was acting Chief Executive Officer of the Company from April 2017 through January 2019. For the three months ended June 30, 2020 and 2019 , Dr. Chang was paid $0 and $10,000, respectively, for consulting services and for the six months ended June 30, 2020 and 2019, Dr. Chang was paid $15,000 and $35,000, respectively, for consulting services, all of which is recorded in general and administrative expenses on the accompanying condensed consolidated statements of operations.

In July 2020, the Company entered into a first amendment to the Lease (the First Lease Amendment) for additional office space starting in September 2015 through September 2020. The First Lease Amendment also extended the term of the Lease to September 2020. The monthly base rent under the Lease and the First Lease Amendment increases approximately 3% annually from $32,784 in 2015 to $39,268 in 2020. Future minimum payments under this noncancelable operating lease total $1.3 million at September 30, 2017.

~~Rent expense was $94,501 for each of the three-month periods ended September 30, 2017 and 2016 and $283,504 for each of the nine-month periods ended September 30, 2017 and 2016.~~

~~In July 2010, the Company entered into a~~common stock purchase agreement (the “2020 Purchase Agreement”) with ~~Pfizer, pursuant~~Lincoln Park which provides that, upon the terms and subject to ~~which~~the conditions and limitations in the 2020 Purchase Agreement, Lincoln Park is committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock. Upon execution of the 2020 Purchase Agreement, the Company ~~acquired all~~sold 328,516 shares of common stock at $3.04399 per share to Lincoln Park for proceeds of $1.0 million and Lincoln Park was committed to purchase up to $9.0 million of additional shares of the ~~outstanding~~Company’s common stock ~~of Idun Pharmaceuticals, Inc., which was subsequently spun off to~~at the Company’s ~~stockholders~~request from time to time during a 24 month period that began in ~~January 2013. Under~~July 2020 and at prices based on the market price of the Company’s common stock ~~purchase agreement,~~at the time of each sale, subject to certain conditions. In consideration for entering into the 2020 Purchase Agreement and concurrently with the execution of the 2020 Purchase Agreement, the Company ~~may be required~~issued 66,964 shares of its common stock to ~~make payments to Pfizer totaling $18.0 million upon the achievement of specified regulatory milestones.~~Lincoln Park.

The following discussion and analysis of our financial condition and ~~the unaudited interim condensed financial statements included in this quarterly report on Form 10-Q~~results of operations should be read in conjunction with ~~the~~(i) our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the period ended June 30, 2020 (this “Quarterly Report”), (ii) the unaudited condensed consolidated financial statements and related notes thereto for the ~~year~~period ended ~~December~~March 31, ~~2016 and~~2020 of privately-held Histogen Inc. (“Private Histogen”) prior to the ~~related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained~~merger described herein (“Merger”), included in our ~~annual report~~Current Report on Form ~~10-K~~8-K/A, filed with the Securities and Exchange Commission or(“SEC”) on June 26, 2020, and (iii) Private Histogen’s audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019, included in our Amendment No. 1 to Registration Statement on Form S-4, filed with the SEC on March ~~16, 2017.~~13, 2020 (Registration No. 333-236332) (the “Registration Statement”). As further described in Note 1 – Description of Business and Note 6 – Merger in our condensed consolidated financial statements included elsewhere in this Quarterly Report, Private Histogen was determined to be the accounting acquirer in the Merger. Accordingly, the pre-Merger historical financial information presented in this Quarterly Report reflects the standalone financial statements of Private Histogen and, therefore, period-over-period comparisons may not be meaningful. In addition, references to the Company’s operating results prior to the Merger will refer to the operating results of Private Histogen. Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report to “Histogen” “the Company,” “we,” “us” and “our” refer to Histogen Inc., a Delaware corporation, on a post-Merger basis, and the term “Private Histogen” refers to the business of privately-held Histogen Inc. prior to completion of the Merger.

This ~~quarterly report on Form 10-Q~~Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act.~~(the “Exchange Act”). All statements other than statements of historical facts contained in this ~~quarterly report,~~Quarterly Report are forward-looking statements, including statements regarding:

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance orand achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by ~~terms~~terminology such as “may,” “will,” “should,” ~~“expect,” “plan,” “anticipate,”~~ “could,” ~~“intend,~~“expects,” ~~“target,~~“intends,” ~~“project,~~“plans,” ~~“contemplate,~~“anticipates,” ~~“believe,~~“believes,” ~~“estimate,~~“estimates,” ~~“predict,~~“predicts,” ~~“potential” or “continue”~~“potential,” “continue,” or the negative of these terms or other ~~similar expressions. The~~comparable terminology. These forward-looking statements ~~in this quarterly report~~ are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this ~~quarterly report~~Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

We have common law trademark rights in the unregistered marks “Histogen Inc.,” “Histogen Therapeutics Inc.,” “Histogen,” and the Histogen logo in certain jurisdictions. Solely for convenience, trademarks and tradenames referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.

~~We are~~Histogen is a ~~biotechnology~~therapeutics company focused on developing potential first-in-class restorative therapeutics that ignite the body’s natural process to repair and maintain healthy biological function.

Histogen’s technology is based on the discovery that growing fibroblast cells under simulated embryonic conditions induces them to become multipotent with stem cell like properties The environment created by Histogen’s proprietary process mimics the conditions within the womb — very low oxygen and suspension. When cultured under these conditions, the fibroblast cells generate biological materials that stimulate a person’s own stem cells to activate and replace/regenerate their damaged cells and tissue. Histogen’s proprietary, reproducible manufacturing process provides targeted solutions that harness the body’s inherent regenerative power across a broad range of therapeutic indications including hair growth, dermal rejuvenation, joint cartilage regeneration and spinal disc repair.

Histogen’s reproducible manufacturing process yields multiple biologic products from a single bioreactor, including cell conditioned medium (CCM), human extracellular matrix (hECM) and hair stimulating complex (HSC), creating a spectrum of products for a variety of markets from one core technology.

Under the hECM and HSC core technology platforms, we have three product candidates in clinical development intended to address what we believe to be underserved, multibillion-dollar global markets:

HST-001 is a hair stimulating complex, or HSC, intended to be a physician-administered therapeutic for alopecia (hair loss). HST-001 is minimally-invasive and ~~commercialization~~has been shown in early studies to stimulate resting hair follicles to produce new cosmetically-relevant hair. In May of ~~novel medicines~~2020, we initiated our Phase 1b/2a clinical trial of HST-001, designed to ~~treat liver disease. We are developing emricasan, a first-in-class, orally active pan-caspase protease inhibitor,~~assess the safety, tolerability and indicators of efficacy of HST-001 for the treatment of ~~patients with chronic liver disease. Emricasan is designed to reduce the activities of human caspases, which are enzymes that mediate inflammation and apoptosis.~~androgenic alopecia in men. We ~~believe that by reducing the activity of these enzymes, caspase inhibitors have the potential to interrupt the progression of a variety of diseases.~~

We plan to continue advancing toward initial registration of emricasan for patients with cirrhosis due to nonalcoholic steatohepatitis, or NASH, with parallel development toward registration of emricasan for patients with NASH fibrosis. Our current clinical program for emricasan includes the following randomized, double-blind, placebo-controlled Phase 2b clinical trials:

~~Phase 2b ENCORE-PH (Portal Hypertension) Clinical Trial~~: In November 2016, we initiated a clinical trial to evaluate the effect of emricasan in approximately 240 compensated or early decompensated NASH cirrhosis patients with severe portal hypertension. Top-lineanticipate having top-line results ~~are expected~~ in the ~~second half~~fourth quarter of ~~2018.~~2020.

HST-002 is a human-derived collagen and extracellular matrix dermal filler intended to be injected into the dermis for the treatment of facial folds and wrinkles. In April of 2020, we filed an investigational device exemption, or IDE, with the FDA. Assuming the IDE is granted by FDA, we plan to initiate a Phase ~~2b ENCORE-LF (Liver Function) Clinical Trial: In May 2017, we initiated a~~1 clinical trial, designed to ~~evaluate emricasan~~assess the safety and tolerability of HST-002, as well as look for early indications of efficacy versus Restylane-L in ~~approximately 210 patients with decompensated NASH cirrhosis. Top-line results are expected~~moderate to severe nasolabial folds, in the ~~second half~~fourth quarter of ~~2019.~~2020.

HST-003 is a human extracellular matrix, or hECM, intended for regenerating hyaline cartilage for the treatment of articular cartilage defects in the knee, with a novel malleable scaffold that stimulates the body’s own stem cells. In February 2020, we were notified that our HST-003 program was recommended for a grant award of up to $2.0 million from the U.S. Department of Defense (“DoD”) to partially fund a Phase ~~2b ENCORE-NF (NASH Fibrosis) Clinical Trial: In January 2016, we initiated a~~1/2 clinical trial ~~to evaluate emricasan in approximately 330 patients with liver fibrosis resulting from NASH. Top-line results are expected~~of HST-003 for regeneration of cartilage in the ~~first half of 2019.~~

~~Phase 2b POLT-HCV-SVR Clinical Trial~~: In May 2014, we initiated a clinical trial in approximately 60 post-orthotopic liver transplant, or POLT, recipients with reestablished liver fibrosis post-transplant as a result of recurrent hepatitis C virus, or HCV, infection who have successfully achieved a sustained viral response, or SVR, following HCV antiviral therapy, or POLT-HCV-SVR, patients with residual fibrosis or cirrhosis, classified as Ishak Fibrosis Score 2-6. Top-line results are expectedknee. We intend to file an IND for HST-003 in the ~~second~~fourth quarter of ~~2018.~~2020. We are in the process of negotiating the specific terms of the award and completing the additional documentation required for submission to the DoD.

~~In addition,~~Additionally, we ~~plan~~are developing HST-004, whichis a CCM scaffold intended to ~~initiate a post-treatment observational study pursuant~~be administered through an interdiscal injection for spinal disc repair. Early research has shown that HST-004 stimulates stem cells from spinal disc to ~~which subjects from the four trials above will be followed for long-term three-year safety follow-up.~~proliferate and secrete aggrecan and collagen II. HST-004 was shown to reduce inflammation and protease activity and upregulate aggrecan production in an ex vivo spinal disc model.

Histogen has also developed a non-prescription topical skin care ingredient utilizing CCM that harnesses the power of growth factors and other cell signaling molecules to support our epidermal stem cells, which renew skin throughout life. The CCM ingredient for skin care currently generates product revenue from Allergan Sales LLC (“Allergan”), who formulates the ingredient into their skin care product lines in spas and professional offices

Recent Developments

Coronavirus (COVID-19)

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the situation on its financial condition, liquidity, operations, customers, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the response to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak to its results of operations, financial condition, or liquidity for fiscal year 2020.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impact that the CARES Act may have on its business. Currently, the Company is unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity. The CARES Act also appropriated funds for the U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. Refer to Note 8 – Paycheck Protection Program Loan for further information.

Merger

On January 28, 2020, the Company, then operating as Conatus Pharmaceuticals Inc. (“Conatus”), entered into an Agreement and Plan of Merger and Reorganization, as amended (the “Merger Agreement”), with privately-held Histogen Inc. (“Private Histogen”) and Chinook Merger Sub, Inc., a wholly-owned subsidiary of Conatus (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Private Histogen, with Private Histogen surviving as a wholly-owned subsidiary of the Company (the “Merger”). On May ~~2017, Novartis Pharma AG, or Novartis, exercised~~26, 2020, the Merger was completed. Conatus changed its ~~option~~name to Histogen Inc., and Private Histogen, which remains as a wholly-owned subsidiary of the Company, changed its name to Histogen Therapeutics Inc. On May 27, 2020, the combined company’s common stock began trading on The Nasdaq Capital Market under the Option, Collaboration and License Agreement, or the Collaboration Agreement, we entered into with Novartis in December 2016. Pursuant to such exercise, we granted Novartis an exclusive, worldwide license to our intellectual property rights relating to emricasan to collaborate with us and develop and commercialize emricasan products, containing emricasan either as a single active ingredient or in combination with other Novartis compounds for liver cirrhosis or liver fibrosis, for the treatment, diagnosis and prevention of disease in all indications in humans. The license became effective upon our receipt of a $7.0 million option exercise payment in July 2017.ticker symbol “HSTO.”

Pursuant to the Collaboration Agreement, we are responsible for completing the three ENCORE trials and the POLT-HCV-SVR trial described above. We and Novartis will generally share the costs of these four Phase 2b trials and the planned observational study equally. Upon completionterms of the ~~four Phase 2b trials, Novartis will assume 100%~~Merger Agreement, each outstanding share of Private Histogen common stock outstanding immediately prior to the closing of the ~~observational study costs. Novartis is responsible~~Merger was converted into approximately 0.14342 shares of Company common stock (the “Exchange Ratio”), after taking into account the Reverse Stock Split, as defined below. Immediately prior to the closing of the Merger, all shares of Private Histogen preferred stock then outstanding were exchanged into shares of common stock of Private Histogen. In addition, all outstanding options exercisable for ~~100%~~common stock of ~~certain expenses~~Private Histogen and warrants exercisable for ~~required registration-supportive nonclinical activities. Novartis is also responsible~~common stock of Private Histogen became options and warrants exercisable for the ~~development~~same number of ~~emricasan beyond~~shares of common stock of the ~~four Phase 2b trials~~Company multiplied by the Exchange Ratio. Immediately following the Merger, stockholders of Private Histogen owned approximately 71.3% of the outstanding common stock of the combined company.

Prior to the Merger and ~~planned observational study described above, including~~since our inception through June 30, 2020, we have accumulated losses of $55.9 million and expects to incur operating losses and generate negative cash flows from operations for the ~~Phase 3 development~~foreseeable future. Through June 30, 2020, we have devoted a substantial portion of ~~emricasan single agent products and all development for emricasan combination products, and Novartis has agreed to use commercially reasonable~~our efforts to ~~develop~~raising capital, building infrastructure and commercialize emricasan products. A joint steering committee comprised of representatives from our company and Novartis oversees the collaboration, development and commercialization of emricasan products.

Under the Collaboration Agreement, Novartis paid us an upfront payment of $50.0 million and an option exercise payment of $7.0 million. In addition, we are eligible to receive up to an aggregate of $650.0 million in milestone payments, as well as royalties.

~~In June 2017, the U.S. Food and Drug Administration granted Orphan Drug Designation to our~~conducting preclinical product candidate IDN-7314, a pan-caspase inhibitor, for the treatment of primary sclerosing cholangitis, or PSC, a disease affecting bile ducts in the liver, which can lead to cirrhosis and liver failure. In October 2017, the European Medicines Agency granted orphan designation to IDN-7314 for the treatment of PSC. We believe these orphan designations provide an opportunity to address an important unmet medical need and expand our development pipeline beyond emricasan. Pursuant to the Collaboration Agreement, Novartis will have a right of first negotiation prior to any offer for IDN-7314 by us to a third party, and we may not develop IDN-7314 in any pivotal registration clinical trials or commercialize IDN-7314 in liver disease until the earlier of five years after the first commercial sale of an emricasan product in the United States or major European market or ten years from the execution date of the Collaboration Agreement. We will continue to evaluate the potential of IDN-7314 as a product candidate as a component of our pipeline expansion plans. We also plan to expand our development pipeline by developing new product candidates based on our expertise in caspase inhibition or purchasing or in-licensing product candidates. In addition to liver disease, we may pursue the development of product candidates in other disease areas.

~~Since our inception, our primary activities have been organizational activities, including recruiting personnel, conducting research and development, including~~studies, clinical trials and ~~raising capital.~~product development activities. We have no products approved for sale, and we have not generated any revenues from product sales to date. We have funded our operations since inception primarily through sales of equity securities and convertible promissory notes and payments made under the Collaboration Agreement, and we have incurred significant operating losses since our inception. We have never been profitable and have incurred net losses of ~~$29.7~~$12.0 million, $3.0 million and ~~$24.1~~$6.2 million for the six months ended June 30, 2020 and the years ended December 31, ~~2016~~2019 and ~~2015, respectively,~~2018, respectively.

We have not yet established an ongoing source of revenues sufficient to cover our operating costs and ~~$13.0 million for~~have funded our activities to date from debt and equity financings, government funding and license revenues. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the ~~nine months ended September 30, 2017. As~~successful development and eventual commercialization of ~~September 30, 2017, we had an accumulated deficit~~one or more of ~~$163.7 million.~~

our current or future product candidates. Substantially all of our net losses have resulted from costs incurred in connection with advancing our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant and increasing operating losses for at least the next several years. We expect that our expenses and ~~negative cash flows from operating~~capital funding requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

Execute the HST-001 Phase 1b/2a clinical trial to determine optimal dosing for the ~~foreseeable future as we continue~~treatment of androgenic alopecia in men;

Advance HST-002 into a Phase 1 clinical trial for the treatment of moderate to severe nasolabial folds;

File an IND for HST-003 for the treatment of articular cartilage defects and commencing a Phase 1/2 clinical study;

Advance the preclinical development of ~~emricasan~~HST-004;

Maintain, expand and ~~seek~~protect our intellectual property portfolio;

Seek regulatory ~~approval~~approvals for any product candidates that successfully complete clinical trials; and

Add operational, financial and ~~if approved, pursue~~management information systems and personnel, including personnel to support our planned product development and commercialization efforts, as well as to support our transition to a public reporting company.

As a result, our plans continue to be focused on raising additional capital or other financing, such as potential partnering arrangements with respect to our existing technology. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. If we fail to raise capital or enter into such agreements as, and when needed, we could have significant delays in the development and commercialization of ~~emricasan. In May 2017, we completed a public offering of 5,980,000 shares~~one or more of our common stock at a public offering price of $5.50 per share. We received net proceeds of $30.6 million, after deducting underwriting discounts and commissions and offering-related transaction costs. Immediately following the offering, we used $11.2 million of the net proceeds to repurchase and retire 2,166,836 shares of our common stock from funds affiliated with Advent Private Equity, or Advent, at a price of $5.17 per share.product candidates.

As of ~~September~~June 30, ~~2017,~~2020, we had cash and cash equivalents of $10.4 million. Based on our current development plans, including plans for the preparation for commercialization and ~~marketable securities of $85.2 million. Although it is difficult to predict future liquidity requirements,~~other operating costs, we believe that our ~~existing cash, cash equivalents and marketable securities~~current capital will not be sufficient to fund our planned operations for ~~at least~~ the ~~next 12 months from the date of the filing of this Form 10-Q. We will need to raise additional capital to fund further operations, including the development of product candidates other than emricasan.~~ foreseeable future.

We may obtain additional financing in the future through the issuance of our common stock in ~~future~~ public offerings, through other equity or debt financings or through collaborations, or partnerships, and grants with other ~~companies.~~

~~Successful transition~~companies and organizations. For example, in July 2020, we entered into a common stock purchase agreement with Lincoln Park which provides that, upon the terms and subject to ~~profitability~~the conditions and limitations in the 2020 Purchase Agreement, Lincoln Park is ~~dependent upon achieving a level~~committed to purchase up to an aggregate of ~~revenues adequate to support~~$10.0 million of shares of our ~~cost structure. We cannot assure you that~~common stock. However, we ~~will ever~~may be profitable or generate sustained positive cash flow from operating activities and, unless and until we do, we will need to raise substantial additional capital through equity or debt financings or through collaborations or partnerships with other companies. We may not be ableunable to raise additional ~~capital~~funds or enter into other agreements or arrangements on terms acceptable to us on a timely basis or at ~~all, and any failure to raise capital as and when needed could have a material adverse effect on our results of operations, financial condition and~~all. Management has concluded that this circumstance raises substantial doubt about our ability to ~~execute~~continue as a going concern for twelve months after the issuance date of the financial statements included in this Quarterly Report.

Similarly, in its report on our ~~business plan.~~financial statements for the year ended December 31, 2019, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern.

License Agreement

~~JOBS Act~~Allergan License and Supply Agreements

In ~~April 2012,~~July 2017, the ~~Jumpstart Our Business Startups Act~~Company and Allergan entered into a letter agreement to transfer Suneva Medical, Inc.’s Amended and Restated License and Supply Agreements (collectively the “Allergan Agreements”) to Allergan, which grants exclusive rights to commercialize our CCM skin care ingredient worldwide, excluding South Korea, China and India, in exchange for royalty payments to us based on Allergan’s sales of ~~2012, or~~product including the ~~JOBS Act, was signed~~licensed ingredient. Through June 30, 2020, we entered into ~~law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not~~several amendments to ~~take advantage of~~ the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable. In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be requiredAllergan Agreements to, among other things, ~~(i)~~expand Allergan’s license rights, identify exclusive and non-exclusive fields of use and clarify responsibilities with response to regulatory filings. For these amendments to the License Agreements, we have received cash payments of $19.5 million through June 30, 2020. The Allergan Agreements also include a potential future milestone payment of $5.5 million if Allergan’s net sales of products containing our CCM skin care ingredient exceeds $60 million in any calendar year through December 31, 2027.

From time to time, we may improve our CCM skin care ingredient, and to the extent that these are within the field of use in the Allergan Agreements, we will provide ~~an auditor’s attestation report on~~the improvements to Allergan. The remaining performance obligations related to the Allergan Agreements from 2017 were our ~~system~~obligations to supply CCM and provide potential future improvements to Allergan, for which our obligation to supply CCM was satisfied during the fourth quarter of ~~internal control over financial reporting pursuant~~2019.

On January 17, 2020, the Company and Allergan amended the Allergan Agreements, further clarifying the fields of use, the product definition and rights to ~~Section 404~~certain improvements, as well as us agreeing to supply additional CCM in 2020 and provide further technical assistance to Allergan (the cost of which shall be reimbursed to the Company), for a one-time payment of $1.0 million to us.

Allergan may terminate the agreement for convenience upon one business days’ notice to us. Under the Amended and Restated License Agreement, as amended, Allergan will indemnify the Company for third party claims arising from Allergan’s breach of the ~~Sarbanes-Oxley Act~~agreement, negligence or willful misconduct, or the exploitation of ~~2002, (ii) provide all~~products by Allergan or its sublicensees. We will indemnify Allergan for third party claims arising from our breach of the ~~compensation disclosure that may be required~~agreement, negligence or willful misconduct, or the exploitation of ~~non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted~~products by ~~the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement~~us prior to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisonseffective date.

Components of ~~the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period~~Results of ~~five years following the completion of our initial public offering, or IPO, or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.~~Operations

Revenue

~~Financial Overview~~

~~Revenues~~

Our revenues to date have been generated primarily from the ~~Collaboration Agreement with Novartis. Under the terms~~sale of ~~the Collaboration Agreement, we received an upfront payment of $50.0 million. In May 2017, Novartis exercised its option,~~cosmetic ingredient products (CCM), license fees, professional services revenue, and ~~we received~~ a ~~$7.0 million option exercise payment in July 2017. We are eligible to receive up to $650.0 million in additional payments for development, regulatory~~National Science Foundation grant award.

License, Product and ~~commercial sales milestones, as well as royalties or profit~~Professional Services Revenue

Our license, product and ~~loss sharing on future product sales in the United States, if any.~~

We currently have no products approved for sale, and we have not generated any revenues from product sales to date. We have not submitted any product candidate for regulatory approval. If we fail to achieve clinical success in the development of emricasan in a timely manner and/or obtain regulatory approval for this product candidate, or to successfully develop other product candidates, our ability to generate future revenues would be materially adversely affected.

~~Research and Development Expenses~~

~~The majority of our operating expenses~~professional services revenue to date ~~have~~has been ~~incurred in~~generated primarily from payments received under the Allergan Agreements.

Grant Revenue

In March 2017, the National Science Foundation (“NSF”), a government agency, awarded us a research and development ~~activities. Starting in late 2011,~~grant to develop a novel wound dressing for infection control and tissue regeneration.

Operating Expenses

Cost of Revenues

Cost of product revenue represents direct and indirect costs incurred to bring the product to saleable condition, including write-offs of inventory.

Cost of professional services revenue represents costs for full-time employee equivalents and actual out-of-pocket costs.

In-Process Research and Development

In-process research and development expenses ~~have~~represent costs incurred for acquisitions of technologies for which regulatory approval had not yet been focused on the development of emricasan. Since acquiring emricasan in 2010, we have incurred $98.5 million in the development of emricasan through September 30, 2017. Our business model is currently focused on the development of emricasan in various liver diseasesobtained.

Research and ~~is dependent upon our continuing to conduct research and a significant amount of clinical development. Our research~~Development

Research and development expenses consist primarily ~~of:~~of costs incurred for the preclinical and clinical development of our product candidates, which include:

expenses ~~incurred~~ under agreements with third-party contract ~~research~~ organizations, ~~or CROs,~~ investigative clinical trial sites ~~and consultants~~ that conduct research and development activities on our ~~clinical trials~~behalf, and ~~our preclinical studies;~~consultants;

~~employee-related expenses, which include salaries~~costs related to develop and ~~benefits;~~manufacture preclinical study and clinical trial material;

~~the cost of finalizing~~salaries and employee-related costs, including stock-based compensation;

costs incurred under our ~~chemistry, manufacturing~~collaboration and ~~controls, or CMC, capabilities and providing clinical trial materials;~~third-party licensing agreements; and

laboratory and vendor expenses related to the execution of preclinical and clinical trials.

We accrue all research and development costs in the period for which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers. Advance payments for goods or services to be received in future periods for use in research and development activities are deferred and then expensed as the related goods are delivered and as services are performed.

We expect our research and development expenses to increase substantially for the foreseeable future as we: (i) invest in additional operational personnel to support our planned product development efforts, and (ii) continue to invest in developing our product candidates as our product candidates advance into later stages of development, and as we begin to conduct larger clinical trials. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

Our direct research and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid under third-party license agreements and to outside consultants, contract research organizations (“CROs”), contract manufacturing organizations and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research ~~activities~~as well as for managing our preclinical development, process development, manufacturing and ~~regulatory approvals.~~

~~Research~~clinical development activities. These employees work across multiple programs and, therefore, we do not track our costs by product candidate unless such costs are includable as subaward costs. The following table shows our research and development expenses by type of activity (in thousands):

We cannot determine with certainty the timing of initiation, the duration or the completion costs ~~are expensed as incurred.~~

~~At this time,~~of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development, ~~we are unable to estimate with~~including any ~~certainty~~potential expanded dosing beyond the ~~costs we will incur~~original protocols based in ~~the continued development of emricasan.~~part on ongoing clinical success. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

~~The costs~~ We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, ~~may vary significantly over the life~~regulatory developments and our ongoing assessments of ~~a project owing~~each product candidate’s commercial potential. We will need to ~~factors that include but are not limited to the following:~~

~~We are currently focused on advancing emricasan in multiple indications, and our future research and development expenses will depend on its clinical success.~~future. In addition, we cannot forecast ~~with any degree of certainty~~which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what ~~extent Novartis will develop~~degree such arrangements would affect our development plans and ~~commercialize emricasan.~~capital requirements.

Research and development expenditures will continue to be significant and will increase as we continue clinical development of emricasan over at least the next several years. We expect to incur significant development costs as we conduct our ongoing Phase 2b trials of emricasan and develop product candidates other than emricasan.

~~We do not expect emricasan to be commercially available, if at all, for at least the next several years.~~

General and administrative expenses consist ~~principally~~primarily of personnel-related costs, insurance costs, facility costs and professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. Personnel-related costs consist of salaries, benefits and ~~related costs for personnel in executive, finance, business development and administrative functions. Other~~stock-based compensation. We expect our general and administrative expenses ~~include~~to increase substantially as we: (i) incur additional costs ~~related to~~associated with being a public company, ~~as well as insurance, facilities, travel, patent filing~~including audit, legal, regulatory, and ~~maintenance, legal and consulting expenses.~~

~~If we exercise our option to co-commercialize emricasan pursuant to the Collaboration Agreement, we may incur expenses~~tax-related services associated with activities related to commercializing emricasan. Some expenses may be incurred prior to receiving regulatory approval of emricasan. We do not expect to receive any such regulatory approval for at least the next several years.maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs, (ii) hire additional personnel, and (iii) protect our intellectual property.

Interest income consists ~~primarily~~ of interest ~~income~~ earned on our cash ~~cash~~ equivalents, which consist of money market funds. Our interest income has not been significant due to low interest earned on invested balances.

Comparison of Three Months Ended June 30, 2020 and ~~marketable securities.~~2019

~~Interest Expense~~The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,
	2020			2019			Change
Revenues
License	$	5		$	5			-
Product		—			1,184			(1,184	)
Grants		—			150			(150	)
Professional services		103			86			17
Total revenues		108			1,425			(1,317	)
Operating expenses
Cost of product revenue		—			513			(513	)
Cost of professional services revenue		89			75			14
In-process research and development		7,144			2,250			4,894
Research and development		1,437			985			452
General and administrative		1,588			1,551			37
Total operating expenses		10,258			5,374			4,884
Loss from operations		(10,150	)		(3,949	)		(6,201	)
Total other income (expense)		(28	)		42			(70	)
Net loss	$	(10,178	)	$	(3,907	)	$	(6,271	)

For the three months ended June 30, 2020 and 2019, we recognized product and service revenues of ~~accrued interest on our $15.0~~$0.1 million ~~convertible promissory note payable~~and $1.3 million, respectively. The year-over-year decrease of $1.2 million was primarily due to ~~Novartis~~a decrease in the fulfillment of supply orders of CCM to Allergan and ~~coupon interest on our~~one additional customer.

For the three months ended June 30, 2020 and 2019, we recognized grant revenue of $0 and $0.2 million, respectively, all of which was related to a NSF research grant awarded to us in 2017 and resulted from the acceptance of milestone reports in 2019.

For the three months ended June 30, 2020 and 2019, we recognized cost of product revenue of $0 million and $0.5 million, respectively. The decrease of $0.5 million for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was commensurate with the decrease in product sales.

For both the three months ended June 30, 2020 and 2019, we recognized costs of professional services of $0.1 million.

In-process research and development expenses increased $4.9 million for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. In the three months ended June 30, 2020, we incurred $7.1 million for in-process research and development acquired in connection with the Merger and in the three months ended June 30, 2019, we incurred $2.3 million for in-process research and development related to the acquisition of HST-003 and HST-004 from PUR.

Research and development expenses for the three months ended June 30, 2020 and 2019 were $1.4 million and $1.0 million, ~~promissory note payable~~respectively. The increase of $0.4 million for the three months ended June 30, 2020 as compared to ~~Pfizer Inc.~~the three months ended June 30, 2019 was primarily due to increases related to expanded development costs of numerous of our product candidates.

General and administrative expenses for both the three months ended June 30, 2020 and 2019 were $1.6 million. While total general and administrative expenses remained relatively flat, the three months ended June 30, 2019 included success based fees related to the $7.5 million of license revenue received in the three months ended June 30, 2019 of approximately $0.8 million for which there was no comparable expense incurred in the three months ended June 30, 2020. This decrease for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was offset by increases in personnel related expenses and legal and accounting fees in the three months ended June 30, 2020.

~~Other~~We recognized other expense of $28,000 for the three months ended June 30, 2020, as compared to other income ~~(expense) includes non-operating transactions such as those caused by currency fluctuations between transaction dates~~of $42,000 for the three months ended June 30, 2019.

The following table sets forth our selected statements of operations data for the six months ended June 30, 2020 and 2019 (in thousands):

	Six Months Ended June 30,
	2020			2019		Change
Revenues
License	$	872		$	7,510		(6,638	)
Product		—			1,766		(1,766	)
Grants		—			150		(150	)
Professional service		214			153		61
Total revenues		1,086			9,579		(8,493	)
Operating expenses
Cost of product revenue		161			792		(631	)
Cost of professional services revenue		186			133		53
In-process research and development		7,144			2,250		4,894
Research and development		2,828			2,043		785
General and administrative		2,771			3,405		(634	)
Total operating expenses		13,090			8,623		4,467
Loss from operations		(12,004	)		956		(12,960	)
Total other income (expense)		(28	)		65		(93	)
Net loss	$	(12,032	)	$	1,021	$	(13,053	)

For the ~~conversion~~six months ended June 30, 2020 and 2019, we recognized license revenues of ~~account balances held~~$0.9 million and $7.5 million, respectively. The $7.5 million recognized in ~~foreign currencies~~the six months ended June 30, 2019 related to ~~U.S. dollars.~~an upfront payment received in the same period in connection with the execution of the 2019 Allergan Agreement. We received a $1.0 million upfront payment in connection with an amendment to the 2019 Allergan Agreement executed in the six months ended June 30, 2020, of which approximately $0.1 million was deferred at June 30, 2020.

For the six months ended June 30, 2020 and 2019, we recognized product and service revenues of $0.2 million and $1.9 million, respectively. The decrease of $1.7 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was primarily due to a decrease in fulfillment of supply orders of CCM to Allergan and one additional customer in 2019 as compared to 2020.

Grant revenue for the six months ended June 30, 2020 and 2019 was $0 and $0.2 million, respectively, all of which was related to an NSF research grant awarded to us in 2017 and resulted from the acceptance of milestone reports in 2019.

For the six months ended June 30, 2020 and 2019, we recognized cost of product revenue of $0.2 million and $0.8 million, respectively. The decrease of $0.6 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was commensurate with the decrease in product sales, coupled with a $0.2 million write-off of inventory.

For the six months ended June 30, 2020 and 2019, we recognized costs of professional services of $0.2 million and $0.1 million, respectively. The increase of $0.1 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was a result of a corresponding increase in professional services sales.

In-process research and development expenses increased $4.9 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. In the six months ended June 30, 2020, we incurred $7.1 million for in-process research and development acquired in connection with the Merger and in the six months ended June 30, 2019, we incurred $2.3 million for in-process research and development related to the acquisition of HST-003 and HST-004 from PUR.

Research and development expenses for the six months ended June 30, 2020 and 2019 were $2.8 million and $2.0 million, respectively. The increase of $0.8 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was primarily due to an increase related to expanded development costs of numerous of our product candidates.

General and administrative expenses for the six months ended June 30, 2020 and 2019 were $2.8 million and $3.4 million, respectively. The decrease of $0.6 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 is primarily due to success based fees related to the $7.5 million of license revenue received in the six months ended June 30, 2019 of approximately $0.8 million for which there was no comparable expense incurred in the six months ended June 30, 2020. This decrease was offset by increases in legal, accounting and other professional fees in the six months ended June 30, 2020.

We recognized other expense of $28,000 for the six months ended June 30, 2020, as compared to other income of $65,000 for the six months ended June 30, 2019.

From inception through June 30, 2020, we have accumulated losses of $55.9 million and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future. As of June 30, 2020, we had $10.4 million in cash and cash equivalents.

We have not yet established ongoing sources of revenues sufficient to cover our operating costs and will need to continue to raise additional capital to support our future operating activities, including progression of our development programs, preparation for commercialization, and other operating costs. Our plans with regard to these matters include entering into a combination of additional debt or equity financing arrangements, government funding, strategic partnerships, collaboration and licensing arrangements, or other similar arrangements. There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, on a timely basis or at all.

The condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Based on the above, there is substantial doubt about our ability to continue as a going concern within one year from the date the condensed consolidated financial statements are available to be issued. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

On May 29, 2019, Conatus received a letter from the Nasdaq staff indicating that, for the prior thirty consecutive business days, the bid price for its common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1).

Conatus filed an application to transfer the listing of its common stock from the Nasdaq Global Market to the Nasdaq Capital Market. On November 27, 2019, the application was approved by Nasdaq and a result, Conatus was granted an additional 180-day grace period, until May 25, 2020, to regain compliance with the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5810(c)(3)(A). Subsequently, based on an immediately effective rule change with the SEC on April 16, 2020, Conatus’ deadline to regain compliance was extended to August 10, 2020.

On May 26, 2020, in connection with, and prior to the completion of, the Merger, we effected a reverse stock split of our common stock, which enabled us to regain compliance with the minimum closing bid price requirement. Even though we have regained compliance with the Nasdaq Capital Market’s minimum closing bid price requirement, there is no guarantee that we will remain in compliance with such listing requirements in the future.

In July 2020, we entered into a common stock purchase agreement (the 2020 Purchase Agreement) with Lincoln Park which provides that, upon the terms and subject to the conditions and limitations in the 2020 Purchase Agreement, Lincoln Park, is committed to purchase up to an aggregate of $10.0 million of shares of our common stock. Upon execution of the 2020 Purchase Agreement, we sold 328,516 shares of common stock at $3.04399 per share to Lincoln Park for proceeds of $1.0 million and Lincoln Park is committed to purchase up to $9.0 million of additional shares of our common stock at our request from time to time during a 24 month period that began in July 2020 and at prices based on the market price of our common stock at the time of each sale, subject to certain conditions. In consideration for entering into the 2020 Purchase Agreement and concurrently with the execution of the 2020 Purchase Agreement, we issued 66,964 shares of our common stock to Lincoln Park.

Effective July 20, 2020, in connection with the execution of the 2020 Purchase Agreement, we elected to terminate the At Market Issuance Sales Agreement, dated August 2, 2018, between us and Stifel, Nicolaus & Company, Incorporated, which provided for the sale of up to $35.0 million of our common stock.

The following table shows a summary of our cash flows for the six months ended June 30, 2020 and 2019 (in thousands):

Net cash used in operating activities was $4.2 million for the six months ended June 30, 2020, resulting from our net loss of $12.0 million, which included non-cash charges of $7.7 million primarily related to acquired in-process research and development in connection with the Merger and stock-based compensation, and a $0.1 million change in our operating assets and liabilities.

Net cash provided by operating activities was $2.8 million for the six months ended June 30, 2019, resulting from our net income of $1.0 million, which included non-cash charges of $2.0 million primarily related to the issuance of shares of our convertible preferred stock for the settlement with PUR and stock-based compensation, and a $0.2 million change in our operating assets and liabilities.

Net cash provided by investing activities was $12.3 million for the six months ended June 30, 2020, consisting of cash of $12.8 million received in connection with the Merger, offset by payments for acquisition related costs and purchases of property and equipment. Net cash used in investing activities was $0.1 million, all of which was for purchases of property and equipment.

Net cash provided by financing activities was $0.5 million for the six months ended June 30, 2020, resulting primarily from the proceeds of the PPP Loan. Net cash provided by financing activities was $0.5 million for the six months ended June 30, 2019, resulting primarily from proceeds received from the sale of shares of our convertible preferred stock.

We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements into the second quarter of 2021. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress, potential dose expansions beyond our planned study protocols based in part on our clinical progress, and expenses in these trials is uncertain.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our losses from operations and capital funding needs through a combination of equity offerings, debt financings, government funding and other sources, including potentially collaborations, licenses and other similar arrangements. To the extent we raise additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through debt or equity financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates by ourselves. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all.

We may be unable to raise additional funds on acceptable terms or at all. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States. The preparation of ~~these~~the financial statements requires us to make estimates and ~~assumptions~~judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported ~~revenues and~~ expenses incurred during the reporting periods. ~~These items~~

Our estimates are ~~monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base~~based on our ~~estimates on~~ historical experience, trends 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. ~~Changes in estimates are reflected in reported results for the period in which they become known.~~ Actual results may differ ~~materially~~ from these estimates under different assumptions or conditions.Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates.

~~There were no significant changes during the nine months ended September 30, 2017 to the~~We consider our critical accounting policies ~~described~~and estimates to be related to research and development expenses and accruals and revenue recognition. There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2020 from those disclosed in ~~“Item 7 –~~“Histogen’s Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, ~~and Significant Judgments and Estimates”~~” included in ~~our Annual Report on Form 10-K for~~ the ~~fiscal year ended December 31, 2016 filed with the SEC on March 16, 2017.~~Registration Statement.

Total revenues were $9.6 million for the three months ended September 30, 2017, as compared to $0.0 million for the same period in 2016. For the three months ended September 30, 2017, total revenues consisted of collaboration revenue related to the Collaboration Agreement with Novartis, which was executed in December 2016.Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently recognize collaboration revenue on the license portion of deferred revenue on a straight-line basis between the inception of the agreement (or with respect to the option exercise fee, upon exercise of the option) through mid 2019 – the estimated period over which we expect to perform the research and development services. Due to the inherently unpredictable nature of product development activities, we periodically review the performance period of the research and development services and will adjust the period over which revenue is recognized when appropriate. Changes in the performance period could materially impact the timing of future revenue recognition.

~~Research and development expenses were $11.2 million for the three months ended September 30, 2017,~~have, any off-balance sheet arrangements, as ~~compared to $4.8 million for the same period in 2016. The increase of $6.4 million was primarily due to the ramp up of our ENCORE-NF, ENCORE-PH and ENCORE-LF clinical trials.~~

General and administrative expenses were $2.4 million for the three months ended September 30, 2017, as compared to $2.1 million for the same period in 2016. The increase of $0.3 million was primarily due to higher personnel costs and professional fees.

Interest income was $259,000 for the three months ended September 30, 2017, as compared to $34,000 for the same period in 2016. Interest income consisted of interest earned on our cash, cash equivalents and marketable securities and fluctuates based on changes in investment balances and interest rates.

Interest expense was $189,000 for the three months ended September 30, 2017, as compared to $18,000 for the same period in 2016. The increase was due to higher interest expense related to the $15.0 million convertible promissory note issued to Novartis in February 2017, partially offset by lower interest expense related to the $1.0 million promissory note payable to Pfizer Inc., which was voluntarily prepaid in January 2017.

Other expense was $21,000 for the three months ended September 30, 2017, as compared to other income of $12,000 for the same period in 2016. Other expense represents non-operating transactions such as those caused by currency fluctuations between transaction dates and settlement dates and the conversion of account balances held in foreign currencies to U.S. dollars.defined under SEC rules.

Total revenues were $26.6 million for the nine months ended September 30, 2017, as compared to $0.0 million for the same period in 2016. For the nine months ended September 30, 2017, total revenues consisted of collaboration revenue related to the Collaboration Agreement with Novartis, which was executed in December 2016.

Research and development expenses were $32.3 million for the nine months ended September 30, 2017, as compared to $13.8 million for the same period in 2016. The increase of $18.5 million was primarily due to the ramp up of our ENCORE-NF, ENCORE-PH and ENCORE-LF clinical trials.

General and administrative expenses were $7.4 million for the nine months ended September 30, 2017, as compared to $6.9 million for the same period in 2016. The increase of $0.5 million was primarily due to higher personnel costs and professional fees.

Interest income was $648,000 for the nine months ended September 30, 2017, as compared to $95,000 for the same period in 2016. Interest income consisted of interest earned on our cash, cash equivalents and marketable securities and fluctuates based on changes in investment balances and interest rates.

Interest expense was $473,000 for the nine months ended September 30, 2017, as compared to $53,000 for the same period in 2016. The increase was due to higher interest expense related to the $15.0 million convertible promissory note issued to Novartis in February 2017, partially offset by lower interest expense related to the $1.0 million promissory note payable to Pfizer Inc., which was voluntarily prepaid in January 2017.

Other expense was $72,000 for the nine months ended September 30, 2017, as compared to other income of $2,000 for the same period in 2016. Other expense represents non-operating transactions such as those caused by currency fluctuations between transaction dates and settlement dates and the conversion of account balances held in foreign currencies to U.S. dollars.

We have incurred losses since inception and negative cash flows from operating activities through December 31, 2015. For the year ended December 31, 2016, we had positive net cash flows from operating activities due to the upfront payment related to the Collaboration Agreement with Novartis. As of September 30, 2017, we had an accumulated deficit of $163.7 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of emricasan.

Prior to our IPO in July 2013, we funded our operations primarily through private placements of equity and convertible debt securities. In July 2013, we completed our IPO of 6,000,000 shares of common stock at an offering price of $11.00 per share. We received net proceeds of $58.6 million, after deducting underwriting discounts and commissions and offering-related transaction costs.

~~In August 2014, we entered into an At Market Issuance Sales Agreement, or the Sales Agreement, with MLV & Co. LLC, orMLV, pursuant to which we could sell from time to time, at our option, up to an aggregate of $50.0 million of shares of our common stock through MLV, as sales agent.~~ ~~We terminated the Sales Agreement in December 2016.~~ We sold 6,305,526 shares of our common stock pursuant to the Sales Agreement at a weighted average price per share of $2.35 and received net proceeds of $14.2 million, after deducting offering-related transaction costs and commissions.

In April 2015, we completed a public offering of 4,025,000 shares of our common stock at a public offering price of $5.75 per share. We received net proceeds of $21.4 million, after deducting underwriting discounts and commissions and offering-related transaction costs. In May 2017, we completed a public offering of 5,980,000 shares of our common stock at a public offering price of $5.50 per share. We received net proceeds of $30.6 million, after deducting underwriting discounts and commissions and offering-related transaction costs. Immediately following the offering, we used $11.2 million of the net proceeds to repurchase and retire 2,166,836 shares of our common stock from Advent at a price of $5.17 per share, which is equal to the net proceeds per share we received from the offering, before expenses, pursuant to a stock purchase agreement we entered into with Advent in May 2017.

In December 2016, we entered into the Collaboration Agreement with Novartis pursuant to which we granted Novartis an exclusive option to collaborate with us for the global development and commercialization of emricasan. Under the Collaboration Agreement, Novartis paid us an upfront payment of $50.0 million. In May 2017, Novartis exercised its option, and we received a $7.0 million option exercise payment in July 2017. Concurrent with the entry into the Collaboration Agreement, we entered into an Investment Agreement with Novartis whereby we agreed to sell and Novartis agreed to purchase, convertible promissory notes, in one or two closings, for an aggregate principal amount of up to $15.0 million. In February 2017, we issued to Novartis a convertible promissory note, or the Novartis Note, in the principal amount of $15.0 million. The maturity date of the Novartis Note is December 31, 2019. The Novartis Note bears interest on the unpaid principal balance at a rate of 6% per annum. We may prepay or convert the Novartis Note into shares of our common stock, at our option, until December 31, 2019. Novartis may convert the Novartis Note into shares of our common stock upon a change of control of our company or termination of the Collaboration Agreement by Novartis pursuant to certain provisions. If converted, the principal and accrued interest under the Novartis Note will convert into shares of our common stock at a conversion price equal to 120% of the 20-day trailing average closing price per share of the common stock immediately prior to the conversion date. Upon the occurrence of certain events of default, the Novartis Note requires us to repay the principal balance and any unpaid accrued interest.

At September 30, 2017, we had cash, cash equivalents and marketable securities of $85.2 million. We believe our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this Form 10-Q. To fund further operations, we will need to raise additional capital. We plan to continue to fund losses from operations and capital funding needs through future equity and debt financing, as well as potential collaborations. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. No assurances can be provided that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects.

~~The following table sets forth a summary of the net cash flow activity for each of the periods set forth below:~~

Net cash used in operating activities was $22.8 million and $17.2 million for the nine months ended September 30, 2017 and 2016, respectively. The primary use of cash was to fund our operations related to the development of emricasan.

Net cash used in investing activities was $51.9 million for the nine months ended September 30, 2017, which consisted primarily of cash used to purchase marketable securities, partially offset by proceeds from maturities of marketable securities. Net cash provided by investing activities was $5.8 million for the nine months ended September 30, 2016, which consisted primarily of proceeds from maturities of marketable securities, partially offset by cash used to purchase marketable securities.

Net cash provided by financing activities was $31.0 million for the nine months ended September 30, 2017, which consisted primarily of net proceeds from our public offering in May 2017 and proceeds from the issuance of the $15.0 million Novartis Note in February 2017, partially offset by the repurchase of shares from Advent in May 2017 and voluntary prepayment of the $1.0 million promissory note payable to Pfizer Inc. in January 2017. Net cash provided by financing activities was $11.8 million for the nine months ended September 30, 2016, which consisted primarily of net proceeds from sales of common stock pursuant to the Sales Agreement.

~~As of September 30, 2017, there~~There have been no material changes ~~outside~~during the ~~ordinary course of~~six months ended June 30, 2020 to our ~~business to the~~ contractual obligations ~~we reported~~disclosed in ~~“Item 7 – Management’s~~our “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations – Contractual Obligations and Commitments”~~Operations” included in ~~our annual report on Form 10-K for~~ the ~~year ended December 31, 2016 filed with the SEC on March 16, 2017.~~Registration Statement.

~~Off-Balance Sheet Arrangements~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We ~~do not have any off-balance sheet arrangements (as~~are a smaller reporting company, as defined by ~~applicable regulations~~Rule 12b-2 of the ~~SEC) that~~Exchange Act, and are ~~reasonably likely~~not required to ~~have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.~~provide the information required under this item.

As of September 30, 2017, there have been no material changes in our market risk from that described in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our annual report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 16, 2017.

~~Conclusion Regarding the Effectiveness~~Evaluation of Disclosure Controls and Procedures

~~Our~~We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s, or SEC's, rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the 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, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with ~~the~~ participation of our ~~principal executive officer~~management, including our Chief Executive Officer and ~~principal financial officer, has evaluated~~our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as(as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ~~under the Securities Exchange Act of 1934, as amended,~~) as of the end of the period covered by this ~~quarterly report on Form 10-Q.~~report. Based on ~~such~~this evaluation and the material weakness previously identified and further discussed below, our ~~principal executive officer~~Company’s Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer have concluded that ~~as of such date,~~ our disclosure controls and procedures were ~~effective.~~not effective at the reasonable level of assurance.

We identified deficiencies in our internal controls over financial reporting related to inadequate segregation of duties that existed as a result of our limited number of accounting personnel. In March 2020, we reported these deficiencies to the Audit Committee of our Board of Directors and a material weakness related to these deficiencies existed at December 31, 2019.

The material weakness related to inadequate segregation of duties that existed as a result of our limited number of accounting personnel resulted in a reasonable possibility that a material misstatement of our annual or interim financial statements may not be prevented or detected on a timely basis. To remediate the deficiencies described above and prevent similar deficiencies in the future, we developed and implemented a remediation plan during the first quarter of 2020 which included:

Although we have implemented these remediation efforts, the deficiencies will not be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Any actions we have taken or may take to remediate these deficiencies are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors.

We cannot provide complete assurance that other material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such weaknesses or deficiencies in a timely manner. The occurrence of such material weaknesses or our inability to remediate these deficiencies could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

~~Our management, including our principal executive officer~~On May 26, 2020, we completed the Merger as described in above and ~~our principal financial officer, does not expect that our disclosure controls and procedures or~~are integrating Private Histogen into our internal control over financial reporting. The Company has implemented remedial procedures to address the material weakness in our internal controls over financial reporting. These remedial procedures will continue throughout the remainder of fiscal 2020 and had no impact on our internal controls over financial reporting ~~will prevent all error and all fraud. A~~that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management recognizes that a control system, no matter how well ~~conceived~~designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, ~~within our company~~ have been detected. These inherent limitations include the realities that judgments in ~~decision-making~~decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the ~~control.~~controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future ~~conditions. Over~~conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with ~~the~~ policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are ~~currently~~ not acurrently party to any material legal proceedings. We may be a party to certain litigation that is either judged to be not material or that arises in the ordinary course of business from time to time.

~~There~~We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have ~~been no~~a material ~~changes~~adverse effect on our business, prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

Moreover, the Merger with Histogen Therapeutics Inc. is a significant business combination that substantially changed the profile of our company and also introduced a new chief executive officer to our company. As a result of the Merger, below is a series of risk factors related to the ongoing business operations of the combined company that amends and restates in full the risk factors ~~included~~discussed in ~~“Item~~Part I, Item 1A. Risk ~~Factors”~~Factors in our ~~annual report~~Form 10-K for the fiscal year ended December 31, 2019.

We are a clinical-stage company, have a very limited operating history, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.

We are a clinical-stage biopharmaceutical company. In May 2020, we completed the business combination between Conatus Pharmaceuticals Inc., a Delaware corporation (“Conatus”) and Histogen Inc., a Delaware corporation (“Histogen Subsidiary”), in accordance with the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020, pursuant to which a subsidiary of Conatus merged with and into the Histogen Subsidiary, with the Histogen Subsidiary continuing as a wholly-owned subsidiary of Conatus and the surviving corporation of the merger (the “Merger”). On May 26, 2020, the Merger was completed, and we changed our name from Conatus Pharmaceuticals Inc. to Histogen Inc., and Histogen Inc. changed its name to Histogen Therapeutics Inc. Following the Merger, we are focused primarily on ~~Form 10-K~~the development of patented, innovative technologies that replace and regenerate tissues in the body for aesthetic and therapeutic markets.

We have three product candidates in clinical development, HST-001, HST-002 and HST-003, and one preclinical program, HST-004. None of these product candidates have been approved for marketing or are being marketed or commercialized. In addition, we have developed a non-prescription topical skin care ingredient utilizing human multipotent cell conditioned media (CCM) that harnesses the power of growth factors and other cell signaling molecules to support our epidermal stem cells, which is utilized by Allergan Sales LLC (“Allergan”) in formulating certain of their skin care product lines in spa and professional offices.

As a result, while the CCM ingredient for skin care currently generates some product revenue, we have limited historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any of our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry. We also have generated limited revenues from licensing agreements or product sales to date, and continue to incur significant research and development and other expenses. As a result, we have not been profitable and have incurred significant operating losses in every reporting period since our inception, except for the year ended December 31, ~~2016 filed~~2017. For the six months ended June 30, 2020 and for the years ended December 31, 2019 and 2018, we reported net losses of $12.0 million, $3.0 million and $6.2 million, respectively, and had an accumulated deficit of $56.0 million as of June 30, 2020.

For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our drug development activities, seek partnering regulatory approvals for our product candidates and begin to commercialize them if they are approved by the U.S. Food and Drug Administration (the “FDA”) the European Medicines Agency (the “EMA”) or comparable foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never become profitable.

We are dependent on the success of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory approval or be commercialized.

We have spent significant time, money and effort on the licensing and development of our core assets, HST-001, HST-002 and HST-003 and our pre-clinical asset, HST-004. To date, no pivotal clinical trials designed to provide clinically and statistically significant proof of efficacy, or to provide sufficient evidence of safety to justify approval, have been completed with any of our product candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical studies to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, and regulatory clearances before they can be commercialized. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either because our product candidates fail to be safe and effective or because we have inadequate financial or other resources to advance our product candidates through the ~~Securities~~clinical development and ~~Exchange Commission~~approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.

We do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for example, the availability of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on ~~March 16,~~a commercial scale and competition with other drugs. The success of our product candidates may also be limited by the prevalence and severity of any adverse side effects. If we fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition and stock price may decline.

Clinical drug development involves uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials relating to our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety profiles, notwithstanding promising results in earlier trials. We cannot be certain that any of our future clinical trials will be successful. Failure in one indication may have negative consequences for the development of our product candidates for other indications. Any such failure may harm our business, prospects and financial condition.

If development of our product candidates does not produce favorable results, we and our licensees, may be unable to commercialize these products.

To receive regulatory approval for the commercialization of our core assets, HST-001, HST-002 and HST-003 and our pre-clinical asset, HST-004, or any other product candidates that we may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase 3 clinical trials, which our current product candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain outcome. Failure can occur at any stage of the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent commercialization of our current or future product candidates, including the following:

Success in early development does not mean that later development will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.

In the future, we or our licensees will be responsible for establishing the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising, such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than us or our licensees. Our failure to adequately demonstrate the safety and efficacy of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.

Since we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other product candidates that we may develop, we may seek to enter into license agreements to assist in the development and potential future commercialization of some or all of these assets as a component of our strategic plan. However, our discussions with potential licensees may not lead to the establishment of a license agreement on acceptable terms, if at all, or it may take longer than expected to establish new licensing agreements, leading to development and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.

We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.

We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product candidates in the event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near and long-term.

However, our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Because the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become profitable.

Our financial statements include an explanatory paragraph that expresses substantial doubt on our ability to continue as a going concern, and we must raise additional funds to finance our operations to remain a going concern.

Based on our cash balances, recurring losses since inception, except for year ended December 31, 2017, ~~other~~and inadequacy of existing capital resources to fund planned operations for a twelve-month period, our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2019 and 2018 expressing substantial doubt about our ability to continue as a going concern. We will, during 2020, require significant additional funding to continue operations. If we are unable to raise additional funds when needed, we will not be able to continue development of our product candidates, or we will be required to delay, scale back or eliminate some or all of our development programs or cease operations. We have a purchase agreement in place with Lincoln Park to sell up to $10.0 million worth of shares of our common stock, from time to time, to Lincoln Park. Any sales under the Lincoln Park arrangement, and any additional equity or debt financing that we are able to obtain may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants or unfavorable terms. If we raise funds through additional licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize. Moreover, if we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

Given our lack of current cash flow, we will need to raise additional capital; however, it may be unavailable to us or, even if capital is obtained, may cause dilution or place significant restrictions on our ability to operate our business.

Since we will be unable to generate sufficient, if any, cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations.

There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations may be materially adversely affected. In addition, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our inability to fund our business could lead to the loss of your investment.

Our future capital requirements will depend on many factors, including, but not limited to:

If we raise additional capital by issuing common stock under the Lincoln Park arrangement, or any other equity securities or securities convertible into equity, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity issuances are the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders.

Further, SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our shelf registration statement on Form S-3. We are currently subject to General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, and the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates to the Company. We are currently limited by the Baby Shelf Rule as of the filing of this Quarterly Report on Form 10-Q, until such time as our public float exceeds $75 million. If we are required to file a new registration statement on another form, we may incur additional costs and be subject to delays due to review by SEC staff.

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications on our business, financial condition and results of operations.

Undesirable side effects observed in clinical trials or in supportive preclinical studies with our product candidates could interrupt, delay or halt their development and could result in the denial of regulatory approval by the FDA, the EMA or comparable foreign authorities for any or all targeted indications or adversely affect the marketability of any such product candidates that receive regulatory approval. In turn, this could eliminate or limit our ability to commercialize our product candidates.

Our product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements the FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.

Our product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing observational study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or physicians trained in the use of the drug, or could be limited to a more restricted patient population. Any risk management program required for approval of our product candidates could potentially have an adverse effect on our business, financial condition and results of operations.

Undesirable side effects involving our product candidates may have other significant adverse implications on our business, financial condition and results of operations. For example:

In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.

Our efforts to discover product candidates beyond our current product candidates may not succeed, and any product candidates we recommend for clinical development may not actually begin clinical trials.

We intend to expand our existing pipeline of core assets by advancing drug compounds from current ongoing discovery programs into clinical development. However, the process of researching and discovering drug compounds is expensive, time-consuming and unpredictable. Data from our current preclinical programs may not support the clinical development of our lead compounds or other compounds from these programs, and we may not identify any additional drug compounds suitable for recommendation for clinical development. Moreover, any drug compounds we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential efficacy that would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or expand our clinical development pipeline. Our ability to identify new drug compounds and advance them into clinical development also depends upon our ability to fund our research and development operations, and we cannot be certain that additional funding will be available on acceptable terms, or at all.

Delays in the commencement or completion of clinical trials could result in increased costs to us and delay our ability to establish strategic license agreements.

Delays in the commencement or completion of clinical trials could significantly impact our drug development costs. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited to, delays related to:

In addition, once a clinical trial has begun, it may be suspended or terminated by us, our licensees, the institutional review boards or data safety monitoring boards charged with overseeing our clinical trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, ~~below.~~including:

The progress of clinical trials and clinical studies also may be affected by significant global public health matters such as the current novel coronavirus outbreak. Factors related to the novel coronavirus outbreak that may impact the timing and conduct of our clinical trials and clinical studies include:

In addition, if patients or subjects participating in our clinical trials or studies were to contract COVID-19, there could be an adverse impact on the trials or studies. For example, such patients may be unable to participate further or may need to limit participation in a clinical trial or study; the results and data recorded for such patients may differ from those that would have been recorded if the patients had not been affected by COVID-19; or such patients could experience adverse events that could be attributed to the drug product under investigation.

If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results may not be successful for these or other reasons.

This product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical to early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.

Any of these changes could make the results of our planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.

If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause our value to decline and limit our ability to obtain ~~orphan drug exclusivity for emricasan or IDN-7314~~additional financing. Our inability to enroll a sufficient number of patients for any ~~indication.~~of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

~~In the United States, under the Orphan Drug Act, the U.S. Food and Drug Administration,~~A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or the ~~FDA,~~perception of their effects, may ~~grant orphan designation to a drug~~materially and adversely affect our business, operations and financial condition

Outbreaks of epidemic, pandemic or ~~biological product intended to treat a rare disease or condition. Such~~contagious diseases, and conditions are those that affect fewer than 200,000 individuals in the United States, or if they affect more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for these types of diseases or conditions will be recovered from sales of the product. Orphan Drug Designation must be requested before submitting an NDA. If the FDA grants Orphan Drug Designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by that agency. Orphan Drug Designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but it can lead to financial incentives, such as ~~opportunities~~COVID-19, have and may continue to significantly disrupt our business. Such outbreaks pose the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for ~~grant funding toward clinical trial costs, tax advantages and user-fee waivers.~~

~~If a drug that has orphan designation subsequently receives the first FDA approval for~~an indefinite period of time due to spread of the disease, or ~~condition for which it has such designation, the drug is entitled~~due to orphan drug marketing exclusivity for a period of seven years. Orphan drug marketing exclusivity generally prevents the FDA from approving another application, including a full NDA, to market the same drug or biological product for the same indication for seven years, except in limited circumstances, including if the FDA concludesshutdowns that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same active chemical entity and is intended for the same use as the drug in question. A designated orphan drug may not receive orphan drug marketing exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Orphan drug marketing exclusivity rights in the United States may be ~~lost if the FDA later determines that the request for designation was materially defective~~requested or ~~if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.~~

~~The criteria for designating an orphan medicinal product in the European Union, or the EU, are similar in principle to those in~~mandated by federal, state and local governmental authorities both within and outside the United States. ~~Under Article 3~~Business disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of ~~Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1)~~our facilities and the facilities of clinical trial sites, service providers, suppliers or contract manufacturers. While it is ~~intended for~~not possible at this time to estimate the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

~~The ten-year market exclusivity in the EU may be reduced to six years if, at the end of the fifth year, it is established~~overall impact that the ~~product no longer meets~~COVID-19 pandemic could have on our business, the ~~criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance~~continued rapid spread of ~~market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:~~

~~We originally applied for Orphan Drug Designation for emricasan for the treatment of fibrosis in HCV-POLT patients in~~COVID-19, both across the United States and through much of the ~~EU. In late 2013,~~world, and the ~~FDA granted~~measures taken by the governments of countries and local authorities has disrupted and could delay advancing our product pipeline, could delay our clinical trials, and could delay our overall preclinical activities. Any of these effects could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our business, prospects and financial condition.

The state of California, where our corporate office is located, has issued orders for all residents to remain at home, except as needed for essential activities as a result of the COVID-19 pandemic and we have had to implement work from home policies that may continue for an ~~Orphan Drug Designation for emricasan for~~indefinite period. We have taken steps to protect the ~~treatment~~health and safety of ~~POLT patients with reestablished fibrosis~~our employees and community, while working to ~~delay~~ensure the ~~progression~~sustainability of our business operations as this unprecedented situation continues to ~~cirrhosis and end-stage liver disease. In~~evolve.

We continue to evaluate the ~~EU, we withdrew the application based on feedback from the applicable regulatory body that emricasan~~impact COVID-19 may have efficacy in fibrosis outside of the HCV-POLT patient population. In June 2017, the FDA granted Orphan Drug Designation for IDN-7314 for the treatment of primary sclerosing cholangitis, or PSC. In October 2017, the European Medicines Agency, or EMA, granted orphan designationon our ability to ~~IDN-7314 for the treatment of PSC. We cannot assure you~~effectively conduct our business operations as planned while taking into account regulatory, institutional, and government guidance and policies, but there can be no assurance that we will be able to avoid part or all of any impact from the spread of COVID-19 or its consequences. Any shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines presently planned, which could have a material adverse effect on our business, prospects and financial condition.

In addition, as set forth in greater detail in Note 8 of the unaudited condensed consolidated financial statements included in this Quarterly report, in April 2020, we received a loan in the aggregate amount of $466,600 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the PPP, we may apply for and be granted forgiveness for all or part of the PPP loan. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered period will qualify for forgiveness. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, as set forth in the note evidencing the PPP loan, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP loan will ultimately be forgiven by the SBA.

We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain ~~orphan~~regulatory approval for or commercialize our product candidates and our business, financial condition and results of operations could be substantially harmed.

We intend to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current requirements on good manufacturing practices (“cGMP”), good clinical practices (“GCP”) and good laboratory practice (“GLP”) which are a collection of laws and regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.

We may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available to us under our agreements with such CROs, we will not be able to control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition or results of operations.

Our product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither us nor our licensees are permitted to market our product candidates until we or our licensees receive approval of a Biologics License Application (“BLA”), new drug ~~exclusivity~~application (“NDA”), or Premarket Application (“PMA”) from the FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for ~~emricasan or IDN-7314 in any jurisdiction for the target indications~~us to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In addition, as a company, we have not previously filed BLAs, NDAs, or PMAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval in a timely manner, if at all, for our product candidates for which development and commercialization is our responsibility.

Despite the time and expense invested, regulatory approval is never guaranteed. The FDA, the EMA or ~~that~~comparable foreign authorities can delay, limit or deny approval of a ~~competitor will~~product candidate for many reasons, including:

Our inability to obtain ~~orphan drug exclusivity that~~these approvals would prevent us from commercializing our product candidates.

The FDA regulatory approval process is lengthy and time-consuming and we could ~~block~~experience significant delays in the clinical development and regulatory approval of ~~emricasan~~our product candidates.

We may experience delays in commencing and completing clinical trials of our product candidates. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or ~~IDN-7314~~be completed on schedule, if at all. Any of our future clinical trials may be delayed for ~~several years.~~a variety of reasons, including delays related to:

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. In addition, significant numbers of patients who enroll in our clinical trials may drop out during the clinical trials for various reasons. We believe it appropriately accounts for such increased risk of dropout rates in our trials when determining expected clinical trial timelines, but we cannot assure you that our assumptions are correct, or that it will not experience higher numbers of dropouts than anticipated, which would result in the delay of completion of such trials beyond our expected timelines.

We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs in the institutions in which such trials are being conducted, the data monitoring committee for such trial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we ~~are unable to obtain Orphan Drug Designation~~experience termination of, or delays in the ~~United States or in~~completion of, any clinical trial of our product candidates, the ~~EU, we~~commercial prospects for such product candidate will ~~not receive market exclusivity, which might affect~~be harmed, and our ability to generate ~~sufficient revenues. If a competitor is able to obtain orphan exclusivity that would block emricasan’s or IDN-7314’s regulatory~~product revenues will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate ~~revenues could be significantly reduced, which could~~revenues. Any of these occurrences may harm our business, prospects, financial condition and results of ~~operations.~~

Weoperations significantly. Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ~~be unable~~also ultimately lead to ~~maintain or effectively utilize orphan drug exclusivity for emricasan or IDN-7314 for any indication.~~

~~We received Orphan Drug Designation from~~ the ~~FDA for emricasan for the treatment~~denial of POLT patients with reestablished fibrosis to delay the progression to cirrhosis and end-stage liver disease. We also received Orphan Drug Designation from the FDA and orphan designation from the EMA for IDN-7314 for the treatment of PSC. We may be unable to obtain regulatory approval ~~for emricasan or IDN-7314 for these orphan populations or any other orphan population, or~~of a product candidate.

In connection with clinical trials, we ~~may be unable to successfully commercialize emricasan or IDN-7314 for such orphan populations due to~~face risks ~~that include:~~that:

We cannot assure you that any future clinical trial for our product candidates will be started or completed on schedule, or at all. Any failure or significant delay in completing clinical trials for our product candidates would harm the commercial prospects for such product candidate and adversely affect our financial results. Difficulties and failures can occur at any stage of clinical development, and we cannot assure you that it will be able to successfully complete the development and commercialization of any product candidate in any indication.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including (i) government budget and funding levels, (ii) the ability to hire and retain key personnel and accept the payment of user fees and (iii) statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect its business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Even if obtain and maintain regulatory approval for a product candidate in one jurisdiction, we ~~are unable to~~may never obtain regulatory approval for ~~emricasan~~such product candidate in any other jurisdiction, which would limit our market opportunities and adversely affect our business.

Obtaining and maintaining regulatory approval for a product candidate in one jurisdiction does not guarantee that we will be able to obtain or ~~IDN-7314~~maintain regulatory approval in any other jurisdiction. For example, even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities in foreign countries must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to approval.

We are expected to submit a marketing authorization application (“MAA”) to the EMA for approval of a product candidate in the European Union. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process, and the EMA has its own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling, require a REMS or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and the EU also have requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries.

Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any ~~orphan population~~product candidate may be withdrawn. A failure or ~~are unable~~delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. If we fail to ~~successfully commercialize emricasan~~ comply with the regulatory requirements in international markets and/or ~~IDN-7314 for such orphan population, it could harm~~receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of a product candidate will be harmed, which would adversely affect our business, prospects, financial condition and results of operations.

~~We entered into~~Even if any of our product candidates receive regulatory approval, our product candidates may still face future development and regulatory difficulties.

If any of our product candidates receive regulatory approval, the ~~Collaboration Agreement~~FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with ~~Novartis,~~a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our licensees or us, including requiring withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA, the EMA or comparable foreign authorities’ requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and ~~we may form~~submission of safety and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

The FDA, the EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.

The FDA, the EMA and comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities as reflected in the ~~future.~~product’s approved labeling. If we receive marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted our products for any off-label uses, the federal government could levy civil, criminal or administrative penalties, and seek fines against us. Such ~~alliances~~enforcement has become more common in the industry. The FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition and ~~collaborations may inhibit future opportunities, and~~results of operations.

Even if we obtain regulatory approval for a product candidate, the product may not ~~realize~~gain market acceptance among physicians, patients and others in the ~~benefits~~medical community.

If a product candidate is approved for commercialization, its acceptance will depend on a number of ~~such collaborations~~factors, including:

If a product candidate is approved but fails to achieve market acceptance among physicians, patients or others in the medical community, we will not be able to generate significant revenues, which would have a material adverse effect on our business, prospects, financial condition and results of operations.

~~We entered into the Collaboration Agreement with Novartis for the development of emricasan,~~If our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable safety profile or are demonstrated to be more effective than ours, our commercial opportunity may be reduced or eliminated.

The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and ~~we may form or seek strategic alliances, joint ventures or collaborations or enter into licensing arrangements with other third parties that~~a strong emphasis on proprietary products. While we believe ~~will complement or augment~~that our ~~development~~technology, knowledge, experience and ~~commercialization efforts~~scientific resources provide us with ~~respect to future~~competitive advantages, we face potential competition from many different sources, including commercial biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may ~~develop.~~become available in the future.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals and marketing approved products than we do. Some of our competitors include companies such as Allergan Aesthetics, Merz, Galderma, RepliCel Life Sciences Inc., Kerastem, Cassiopea, Inc., Johnson & Johnson, and Merck & Co, Inc. Smaller or early-stage companies may also prove to be significant competitors, particularly through license arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any which we are developing, or that would render our product candidates obsolete and noncompetitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.

The key competitive factors affecting the success of each of our product candidates, if approved, are likely to be its efficacy, safety, tolerability, frequency and route of administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.

We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product candidates.

The process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields, product defects, and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. In ~~connection with entering into~~addition, the ~~Collaboration Agreement, we incurred non-recurring~~manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor shortages, natural disasters, public health crises, pandemics and epidemics, such as the recent coronavirus disease 2019 (COVID-19), power failures and numerous other factors.

In addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges and ~~issued~~expenses for product candidates that fail to meet specifications, undertake costly remediation efforts, or seek costlier manufacturing alternatives.

We intend to rely primarily on third parties to manufacture our preclinical and clinical drug supplies, and our business, financial condition and results of operations could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.

We currently have the infrastructure or capability internally to manufacture certain of our preclinical and clinical drug supplies for use in our clinical trials, but we have engaged a ~~convertible note~~contract manufacturing organization and once the technology transfer process is complete, we will rely completely on third parties for such manufacturing. We lack the resources and the capability to manufacture any of our product candidates on a late-stage clinical or commercial scale. We will rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete such clinical trial, any significant delay or discontinuity in the ~~amount~~supply of ~~$15.0 million. In addition,~~a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the ~~period from the execution date~~need to replace a third-party manufacturer could considerably delay completion of ~~the Collaboration Agreement until the earlier~~our clinical trials, product testing and potential regulatory approval of ~~five years after the first commercial sale~~our product candidates, which could harm our business, financial condition and results of ~~an emricasan~~operations.

We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements.

All entities involved in the ~~United States or major European market or ten years from the execution date~~preparation of ~~the Collaboration Agreement, we have agreed not to develop in any pivotal registration~~therapeutics for clinical trials or ~~commercialize~~commercial sale, including our contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA, NDA, or PMA or MAA on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our contract manufacturers may not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any ~~pan-caspase inhibitors~~of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or any of our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial condition and results of operations.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension of production. As a result, our business, financial condition and results of operations may be materially and adversely affected.

Additionally, if supply from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through a BLA, NDA, or PMA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in ~~liver disease. Further, Novartis will have~~further delay. The regulatory agencies may also require additional studies or trials if a ~~right of first negotiation prior~~new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to ~~any offer by~~result in a delay in our desired clinical and commercial timelines.

These factors could cause us to ~~any third party for future pan-caspase inhibitors~~incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Any license agreement that we may develop or acquire for the treatment of liver diseases or for certain retained pan-caspase inhibitors, provided that any license or collaboration that we enter into or propose to enter into must be on terms and conditions in the aggregate no more favorable to such third party than those last offered to Novartis. These provisions and similar provisions in agreements we may enter into in the future may ~~inhibit~~not be successful, which could adversely affect our ability to develop and commercialize ~~other pan-caspase inhibitors, including IDN-7314,~~our current and potential future product candidates.

We may seek license agreements with biopharmaceutical companies for the development or commercialization of our current and potential future product candidates. To the extent that we decide to enter into license agreements, we will face significant competition in seeking appropriate licensees. Moreover, license agreements are complex and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish and implement license agreements or other alternative arrangements should we choose to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we enter into additional license agreements with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future ~~alliances or collaborations~~success of that product candidate to ~~develop or commercialize other pan-caspase inhibitors, including IDN-7314.~~the third party. The success of our license agreements will depend heavily on the efforts and activities of our licensees. Licensees generally have significant discretion in determining the efforts and resources that they will apply to the product candidate.

~~Future~~Disagreements between parties to a license arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually beneficial manner. In some cases, licenses with biopharmaceutical companies and other third parties are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect our business, financial condition and results of operations.

If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant revenues.

We do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates are approved for commercialization, we may be required to develop our sales, marketing and distribution capabilities, or make arrangements with a third party to perform sales and marketing services. Developing a sales force for any resulting product or any product resulting from any of our other product candidates is expensive and time consuming and could delay any product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating sufficient demand for our product candidates. To the extent that we enter into arrangements with licensees or other third parties to perform sales and marketing services, our product revenues are likely to be lower than if we marketed and sold our product candidates independently. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able to generate significant revenues and may not become profitable.

If we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.

There will be no viable commercial market for our product candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.

Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.

Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.

We expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.

If the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects for profitability will suffer.

Current and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are approved for commercialization.

In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our product candidates for which we obtain regulatory approval.

In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the “PPACA”), was enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of “average manufacturer price,” (“AMP”), which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.

There have been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the PPACA and Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

In Europe, the United Kingdom has withdrawn from the European Union. A significant portion of the regulatory framework in the United Kingdom is derived from the regulations of the European Union, and the EMA is currently located in the United Kingdom. We cannot predict what consequences the withdrawal of the United Kingdom from the European Union, if it occurs, might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.

We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business, financial condition and results of operations.

In the U.S., we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.

The federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties, fines or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, it could be subject to penalties.

Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. If this occurs, our business, financial condition and results of operations may be materially adversely affected.

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately approved for commercialization could be subject to restrictions or withdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business, financial condition and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.

If we fail to retain current members of our senior management and scientific personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. Competition for qualified personnel is intense. We may not be successful in attracting qualified personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will join the combined organization on a full-time employment basis, or at all. In the event the combined organization is unable to fill critical open employment positions, we may need to delay our operational activities and goals, including the development of the company’s product candidates, and may have difficulty in meeting our obligations as a public company. We do not maintain “key person” insurance on any of our employees.

In addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and other technical personnel, could materially and adversely affect our business, financial condition and results of operations. In addition, the replacement of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives.

From time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

We will need to increase the size of our organization and may not successfully manage our growth.

We are a clinical-stage biopharmaceutical company with a small number of employees, and our management systems currently in place are not likely to be adequate to support our future growth plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to product liability, non-clinical and clinical liability risks, which could place a substantial financial burden upon us, should lawsuits be filed against us.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. In addition, the use in our clinical trials of pharmaceutical products and the subsequent sale of these products by us or our potential licensees may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

Our research and development activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.

Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws or regulations.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our drug development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of drug development or clinical trial data could result in delays in our regulatory approval efforts ~~for additional alliances~~and significantly increase our costs to recover or ~~collaborations~~reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs and the development of our product candidates could be delayed.

Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee or consultant fraud or other misconduct. Misconduct by our employees or consultants could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. Employee and consultant misconduct also could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending itself or asserting our rights, those actions could have a material adverse effect on our business, financial condition and results of operations, and result in the imposition of significant fines or other sanctions against us.

Business disruptions such as natural disasters could seriously harm our future revenues and financial condition and increase our costs and expenses.

We and our suppliers may experience a disruption in their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or fire, could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts or acts of war targeted at the U.S., could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring ~~and~~or other charges, may increase our near- and long-term expenditures ~~issue securities that dilute our existing stockholders~~and may pose significant integration challenges or disrupt our management or business, which could adversely affect our business, financial condition and ~~business.~~results of operations. For example, these transactions may entail numerous operational and financial risks, including:

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results of operations.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

One of our programs may require the use of proprietary rights held by third parties. We may need to acquire or in-license additional intellectual property in the future with respect to other product candidates. Moreover, we may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and in-licensing third-party intellectual property rights, including from a number of more established companies. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.

We may enter into license agreements with U.S. and foreign academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these agreements include an option for the company to negotiate a license to the institution’s resulting intellectual property rights. Even with such an option, we ~~face~~may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to license rights from the institution, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our desired program.

If we are unable to successfully obtain required third-party intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the related program and our business, financial condition and results of operations could be materially and adversely affected.

We may not be able to protect our proprietary or licensed technology in the marketplace.

We depend on our ability to protect our proprietary or licensed technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any licensor’s or licensee’s ability to obtain and maintain patent protection in the U.S. and other countries with respect to our proprietary or licensed technology and products. We currently in-license some of our intellectual property rights to develop our product candidates and may in-license additional intellectual property rights in the future. We cannot be certain that patent enforcement activities by our current or future licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. We also cannot be certain that our current or future licensors will allocate sufficient resources or prioritize their or our enforcement of such patents. Even if we are not a party to these legal actions, an adverse outcome could prevent us from continuing to license intellectual property that we may need to operate our business, which would have a material adverse effect on our business, financial condition and results of operations.

We believe we will be able to obtain, through prosecution of patent applications covering our owned technology and technology licensed from others, adequate patent protection for our proprietary drug technology, including those related to our in-licensed intellectual property. If we are compelled to spend significant time and money protecting or enforcing our licensed patents and future patents we may own, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business, financial condition and results of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own or in-license, other companies may be able to offer the same or similar products for sale, which could materially adversely affect our business, financial condition and results of operations. The patents of others from whom we may license technology, and any future patents we may own, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the length of term of patent protection that we may have for our products.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection for licensed patents, pending patent applications and potential future patent applications and patents could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and Trademark Office (“USPTO”) and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or patent application. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs with respect to our in-licensed patents or patent applications we may file in the future, our competitors might be able to use our technologies, which would have a material adverse effect on our business, financial condition and results of operations.

The patent positions of pharmaceutical products are often complex and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and many jurisdictions outside of the U.S. is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of our licensed or owned intellectual property or create uncertainty. In addition, publication of information related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these product candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.

Patents that we currently license and patents that we may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number of reasons, including, without limitation, the following:

Our competitors may be able to circumvent our licensed patents or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA in which our competitors claim that our licensed patents or any future patents we may own are invalid, unenforceable or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend or assert our licensed patents or any future patents we may own, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our licensed patents or any future patents we may own invalid or unenforceable. We may also fail to identify patentable aspects of our research and development before it is ~~time-consuming~~too late to obtain patent protection. Even if we own or in-license valid and ~~complex. Furthermore,~~enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to our inventorship, scope, ownership, priority, validity or enforceability. In this regard, third parties may challenge our licensed patents or any future patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized.

We may infringe the intellectual property rights of others, which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of commercializing our products, if approved.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our current or potential future product candidates infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe.

Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.

Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly and could adversely affect our business, financial condition and results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that our product candidates, potential products or methods either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may not be able to ~~realize~~do this. Proving invalidity is difficult. For example, in the ~~benefit~~U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products unless we acquire or obtains a license under the applicable patents or until the patents expire.

We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material and adverse effect on our business, financial condition and results of operations. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

Any claims or lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming and may adversely affect our business, financial condition and results of operations.

We may be required to initiate litigation to enforce or defend our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biopharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs of such ~~transactions~~litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to develop our product candidates.

In addition, our licensed patents and patent applications, and patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our licensed patents and patent applications and patents and patent applications that we may apply for, own or license in the future subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel’s time and attention.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. For example, the U.S. previously enacted and is currently implementing wide-ranging patent reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law and included a number of significant changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the courts years to interpret the provisions of the Leahy-Smith Act, and the implementation of the statute could increase the uncertainties and costs surrounding the prosecution of our licensed and future patent applications and the enforcement or defense of our licensed and future patents, all of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions where we has not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our licensed patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our licensed and owned intellectual property both in the U.S. and abroad. For example, China currently affords less protection to a company’s intellectual property than some other jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our intellectual property and undermine our competitive position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific advisors and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. To date, none of our employees have been subject to such claims.

We may be subject to claims challenging the inventorship of our licensed patents, any future patents we may own and other intellectual property.

Although we are not currently experiencing any claims challenging the inventorship of our licensed patents or our licensed or owned intellectual property, we may in the future be subject to claims that former employees, licensees or other third parties have an interest in our licensed patents or other licensed or owned intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business, financial condition and results of operations. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our licensed patents and any future patents we may own, our business, financial condition and results of operations may be materially and adversely affected.

Depending upon the timing, duration and specifics of FDA regulatory approval for our product candidates, one or more of our licensed U.S. patents or future U.S. patents that we may license or own may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during drug development and the FDA regulatory review process. This period is generally one-half the time between the effective date of an investigational new drug application (“IND”) (falling after issuance of the patent), and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.

The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than our requests. If we are unable to ~~successfully integrate them with~~obtain patent term extension or restoration or the term of any such extension is less than our ~~existing operations and company culture. We cannot be certain that, following a strategic transaction or license,~~requests, the period during which we will ~~achieve~~have the right to exclusively market our product will be shortened and our competitors may obtain earlier approval of competing products, and our ability to generate revenues could be materially adversely affected.

The market price of our common stock has been and may continue to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

In addition, the stock market, in general, and small biopharmaceutical companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidate.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. We have a purchase agreement in place with Lincoln Park to sell up to $10.0 million worth of shares of our common stock, from time to time, to Lincoln Park. Any sales under the Lincoln Park arrangement, and to the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidate, or grant licenses on terms unfavorable to us.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our management.

Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors, a prohibition on actions by written consent of the combined organization’s stockholders and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.

Our pre-Merger net operating loss carryforwards and certain other tax attributes may be subject to limitations. The pre-Merger net operating loss carryforwards and certain other tax attributes of us may also be subject to limitations as a result of ownership changes resulting from the Merger.

In general, a corporation that undergoes an “ownership change” as defined in Section 382 of the Code, is subject to limitations on our ability to utilize our pre-change net operating loss carryforwards to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of a corporation’s common stock, applying certain look-through and aggregation rules, increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period, generally three years. We may have experienced ownership changes in the past and we may experience ownership changes in the future. In addition, the closing of the merger may result in an ownership change for us, which could result in limitations on the use of our federal and state net operating loss carryforwards of $145.5 million and $76.4 million, respectively, in addition to our federal, including orphan drug, and state research credit carryforwards of $8.3 million and $2.4 million, respectively. It is possible that our net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of ownership changes in the past and/or the closing of the Merger. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

Our failure to meet the continued listing requirements of the Nasdaq could result in a delisting of our common stock.

We must continue to satisfy the Nasdaq Capital Market’s continued listing requirements, including, among other things, the corporate governance requirements and the minimum closing bid price requirement. If we fail to satisfy the continued listing requirements of the Nasdaq, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.

Conatus filed an application to transfer the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market. On November 27, 2019, the application was approved by Nasdaq and a result, Conatus was granted an additional 180-day grace period, until May 25, 2020, to regain compliance with the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5810(c)(3)(A). Subsequently, based on an immediately effective rule change with the SEC on April 16, 2020, the deadline to regain compliance was extended to August 10, 2020.

In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Delisting from the Nasdaq Capital Market or any Nasdaq market could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult and the trading volume and liquidity of our stock could decline. Delisting from Nasdaq could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.

Sales of a substantial number of shares of our common stock by our stockholders in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of June 30, 2020, we have outstanding warrants to purchase an aggregate of approximately 4,929 shares of our common stock, and options to purchase an aggregate of approximately 1.5 million shares of our common stock, which, if exercised, may further increase the number of shares of our common stock outstanding and the number of shares eligible for resale in the public market, unless such shares are subject to a lock-up agreement.

Our internal control over financial reporting may not meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on our business and share price.

Our management is required to report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins our Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Our executive officers, directors and principal stockholders own a significant percentage of our stock and, if they choose to act together, will be able to exert control or significantly influence over matters subject to stockholder approval.

As of June 30, 2020, our executive officers, directors and greater than 5% stockholders, in the aggregate, own approximately 40.7% of our outstanding common stock. As a result, such persons or their appointees to our board of directors, acting together, will be able to exert control or significantly influence over all matters submitted to our board of directors or stockholders for approval, including the appointment of our management, the election and removal of directors and approval of any significant transaction, as well as our management and business affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders.

~~A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this quarterly report on Form 10-Q and is incorporated herein by reference.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		20-3183915
(State or ~~Other Jurisdiction~~other jurisdiction of ~~Incorporation~~incorporation or ~~Organization)~~organization)		(~~I.R.S.~~IRS Employer Identification No.)

~~16745 W. Bernardo Dr., Suite 200~~
10655 Sorrento Valley Road, Suite 200, San Diego CA	~~92127~~	92121
(Address of ~~Principal Executive Offices)~~principal executive offices)		(Zip Code)

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

~~Non-accelerated filer~~	☒ ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting~~Emerging growth company	☐

PART I.I - FINANCIAL INFORMATION

~~ITEM~~
Item 1.	~~FINANCIAL STATEMENTS~~Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

		~~Condensed Balance Sheets~~	3

	~~Condensed Statements of Operations and Comprehensive Loss~~	4

	~~Condensed Statements of Cash Flows~~	5

	~~Notes to Condensed Financial Statements~~	6

~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	15

~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	22

~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	22

PART ~~II.~~II - OTHER INFORMATION

~~ITEM~~Item 1.	~~LEGAL PROCEEDINGS~~Legal Proceedings	2341
Item 1A.	Risk Factors	41
~~ITEM 1A.~~Item 2.	~~RISK FACTORS~~Unregistered Sales of Equity Securities	2367
Item 3.	Defaults Upon Senior Securities	67
~~ITEM 2.~~Item 4.	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~Mine Safety Disclosures	2568
Item 5.	Other Information	68
~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~	25

~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	25

~~ITEM 5.~~	~~OTHER INFORMATION~~	25

~~ITEM~~Item 6.	~~EXHIBITS~~Exhibits	25
		69
~~EXHIBIT INDEX~~Signatures		26

~~SIGNATURES~~		27

		72

	September 30,
	2017		2016
Warrants to purchase common stock		149,704		149,704
Common stock options issued and outstanding		4,910,557		3,496,826
Shares issuable upon conversion of convertible note payable		2,297,138		—
Common stock subject to repurchase		—		6,316
ESPP shares pending issuance		7,514		7,415
Total		7,364,913		3,660,261

	June 30, 2020		June 30, 2019
Outstanding stock options		1,499,123		1,358,588
Convertible preferred stock		—		5,046,213
Warrants to purchase common stock		4,929		—
Warrants to purchase convertible preferred stock		—		3,585
Total		1,504,052		6,408,386

		September 30,			December 31,
		2017			2016
Assets
Current assets:
Cash and cash equivalents		$	14,360,452		$	58,083,409
Marketable securities			70,823,435			18,931,715
Other receivables			—			2,500,000
Prepaid and other current assets			1,339,208			937,436
Total current assets			86,523,095			80,452,560
Property and equipment, net			204,914			261,446
Other assets			2,538,211			1,609,834
Total assets		$	89,266,220		$	82,323,840
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses		$	10,937,851		$	5,311,093
Accrued compensation			1,810,919			2,351,703
Current portion of deferred revenue			19,454,795			30,897,192
Note payable			—			1,000,000
Total current liabilities			32,203,565			39,559,988
Deferred revenue, less current portion			12,673,762			20,803,762
Convertible note payable			12,968,493			—
Deferred rent			139,392			171,544
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding	��		—			—
Common stock, $0.0001 par value; 200,000,000 shares authorized; 30,005,462 shares issued and outstanding at September 30, 2017; 26,118,722 shares issued and outstanding at December 31, 2016			3,001			2,612
Additional paid-in capital			194,951,562			172,424,531
Accumulated other comprehensive loss			(23,093	)		(6,145	)
Accumulated deficit			(163,650,462	)		(150,632,452	)
Total stockholders’ equity			31,281,008			21,788,546
Total liabilities and stockholders’ equity		$	89,266,220		$	82,323,840

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Collaboration revenue	$	9,565,890		$	—		$	26,572,397		$	—
Total revenues		9,565,890			—			26,572,397			—
Operating expenses:
Research and development		11,165,150			4,825,421			32,308,786			13,770,371
General and administrative		2,449,382			2,069,447			7,406,591			6,883,708
Total operating expenses		13,614,532			6,894,868			39,715,377			20,654,079
Loss from operations		(4,048,642	)		(6,894,868	)		(13,142,980	)		(20,654,079	)
Other income (expense):
Interest income		258,623			33,640			648,103			94,995
Interest expense		(189,041	)		(17,500	)		(473,354	)		(52,500	)
Other (expense) income		(21,318	)		11,818			(71,779	)		1,645
Total other income		48,264			27,958			102,970			44,140
Net loss		(4,000,378	)		(6,866,910	)		(13,040,010	)		(20,609,939	)
Other comprehensive income (loss):
Net unrealized (losses) gains on marketable securities		(455	)		(9,999	)		(16,948	)		12,885
Comprehensive loss	$	(4,000,833	)	$	(6,876,909	)	$	(13,056,958	)	$	(20,597,054	)
Net loss per share, basic and diluted	$	(0.13	)	$	(0.31	)	$	(0.46	)	$	(0.96	)
Weighted average shares outstanding used in computing net loss per share, basic and diluted		30,004,037			22,410,702			28,104,199			21,527,993

	June 30, 2020		December 31, 2019
Raw materials	$	157	$	106
Work in process		274		—
Inventories	$	431	$	106

	June 30, 2020			December 31, 2019
Lab and manufacturing equipment	$	1,235		$	1,231
Leasehold improvements		845			845
Office furniture and equipment		157			157
Total		2,237			2,233
Less: accumulated depreciation and amortization		(1,919	)		(1,913	)
Property and equipment, net	$	318		$	320

	June 30, 2020		December 31, 2019
Insurance	$	486	$	—
Security deposit		81		—
Clinical research		67		50
Other		59		117
Total	$	693	$	167

	June 30, 2020		December 31, 2019
Current portion of finance lease liabilities	$	7	$	6
Compensation		240		182
Legal fees		147		169
Other		556		89
Total	$	950	$	446

	June 30, 2020		December 31, 2019
Noncurrent portion of finance lease liabilities	$	27	$	31
Forward purchase contract		290		290
Total	$	317	$	321

Number of shares of the combined organization owned by the Company’s pre-Merger stockholders		3,394,299
Multiplied by the fair value per share of Conatus common stock (1)	$	5.56
Fair value of consideration issued to effect the Merger	$	18,872
Transaction costs		1,817
Purchase price	$	20,689

Cash acquired	$	12,835
Net assets acquired		710
Acquired IPR&D (2)		7,144
Purchase price	$	20,689

~~Level 1:~~(2)	~~Includes financial instruments for~~Represents the research and development projects of Conatus which ~~quoted market prices for identical instruments are available in active markets.~~

~~Level 2:~~	Includes financial instruments for which there are inputs other than quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transaction (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

~~Level 3:~~	~~Includes financial instruments for which~~were in-process, but not yet completed. This consists primarily of Conatus’ emricasan product candidate. Current accounting standards require that the fair value ~~is derived from valuation techniques~~of IPR&D projects acquired in ~~which one~~an asset acquisition with no alternative future use be allocated a portion of the consideration transferred and charged to expense on the acquisition date. The acquired assets did not have outputs or ~~more significant inputs are unobservable, including management’s own assumptions.~~employees.

	Options Outstanding			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2019		1,362,173		$	3.16		6.34	$	2,926
Granted		124,119		$	4.61
Exercised		(28,684	)	$	1.40
Cancelled or forfeited		(74,576	)	$	4.30
Outstanding at June 30, 2020		1,383,032		$	3.26		6.12	$	977
Vested and exercisable at June 30, 2020		860,017		$	2.20		4.48	$	1,382

			Fair Value Measurements Using
	September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds	$	12,875,586	$	12,875,586	$	—	$	—
Corporate debt securities		70,823,435		—		70,823,435		—
Total	$	83,699,021	$	12,875,586	$	70,823,435	$	—

			Fair Value Measurements Using
	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds	$	45,523,208	$	45,523,208	$	—	$	—
Corporate debt securities		27,702,317		—		27,702,317		—
Total	$	73,225,525	$	45,523,208	$	27,702,317	$	—

	Total Options			Weighted- Average Exercise Price
Balance at December 31, 2016		3,393,813		$	5.10
Granted		1,702,600			4.91
Exercised		(62,944	)		1.19
Cancelled		(122,912	)		4.67
Balance at September 30, 2017		4,910,557		$	5.10

~~Warrants to purchase common~~Common stock warrants			~~149,704~~4,929
Common stock options issued and outstanding			~~4,910,557~~1,499,123
Common stock ~~authorized~~available for ~~future option grants~~issuance under the 2020 Plan			~~545,503~~
~~Common stock authorized for the ESPP~~			~~544,578~~
~~Shares issuable upon conversion of convertible note payable~~			~~2,297,138~~725,881
Total			~~8,447,480~~2,229,933

	Operating Leases			Finance Lease
2020 (remaining 6 months)	$	237		$	6
2021		616			10
2022		757			10
2023		780			10
2024		803			5
Thereafter		6,010			—
Total minimum lease payments		9,203			41
Less: imputed interest		(4,421	)		(7	)
Total future minimum lease payments		4,782			34
Less: current obligations under leases		(116	)		(7	)
Noncurrent lease obligations	$	4,666		$	27

	Six Months Ended
	2020			2019
Net cash provided by (used in)
Operating activities	$	(4,230	)	$	2,840
Investing activities		12,305			(112	)
Financing activities		504			497
Net decrease in cash, cash equivalents and restricted cash	$	8,579		$	3,225

Exhibit Number		Description of Exhibit

~~3.1(1)~~	3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2013).
3.2		Certificate of Amendment (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2020).
~~3.2(1)~~3.3	Certificate of Amendment (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2020).
3.4	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2020).

~~4.1(2)~~	4.1	Specimen Common Stock Certificate filed herewith,

~~4.2(3)~~		~~First Amended and Restated Investor Rights Agreement, dated February 9, 2011~~

~~4.3(3)~~	4.5	Form of Warrant ~~issued~~(incorporated by reference to ~~investors in~~Exhibit 4.5 to the ~~Registrant’s 2013 bridge financing~~Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.1#		2020 Incentive Award Plan, effective May 26, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2020).
~~4.4(2)~~	10.2#	Form of ~~Warrant issued to lenders under the Loan and Security Agreement, dated July 3, 2013, by and among the Registrant, Oxford Finance LLC, Silicon Valley Bank and the other lenders party thereto~~

~~10.1(4)~~		~~Employment Agreement, dated August 31, 2017, by and between Keith W. Marshall, Ph.D. and the Registrant~~

~~10.2(4)~~		~~Non-Qualified Inducement~~ Stock Option Grant Notice and Option Agreement (2020 Incentive Award Plan) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2020).
10.3#	2017 Stock Plan (incorporated by reference to Exhibit 10.43 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.4#	Form of Stock Option Agreement (2017 Stock Plan) (incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.5#	2007 Stock Plan (incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.6#	Form of Stock Option Agreement (2007 Stock Plan) (incorporated by reference to Exhibit 10.46 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.7#	Form of Indemnification Agreement, between the Company and its officers and directors (incorporated by reference to Exhibit 10.51 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.8#	Executive Employment Agreement, dated December 11, 2018, by and between the Company and Richard W. Pascoe (incorporated by reference to Exhibit 10.47 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.9#	Notice of Grant of Stock Option, dated January 24, 2019, by and between the Company and Richard W. Pascoe (incorporated by reference to Exhibit 10.48 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.10#	Amendment to Option and Employment Agreement, dated January 28, 2020, by and between the Company and Richard W. Pascoe (incorporated by reference to Exhibit 10.49 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.11#	Executive Employment Agreement, dated April 16, 2019, by and between the Company and Martin Latterich (incorporated by reference to Exhibit 10.50 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).

10.12	Lease, dated January 3, 2020, by and between the Company and San Diego Sycamore, LLC (incorporated by reference to Exhibit 10.57 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on March 30, 2020).
10.13	Irrevocable Standby Letter of Credit, dated March 13, 2020, by and between the Company and San Diego Sycamore, LLC (incorporated by reference to Exhibit 10.69 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on March 30, 2020).
10.14†	Settlement, Release and Termination Agreement, dated April 5, 2019, by and among the Company, PUR Biologics, LLC, Wylde, LLC, Christopher Wiggins and Ryan Fernan (incorporated by reference to Exhibit 10.52 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.15	Conversion, Termination and Release Agreement, dated August ~~31,~~26, 2016, by and among the Company, Jonathan Jackson, Lordship Ventures LLC and Lordship Ventures Histogen Holdings LLC (incorporated by reference to Exhibit 10.53 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.16	Termination of Stockholder Agreements, dated January 28, 2020, by and among the Company, Lordship Ventures Histogen Holdings LLC, Pineworld Capital Limited, Gail K. Naughton, Ph.D. and certain trusts (incorporated by reference to Exhibit 10.54 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.17	Second Amended and Restated Strategic Relationship Success Fee Agreement, dated January 28, 2020, by and between the Company and Lordship Ventures LLC (incorporated by reference to Exhibit 10.55 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.18	Amended and Restated Release, dated January 28, 2020, by and among the Company, Jonathan Jackson, Lordship Ventures LLC, and Lordship Ventures Histogen Holdings LLC (incorporated by reference to Exhibit 10.56 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.19	Exclusive License and Supply Agreement, dated September 30, 2016, by and between the Company and Pineworld Capital Limited (incorporated by reference to Exhibit 10.59 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.20†	Amended and Restated License Agreement, dated December 16, 2013, by and between the Company and Suneva Medical, Inc. (incorporated by reference to Exhibit 10.60 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.21+	Amended and Restated Supply Agreement, dated December 16, 2013, by and between the Company and Suneva Medical, Inc. (incorporated by reference to Exhibit 10.61 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.22+	Amendment No. 1 to the Amended and Restated License Agreement and Amended and Restated Supply Agreement, dated July 12, 2017, by and among the Company, Suneva Medical, Inc. and Allergan Sales, LLC (incorporated by reference to Exhibit 10.62 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.23+	Amendment No. 2 to Amended and Restated License Agreement, dated October 25, 2017, by and between ~~Keith W. Marshall, Ph.D.~~the Company and Allergan Sales, LLC (incorporated by reference to Exhibit 10.63 to the ~~Registrant~~Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).

~~23.1~~	10.24+	~~Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm~~Amendment No. 3 to Amended and Restated License Agreement and Amendment No. 2 to Amended and Restated Supply Agreement, dated March 22, 2019, by and between the Company and Allergan Sales, LLC (incorporated by reference to Exhibit 10.64 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).
10.25+	Amendment No. 4 to Amended and Restated License Agreement and Amendment No. 3 to Amended and Restated Supply Agreement, dated January 17, 2020, by and between the Company and Allergan Sales, LLC (incorporated by reference to Exhibit 10.65 to the Company’s Registration Statement on Form S-4 (Registration No. 333-236332) filed with the Securities and Exchange Commission on February 7, 2020).

10.26#	Employment Agreement between the Company and Susan A. Knudson, dated May 27, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2020).
~~31.1~~10.27	Purchase Agreement, by and between the Company and Lincoln Park, dated July 20, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2020).
10.28	Registration Rights Agreement, by and between the Company and Lincoln Park, dated July 20, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2020).
31.1	Certification of Principal Executive Officer ~~pursuant~~Pursuant to Rules ~~13a-14~~13a-14(a) and ~~15d-14 promulgated pursuant to~~15d-14(a) under the Securities Exchange Act of 1934, as ~~amended~~Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer ~~pursuant~~Pursuant to Rules ~~13a-14~~13a-14(a) and ~~15d-14 promulgated pursuant to~~15d-14(a) under the Securities Exchange Act of 1934, as ~~amended~~Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
32.2*		Certification of Principal Financial Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
101.INS		XBRL Instance ~~Document~~
		Document. (1)
101.SCH		XBRL Taxonomy Extension Schema ~~Document~~
		Document. (1)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase ~~Document~~
		Document. (1)
101.DEF		XBRL Taxonomy Extension Definition Linkbase ~~Document~~
		Document. (1)
101.LAB		XBRL Taxonomy Extension Label Linkbase ~~Document~~
		Document. (1)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document. (1)

	~~CONATUS PHARMACEUTICALS INC.~~Histogen Inc.

Date: ~~November 2, 2017~~August 13, 2020	By:	/s/ ~~Steven J. Mento, Ph.D.~~ Richard W. Pascoe
	~~Steven J. Mento, Ph.D.~~	Richard W. Pascoe
		President and Chief Executive Officer (Principal Executive Officer)
	~~(principal executive officer)~~

Date: ~~November 2, 2017~~August 13, 2020	~~/s/ Keith W. Marshall, Ph.D.~~
By:	~~Keith W. Marshall, Ph.D.~~
	~~Executive Vice President, Chief Operating Officer and Chief Financial Officer~~
	~~(principal financial officer)~~/s/ Susan A. Knudson
		Susan A. Knudson Executive Vice President, Chief Financial Officer, Chief Compliance Officer & Corporate Secretary
		(Principal Financial Officer)