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 Web site, 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 November ~~6, 2017,~~8, 2021, there were ~~7,085,414~~14,306,788 shares of the Registrant’s common stock outstanding.

This Quarterly Report on Form 10-Q contains ~~forward-looking~~“forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, which statements ~~that~~ involve substantial risks and uncertainties. Any statements in this Quarterly Report on Form 10-Q about the ~~company’s~~Company’s future expectations, plans and prospects, including statements about its strategy, future operations, development of its product candidates, ~~the review of strategic alternatives and the outcome of such review~~ and other statements containing ~~the~~ words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “intends,” “predicts,” “projects,” “targets,” “could,” “may,” and similar expressions, constitute forward-looking statements, ~~within the meaning of the Private Securities Litigation Reform Act of 1995,~~ although not all forward-looking statements include such identifying words. Forward-looking statements include, but are not limited to statements regarding:

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the ability to develop commercially viable product ~~formulations;~~formulations on a timely basis, or at all; the sufficiency of the ~~company’s~~Company’s cash resources; the ability to obtain necessary regulatory and ethics approvals to commence additional clinical trials; whether data from early clinical trials will be indicative of the data that will be obtained from future clinical trials; whether the results of clinical trials will warrant submission for regulatory approval of any investigational product; whether any such submission will receive approval from the ~~United States Food and Drug Administration~~FDA or equivalent foreign regulatory agencies and, if ~~we are~~the Company is able to obtain such approval for an investigational product, whether it will be successfully distributed and ~~marketed.~~marketed; and the duration of the COVID-19 pandemic, including economic and other impacts of the pandemic and actions taken in response to it by governments, businesses, and individuals. These risks and uncertainties, as well as other risks and uncertainties that could cause the ~~company’s~~Company’s actual results to differ significantly from the forward-looking statements contained herein, are described in greater detail in Part II, Item 1A. ~~of Part II,~~ Risk Factors. in this Quarterly Report on Form 10-Q.

Any forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and not of any future date, and the ~~company~~Company expressly disclaims any intent to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The market data and certain other statistical information used in this Quarterly Report are based on independent industry publications, governmental publications, reports by market research firms or other independent sources. Some data are also based on our good faith estimates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.

The following summarizes the principal factors that make an investment in the Company speculative or risky, all of which are more fully described in Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described in our public filings when evaluating our business.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

	September 30, 2017			December 31, 2016
				(Note 2)			September 30, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	19,094		$	1,103		$	94,041		$	114,195
Restricted cash		—			14
Prepaid expenses and other current assets		1,941			33			1,517			1,435
Total current assets		21,035			1,150			95,558			115,630
Property and equipment, net		47			31
Restricted cash		70			—
Operating lease asset, net								222			138
Goodwill		1,867			—			48,648			48,648
In-process research and development								32,386			32,386
Other assets		—			15			356			383
Total assets	$	23,019		$	1,196		$	177,170		$	197,185
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	189		$	338		$	1,598		$	1,366
Accrued severance		963			—
Current operating lease liability								177			144
Accrued expenses and other liabilities		1,154			113			2,271			973
Convertible notes		—			3,447
Total current liabilities		2,306			3,898			4,046			2,483
Long-term liabilities		94			—
Deferred tax liabilities								2,331			4,106
Non-current operating lease liability								45			—
Total liabilities		2,400			3,898			6,422			6,589
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value, 5,000,000 shares authorized and none issued and outstanding at September 30, 2017; preferred stock, $0.0026 par value, 6,565,540 shares authorized and 452,706 shares issued and outstanding at December 31, 2016		—			11
Common stock, $0.001 par value, 200,000,000 shares authorized and 6,943,058 shares issued and outstanding at September 30, 2017; common stock, $0.0026 par value, 9,207,060 shares authorized and 82,246 shares issued and outstanding at December 31, 2016		7			1

Commitments and contingencies (Note 5)

Stockholders’ equity:
Series X¹ non-voting convertible preferred stock, $0.001 par value, 515,000 shares authorized; 108,070 shares issued and outstanding at September 30, 2021 and December 31, 2020								—			—
Series X preferred stock, $0.001 par value, 10,000 shares authorized; 6,204 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively								—			—
Common stock, $0.001 par value, 200,000,000 shares authorized at September 30, 2021 and December 31, 2020; 14,306,788 and 15,160,397 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively								14			15
Additional paid-in capital		46,008			11,385			276,827			270,974
Receipts on account of Preferred A stock		—			291
Accumulated deficit		(25,396	)		(14,390	)		(106,093	)		(80,393	)
Total stockholders’ equity (deficit)		20,619			(2,702	)
Total liabilities and stockholders’ equity (deficit)	$	23,019		$	1,196
Total stockholders’ equity								170,748			190,596
Total liabilities and stockholders’ equity							$	177,170		$	197,185

See accompanying notes to unaudited condensed consolidated financial statements.

Nine Months Ended
September 30,

2017

2016

Operating activities

Net loss

$
(11,006
)

$
(4,140
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

18

16

Stock-based compensation

386

142

Loss on disposal of fixed assets

31

—

Fair value of debt in excess of proceeds

—

517

Changes in operating assets and liabilities:

Prepaid expenses and other assets

(761
)

42

Accounts payable and accrued expenses

(998
)

(218
)
Net cash used in operating activities

(12,330
)

(3,641
)
Investing activities

Cash received from merger transaction

23,250

—

Proceeds from sale of equipment

8

—

Purchase of property and equipment

—

(12
)
Net cash provided by (used in) investing activities

23,258

(12
)
Financing activities

Proceeds from issuance of common stock, net

4,000

—

Proceeds from exercise of warrants

3,119

—

Proceeds from convertible loan

—

2,930

Net cash provided by financing activities

7,119

2,930

Net increase (decrease) in cash, cash equivalents and restricted cash

18,047

(723
)
Cash, cash equivalents and restricted cash at beginning of period

1,117

3,095

Cash, cash equivalents and restricted cash at end of period

$
19,164

$
2,372

Supplemental disclosure of cash flow information

Noncash activities:

Conversion of promissory notes and interest to common stock

$
3,447

$
—

Conversion of contingently issuable shares to common stock

$
291

$
—

Fair value of assets acquired and liabilities assumed in the merger:

Fair value of assets acquired, excluding cash and restricted cash

$
3,072

Fair value of liabilities assumed

(2,947
)

Fair value of net assets acquired in the merger

$
125

	Series X¹ Non-Voting Convertible Preferred Stock				Series X¹ Non-Voting Convertible Preferred Stock				Series X Preferred Stock					Common Stock						Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount		Shares			Amount			Capital		Deficit			Total
Balance as of December 31, 2020		—	$	—		108,070	$	—		—		$	—		15,160,397		$	15		$	270,974	$	(80,393	)	$	190,596
Cancellation of common stock in connection with exchange for preferred stock		—		—		—		—		6,204			—		(344,666	)		—			—		—			—
Cancellation of common stock in connection with exchange for warrants		—		—		—		—		—			—		(509,117	)		(1	)		1		—			—
Stock-based compensation		—		—		—		—		—			—		—			—			5,851		—			5,851
Stock options exercised		—		—		—		—		—			—		174			—			1		—			1
Net loss and other comprehensive loss		—		—		—		—		—			—		—			—			—		(25,700	)		(25,700	)
Balance as of September 30, 2021		—	$	—		108,070	$	—		6,204		$	—		14,306,788		$	14		$	276,827	$	(106,093	)	$	170,748

Balance as of June 30, 2021		—	$	—		108,070	$	—		6,204		$	—		14,306,614		$	14		$	274,783	$	(96,276	)	$	178,521
Stock-based compensation		—		—		—		—		—			—		—			—			2,043		—			2,043
Stock options exercised		—		—		—		—		—			—		174			—			1		—			1
Net loss and other comprehensive loss		—		—		—		—		—			—		—			—			—		(9,817	)		(9,817	)
Balance as of September 30, 2021		—	$	—		108,070	$	—		6,204		$	—		14,306,788		$	14		$	276,827	$	(106,093	)	$	170,748

Balance as of December 31, 2019		—	$	—		—	$	—		—		$	—		720,408		$	1		$	67,046	$	(57,582	)	$	9,465
Issuance of common stock in connection with exercise of warrants, net of issuance costs		—		—		—		—		—			—		404,068			—			5,191		—			5,191
Issuance of common stock in connection with conversion of preferred stock		—		—		—		—		(3,285	)		—		182,500			—			—		—			—
Issuance of common stock in connection with vesting of restricted stock units		—		—		—		—		—			—		3,056			—			—		—			—
Issuance of common stock in connection with acquisition		—		—		—		—		—			—		175,488			—			1,194		—			1,194
Cancellation of common stock in connection with exchange for preferred stock		—		—		—		—		3,796			—		(210,889	)		—			—		—			—
Issuance of preferred stock in connection with acquisition		140,026		69,723		—		—		—			—		—			—			—		—			—
Issuance of preferred stock in connection with PIPE transaction, net of issuance costs		199,112		95,226		—		—		—			—		—			—			—		—			—
Fair value of options assumed in acquisition		—		—		—		—		—			—		—			—			3,278		—			3,278
Fair value of warrants assumed in acquisition		—		—		—		—		—			—		—			—			12,944		—			12,944
Warrant inducement expense		—		—		—		—		—			—		—			—			4,829		—			4,829
Stock-based compensation		—		—		—		—		—			—		—			—			1,512		—			1,512
Net loss and other comprehensive loss		—		—		—		—		—			—		—			—			—		(16,907	)		(16,907	)
Balance as of September 30, 2020		339,138	$	164,949		—	$	—		511		$	—		1,274,631		$	1		$	95,994	$	(74,489	)	$	21,506

Balance as of June 30, 2020		—	$	—		—	$	—		511		$	—		1,076,642		$	1		$	77,700	$	(68,345	)	$	9,356
Issuance of common stock in connection with cashless exercise of warrants		—		—		—		—		—			—		20,834			—			—		—			—
Issuance of common stock in connection with vesting of restricted stock units		—		—		—		—		—			—		1,667			—			—		—			—
Issuance of common stock in connection with acquisition		—		—		—		—		—			—		175,488			—			1,194		—			1,194
Issuance of preferred stock in connection with acquisition		140,026		69,723		—		—		—			—		—			—			—		—			—
Issuance of preferred stock in connection with PIPE transaction, net of issuance costs		199,112		95,226		—		—		—			—		—			—			—		—			—
Fair value of options assumed in acquisition		—		—		—		—		—			—		—			—			3,278		—			3,278
Fair value of warrants assumed in acquisition						—		—		—			—		—			—			12,944		—			12,944
Stock-based compensation		—		—		—		—		—			—		—			—			878		—			878
Net loss and other comprehensive loss		—		—		—		—		—			—		—			—			—		(6,144	)		(6,144	)
Balance as of September 30, 2020		339,138	$	164,949		—	$	—		511		$	—		1,274,631		$	1		$	95,994	$	(74,489	)	$	21,506

See accompanying notes to unaudited condensed consolidated financial statements.

Eledon Pharmaceuticals, Inc. (formerly Novus Therapeutics, Inc.) is a ~~development-stage, specialty pharmaceutical~~clinical stage biopharmaceutical company focused on discovering or acquiring, and then developing life-changing, targeted medicines for persons requiring an organ or cell-based transplant, living with autoimmune disease, or living with amyotrophic lateral sclerosis (“ALS”). We believe that this approach has the potential to allow us to: develop more precise therapies with a resulting potential for both increased efficacy and safety; identify patients and indications more likely to respond to our treatment approaches; and pursue multiple indications for product candidates. The Company’s lead compound in development is AT-1501, an IgG1, anti-CD40L antibody with high affinity for CD40 ligand (CD40L, also called CD154), a well-validated biological target with broad therapeutic potential. AT-1501 is engineered to potentially both improve safety and provide pharmacokinetic, pharmacodynamic, and dosing advantages compared to other anti-CD40 approaches. The central role of ~~products~~CD40/CD40L signaling in generating pro-inflammatory responses makes it an attractive candidate for ~~disorders~~therapeutic intervention in autoimmune disease, induction and maintenance of transplant tolerance, and neuroinflammation. Blocking the activation of the ~~ear, nose,~~CD40L pathway prevents acute and ~~throat (“ENT”).~~ long-term allograft transplant rejection in multiple animal species and ameliorates disease progression and pathology in preclinical models of autoimmunity and ALS. Unless otherwise indicated, references to the terms ~~the “combined company”~~“Eledon,” “our,” “us,” “we”, ~~“Novus”,~~or the “Company”, refer to ~~Otic Pharma, Ltd. prior to the consummation of the Reverse Merger, and Novus Therapeutics, Inc., upon the consummation of the Reverse Merger described herein. The term “Tokai” refers to Tokai~~Eledon Pharmaceuticals, Inc., and its wholly-owned subsidiaries, ~~prior to the Reverse Merger.~~on a consolidated basis.

~~Novus, a Delaware corporation, owns 100% of the issued and outstanding common stock or other ownership interest in Otic Pharma, Ltd.~~On September 14, 2020, we acquired Anelixis Therapeutics, Inc. (“Anelixis”), a ~~private limited~~privately held clinical stage biotechnology company ~~organized under the laws of the State of Israel. Otic Pharma, Ltd. (“Otic”) owns 100% of the issued~~developing a next generation anti-CD40L antibody as a potential treatment for organ and ~~outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc.~~

~~All intercompany transactions between the consolidated entities are eliminated in consolidation.~~

~~On December 21, 2016, Tokai, a Delaware corporation, Otic,~~cellular transplantation, autoimmune diseases, and the shareholders of Otic (each a “Seller” and collectively, the “Sellers”), entered into a Share Purchase Agreement (the “Share Purchase Agreement”), pursuant to which, among other things, each Seller agreed to sell to Tokai, and Tokai agreed to purchase from each Seller, all of the common and preferred shares of Otic (“Otic Shares”) owned by such Seller in exchange for the issuance of a certain number of shares of common stock of Tokai, as determined pursuant to the terms of the Share Purchase Agreement (the “Reverse Merger”). The parties amended and restated the Share Purchase Agreement on March 2, 2017.

~~On May 9, 2017, Tokai, Otic, and the Sellers closed the transaction contemplated by the Share Purchase Agreement, and subsequently effected a reverse stock split at a ratio of one-for-nine~~neurodegenerative diseases (see ~~Reverse Stock-Split~~ ~~below)~~Note 7). ~~On a post-split basis, Tokai issued to the Sellers an aggregate of 4,027,693 shares of Tokai’s common stock in exchange for 836,857 Otic Shares.~~ Following the ~~completion~~acquisition of ~~the Reverse Merger, the business being conducted by Tokai became primarily the business conducted by Otic. In connection with the Reverse Merger, the~~Anelixis, we changed our name ~~of the surviving corporation was changed~~ to ~~“Novus Therapeutics,~~Eledon Pharmaceuticals, Inc.”

On January 31, 2017, Novus entered into a stock purchase agreement (the “Stock Purchase Agreement”) with certain purchasers named therein (the “Purchasers”), pursuant to which the Purchasers agreed to purchase approximately $4 million of the Company’s common stock through the purchase of 400,400 shares of the Company’s common stock at a price of $9.99 per share (the “Private Placement”). The Private Placement closed on May 10, 2017. After giving effect to the issuance of the shares in the Private Placement, the shareholders of Otic owned approximately 64% of the Company’s common stock.

On May 11, 2017, Novus effected a reverse stock-split of its issued and outstanding common stock and options for common stock at a ratio of one-for-nine. The Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware effecting such reverse stock-split. The accompanying condensed consolidated financial statements and notes give retroactive effect to the reverse stock-split for all periods presented.

The Company has ~~adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40,~~ ~~Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions~~continued to maintain its corporate headquarters in Irvine, California and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

~~The Company~~ has experienced recurring net losses and negative cash flows from operating activities since its inception. The Company recorded a net loss of $11.0 million for the nine months ended September 30, 2017. As of September 30, 2017, the Company had cash and cash equivalents of $19.1 million, working capital of $18.7 million and an accumulated deficit of $25.4 million. Management estimates that the Company has sufficient cash resources to meet anticipated cash needs through at least the next 12 months from the date of issuance of these financial statements. Due to continuing research and development ~~activities,~~facilities in the Company expects to continue to incur net losses into the foreseeable future. In order to continue these activities, the Company may need to raise additional funds through future public or private debt and equity financings or strategic collaboration and licensing arrangements. If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets. Sufficient additional funding may not be available or be available on acceptable terms. If so, the Company may need to delay, reduce the scope of, or put on hold research and development activities while the Company seeks strategic alternatives.Boston, Massachusetts area.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”) and Article 108 of Regulation S-X requirements as set forth by the Securities and Exchange Commission (“SEC”) for interim financial information and reflect all adjustments and disclosures, which are, in the opinion of management, of a normal and recurring nature, and considered necessary for a fair presentation of the financial information contained herein. ~~The~~Pursuant to these rules and regulations, the unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of results of operations and comprehensive loss, financial position, and cash flows in conformity with GAAP.

The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and accompanying notes of ~~Otic~~Eledon for the year ended December 31, ~~2016~~2020 included in the ~~definitive proxy statement~~Annual Report on ~~Schedule 14A relating to the Reverse Merger~~Form 10-K filed by the Company with the SEC on ~~April 7, 2017.~~March 31, 2021. The results of operations and comprehensive loss for the three and nine months ended September 30, ~~2017~~2021 are not necessarily indicative of results expected for the full fiscal year or any other future period.

Eledon, a Delaware corporation, owns 100% of the issued and outstanding common stock or other ownership interest in Anelixis Therapeutics, LLC, a Delaware corporation, and Otic Pharma, Ltd., a private limited company organized under the laws of the State of Israel (“Otic”). Otic owns 100% of the issued and outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc.

The functional currency of the Company’s foreign subsidiary is the U.S. Dollar; however, certain expenses, assets and liabilities are transacted at the local currency. These transactions are translated from the local currency into U.S. Dollars at exchange rates during or at the end of the reporting period. The activities of the Company’s foreign subsidiary are not significant to the condensed consolidated financial statements.

All significant intercompany accounts and transactions among the entities have been ~~no significant~~eliminated from the condensed consolidated financial statements.

Liquidity and ~~material changes in our critical accounting policies~~Financial Condition

The Company has experienced recurring net losses and ~~significant judgments~~negative cash flows from operating activities since its inception. The Company recorded a net loss of $9.8 million and ~~estimates during~~$25.7 million for the three and nine months ended September 30, ~~2017, except~~2021, respectively. As of September 30, 2021, the Company had cash and cash equivalents of $94.0 million, working capital of $91.5 million and an accumulated deficit of $106.1 million. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. In order to continue these activities, the Company will need to raise additional funds through public or private debt and equity financings or strategic collaboration and licensing arrangements. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of development and business risks and uncertainties, as ~~described below.~~well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets.

At the time of issuance of the condensed consolidated financial statements for the three and nine months ended September 30, 2021, the Company’s management performed an analysis and concluded that the Company had sufficient cash resources to meet its anticipated cash needs through at least the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements.

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to ~~the valuation of certain financial instruments,~~ stock-based ~~compensation, and~~transactions, accruals for liabilities, fair value of assets acquired and liabilities assumed in a business combination, impairment of long lived assets, including goodwill, and other matters that affect the condensed consolidated financial statements and related disclosures. Actual results could differ materially from those estimates under different assumptions or conditions and the differences may be material to the condensed consolidated financial statements.

~~Accounting~~Cash represents cash deposits held at financial institutions. The Company considers all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. Cash equivalents are held for ~~acquisitions requires extensive use~~the purpose of ~~estimates~~meeting short-term liquidity requirements, rather than for investment purposes. The Company had $9.2 million of cash equivalents at September 30, 2021 and ~~judgment to measure the fair value~~December 31, 2020.

As of September 30, 2021 and December 31, 2020, all of the ~~identifiable tangible~~Company’s long-lived assets were located in the United States.

Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents. The Company’s policy is to invest cash in institutional money market funds to limit the amount of credit exposure. At times, the Company maintains cash equivalents in short‑term money market funds and ~~intangible assets acquired,~~it has not experienced any losses on its cash equivalents.

The Company’s products will require approval from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies before commercial sales can commence. There can be no assurance that the Company’s products will receive any of these required approvals. The denial or delay of such approvals may impact the Company’s business in the future. In addition, after approval by the FDA, there is still an ongoing risk of adverse events that did not appear during the product approval process.

The Company is subject to risks common to companies in the pharmaceutical industry, including, ~~in-process~~but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of products, product liability, the volatility of its stock price and the need to obtain additional financing.

Our facilities and equipment, including those of our suppliers and vendors, may be affected by natural or man-made disasters. Our administrative office is based in Irvine, California and we manage all our research and development activities through third parties that are located throughout the world. We have taken precautions to safeguard our facilities, equipment and ~~liabilities assumed. Additionally,~~systems, including insurance, health and safety protocols, and off-site storage of computer data. However, our facilities and systems, as well as those of our third-party suppliers and vendors, may be vulnerable to earthquakes, fire, storm, health emergencies, including the ongoing COVID-19 pandemic, power loss, telecommunications failures, physical and software break-ins, software viruses and similar events which could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses and delay research and development activities. In addition, the insurance coverage we maintain may not be adequate to cover our losses in any circumstance and may not continue to be available to use on acceptable terms, or at all.

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer and the Company ~~must determine whether an acquired entity~~has determined that it operates in 1 business segment, which is ~~considered a business~~the development of products for therapeutic medicines selectively targeting critical pathways associated with the underlying molecular pathogenesis for patients with severe inflammation and autoimmune diseases.

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or ~~a set~~fee for service, and may include upfront payments, monthly payments and payments upon the completion of ~~net assets because~~milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the ~~excess~~related goods are delivered or services are performed.

The Company contracts with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to its vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the ~~purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination.~~clinical trial or similar conditions. The ~~Company accounted~~Company’s accrual for the merger with Tokai as a business combination under the acquisition method of accounting. Consideration paid to acquire Tokai was measured at fair value and included the exchange of Tokai’s common stock and preferred stock. The allocationclinical trials is based on estimates of the ~~purchase price resulted in recognition of intangible assets related~~services received and efforts expended pursuant to ~~goodwill. The operating activity~~contracts with clinical trial centers and clinical research organizations. These contracts may be terminated by the Company upon written notice and the Company is generally only liable for ~~Tokai,~~actual effort expended by the ~~acquiree for accounting purposes, was immediately integrated with Otic post-merger, therefore it is not practical~~organizations to ~~segregate results of operations related specifically to Tokai since~~ the date of ~~acquisition.~~

~~As a result~~termination, although in certain instances the Company may be further responsible for termination fees and penalties, as well as reasonable shutdown costs. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the ~~Reverse Merger, historical common stock, stock options~~facts and ~~additional paid-in capital, including share and per share amounts,~~circumstances known to the Company at that time. There have been ~~retroactively adjusted~~no material adjustments to ~~reflect~~ the ~~equity structure of the Company.~~

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting. Goodwill is not amortized but is evaluatedCompany’s prior‑period accrued estimates for ~~impairment during the last fiscal quarter of the year or if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.~~clinical trial activities through September 30, 2021.

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, preferred stock, convertible notes and accrued interest, ~~and~~ stock options, warrants and ~~warrants~~restricted stock units are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share was the same for the periods presented due to the Company’s net loss position. Basic weighted average shares outstanding for the three and nine months ended September 30, 2021, include 509,117 shares underlying warrants to purchase common shares. As the shares underlying these warrants can be issued for

little consideration (an exercise price per share equal to $0.001 per share), these shares are deemed to be issued for purposes of basic earnings per share.

The computation of diluted earnings per share excludes stock options, warrants, and restricted stock units that are anti-dilutive. ~~For the three and nine months ended~~As of September 30, ~~2017,~~2021 and 2020, common share equivalents of ~~710,898~~674,295 shares and ~~462,012~~1,828,531 shares were anti-dilutive, respectively. ~~For the three and nine months ended September 30, 2016, common share equivalents of 337,665 shares were anti-dilutive.~~

~~For stock options granted to employees, the~~The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair value. ~~The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period.~~

The fair value of stock options is determined using the Black-Scholes option pricing ~~model.~~model, using assumptions that are subjective and require significant judgment and estimation by management. The ~~determination~~risk-free rate assumption was based on observed yields from governmental zero-coupon bonds with an equivalent term. The expected volatility assumption was based on historical volatilities of ~~fair value~~a group of comparable industry companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical industry. The expected term of stock options represents the weighted-average period that the stock options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determined the expected life assumption using the simplified method for options granted to employees, which is an average of the options ordinary vesting period and the contractual term. For stock options granted to the board of directors, the Company determined the expected life assumption using the simplified method as the starting point with an average period of twelve (12) months added to take into account for the extended range of time of 12 to 18 months vested stock options granted to board of directors may be exercised upon termination. The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not expect to pay dividends at any time in the foreseeable future. The Company recognizes forfeitures on an actual basis and as such did not estimate forfeitures to calculate stock-based ~~awards~~compensation.

Restricted Stock Units (“RSU”) and Performance-Based Restricted Stock Units (“PRSU”) are measured and recognized based on the quoted market price of our common stock on the date of ~~grant using~~grant.

In March 2020, the Board of Directors approved an ~~option pricing model requires management to make certain assumptions regarding a~~increase of 28,816 shares issuable under the 2014 Stock Incentive Plan (the “2014 Plan”) and 7,204 shares issuable under the 2014 Employee Stock Purchase Plan (the “ESPP”).

On December 18, 2020, the Company held the Special Meeting, whereby the Company’s stockholders approved the 2020 Long Term Incentive Plan (the “2020 Plan”). The aggregate number of ~~complex~~shares of stock available for issuance under the 2020 Plan will initially be 4,860,000 shares of Common Stock, which represents approximately 15% of the total issued and ~~subjective variables.~~

~~Stock-based compensation expense related~~outstanding shares of the Company’s common stock as of the record date of the Special Meeting (calculated on an as-converted basis and without regard to ~~stock options granted to non-employees is recognized based~~the potential application of beneficial ownership conversion limitations on the ~~fair value~~Preferred Stock) and may be increased by the number of shares under the 2014 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company. Based on projected utilization rates, the Board of Directors currently intends that the initial shares under the 2020 Plan will be sufficient to fund the Company’s equity compensation needs for approximately 3 years.

The 2014 Plan was closed to new grants following the approval of the ~~stock options, determined using~~2020 plan, and therefore, there were 0 longer any shares reserved for issuance under the ~~Black-Scholes option pricing model,~~2014 Plan as ~~they are earned.~~of December 31, 2020. The ~~awards generally vest over~~number of shares reserved for issuance under the ~~period the Company expects to receive services from the non-employee. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms.~~

~~For the nine months ended~~2020 Plan and ESPP was 4,082,708 and 24,077 shares, respectively, as of September 30, ~~2017, no excess tax benefits for tax deductions related~~2021.

Certain reclassifications of prior period amounts have been made to ~~share-based awards were recognized in~~conform to the ~~accompanying consolidated statements of operations as no stock options were exercised.~~current period presentation.

~~In January 2016,~~No new accounting pronouncement issued or effective during the ~~FASB issued Accounting Standards Update (“ASU”) No. 2016-01,~~ ~~Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~, which updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU No. 2016-01 will be effective for the Company beginning in its first quarter of 2018. The adoption of ASU No. 2016-01fiscal period had or is ~~not~~ expected to have a material impact on the Company’s condensed ~~consolidated financial statements.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for the annual reporting period beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact on its condensed consolidated financial statements or disclosures.

Prepaid expenses and other current assets consisted of the ~~adoption of this guidance.~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which modifies the measurement of expected credit losses of certain financial instruments. ASU No. 2016-13 will be effective for the Company beginning in its first quarter of 2020 and early adoption is permitted. The adoption of ASU No. 2016-13 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory~~, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU No. 2016-16 will be effective for the Company in its first quarter of 2018. The Company is currently evaluating the impact of adopting ASU No. 2016-16 on its condensed consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Clarifying the Definition of a Business (Topic 805)~~, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued financial statements or made available for issuance financial statements. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to early adopt the new guidance.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350)~~, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to early adopt the new guidance.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. This guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company early adopted ASU No. 2016-09 in the fourth quarter of 2016 and the adoption did not have a material impact on its condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statements of Cash Flows (Topic 230): Classification and Presentation of Restricted Cash in the Statements of Cash Flows~~, which requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents in the statement of cash flows. The Company adopted the provisions of this guidance using the retrospective approach in the first quarter of 2017. The adoption did not have a material impact on its condensed consolidated financial statements but did impact the presentation of the cash flow statement.

The standard update is designed to minimize the diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows and disclose the nature of the restrictions on cash and cash equivalents. The Company believes the changes will provide insight into the availability of amounts generally described as restricted cash and restricted cash equivalents on the balance sheet and will help users better understand the sources and uses of restricted cash and restricted cash equivalents during a reporting period.

A reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows, is as followsfollowing (in thousands):

Amounts included in restricted cash as part of current assets represented those required to be set aside as security for lease payments for Otic’s Israel facility as of December 31, 2016. Restricted cash as part of long term assets on the condensed consolidated balance sheet as of September 30, 2017, represents amounts set aside ~~to maintain a letter of credit for the benefit of the landlord of Tokai’s Boston office.~~

~~We completed the Reverse Merger with Tokai as discussed in Note 1. Based on the terms of the Reverse Merger, the Company concluded that the transaction is a business combination pursuant to ASC 805~~ ~~Business Combinations~~, Otic was deemed the acquiring company for accounting purposes, and the transaction has been accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with GAAP. Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Tokai based on their estimated fair values as of the Reverse Merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill.

On May 9, 2017, Tokai issued 4,027,693 shares of its common stock to the shareholders of Otic and the holders of warrants and options of Otic upon the exercise of such options and warrants in exchange for 836,857 Otic Shares.

~~The purchase price for Tokai on May 9, 2017, the closing date of the Reverse Merger, was as follows (in thousands):~~

The allocation of the estimated purchase price to the acquired assets and liabilities assumed of Tokai, based on their estimated fair values as of May 9, 2017, the close of the transaction, is as follows (in thousands):

The Company engaged a third-party valuation firm to assist management in its analysis of the fair value of Tokai. All estimates, key assumptions, and forecasts were either provided by or reviewed by management. While the Company chose to utilize a third-party valuation firm, the fair value analysis and related valuations represent the conclusions of management and not the conclusions or statements of any third party. The excess of the total purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill.

~~The Company believes that the historical values of Tokai’s current assets and current liabilities approximate fair value based on the short-term nature of such items.~~

Goodwill is calculated as the difference between the fair value of the consideration expected to be transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. Goodwill is not expected to be deductible for tax purposes.

The unaudited financial information in the following table summarizes the combined results of operations of the Company and Tokai, on a pro forma basis, as if the Reverse Merger had occurred at the beginning of the periods presented
(in thousands):

The above unaudited pro forma information was determined based on historical GAAP results of Otic and Tokai. The unaudited pro forma combined results are not necessarily indicative of what the Company’s combined results of operations would have been if the acquisition was completed at the beginning of the periods presented. The unaudited pro forma combined net loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination:

~~The combined aggregate transaction costs of the Company were $7.9 million, which were expensed as incurred.~~

Financial assets and liabilities are recorded at fair value. At September 30, 2017, the Company had no financial instruments. At December 31, 2016, the Company’s financial instruments included short-term convertible debt. The carrying amount of the short-term convertible debt approximates fair value due to the short-term maturities of these instruments.

The Company measures the fair value of certain of its financial instruments on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

~~Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities.~~

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

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

~~There have been no transfers of assets for liabilities between these fair value measurement classifications during the periods presented.~~

~~The Company had no financial assets or liabilities measured at fair value on a recurring basis at September 30, 2017.~~

~~The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2016 (in thousands):~~

Accrued expenses and other liabilities consisted of the following ~~as of September 30, 2017 and December 31, 2016~~ (in thousands):

On July 11, 2016, OrbiMed Israel Partners Limited Partnership and Peregrine Management II Ltd. provided Otic with a convertible bridge financing (the “Bridge Financing”) in the aggregate amount of $2.9 million (the “Bridge Financing Amount”), pursuant to a Bridge Financing Agreement (the “Bridge Financing Agreement”). Under the terms of the Bridge Financing Agreement, other than upon occurrence of an Event of Default (as defined in the Bridge Financing Agreement), Otic is not required to repay the Bridge Financing Amount or any portion in cash. The Bridge Financing Agreement further provides that upon a Deemed Liquidation (as defined in Otic’s Articles of Association), the Bridge Financing Amount is convertible into Preferred C Shares of Otic at a price per share representing 85% of the Preferred C Shares’ original issue price. Upon closing of the Reverse Merger, pursuant to the terms of the Bridge Financing Agreement, the Bridge Financing amount converted into 67,427 shares of common stock.

The Company concluded the value of the Bridge Financing is predominantly based on a fixed monetary amount known at the date of issuance as represented by the 15% discount on the Company’s shares to be sold upon a Deemed Liquidation event. Accordingly, the Bridge Financing was classified as debt and was remeasured at its fair value of $3.4 million. As of September 30, 2017, the Company has no convertible debt.

The Company leases office space ~~and equipment~~ under various operating ~~leases. These leases are generally subject to scheduled base rent and maintenance cost increases, which are recognized on a straight-line basis over the term of the~~ leases. Total rental expense for all operating leases in the accompanying condensed consolidated statements of operations and comprehensive loss was ~~$252,000~~$63,000 and ~~$54,000~~$50,000 for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively, and ~~$455,000~~ $189,000and ~~$164,000~~$143,000 for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

The Company ~~is required~~has an operating lease for 5,197 square feet of office space in Irvine, California, which was set to ~~maintain a letter of credit totaling $70,000 for~~expire on September 30, 2021. On May 3, 2021, the ~~benefit~~Company extended the term of the ~~landlord of Tokai’s Boston office.~~lease through December 31, 2022, by amending the office lease effective October 1, 2021. Additionally, the Company had operating leases for 4 serviced office spaces in Burlington, Massachusetts that expired on June 30, 2021, which have been converted to monthly leases. The ~~landlord can draw against the letter of credit in the event of default by the Company. The Company held $70,000, which is in restricted cash as part of long term assets~~Burlington, Massachusetts office leases are considered short-term leases and are not recorded on the condensed consolidated balance ~~sheet~~sheet.

The Company determines if a contract contains a lease at inception. Our office leases have a remaining term ranging from one month to eighteen months and do not include options to extend the leases for additional periods.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities as adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of ~~September 30, 2017.~~operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. As we have 0 outstanding debt nor committed credit facilities, secured or otherwise, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management’s judgment.

Our Irvine lease contains rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. Our lease agreement does not contain any material residual value guarantees or material restrictive covenants.

While we do not currently have any lease agreement with lease and non-lease components, we elected to account for lease and non-lease components as separate components.

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the condensed consolidated balance sheet.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

Future payments under noncancelable operating leases having initial or remaining terms of one year or more are as follows for the remaining fiscal year and thereafter (in thousands):

In May 2015, Anelixis executed a License Agreement (the “Agreement”), which is an exclusivepatent rights agreementwith ALS Therapy Development Foundation, Inc. (“ALSTDI”)forcertainpatentsand“know-how” of ALSTDI. This agreement continues until the licensee terminates the agreement with ninety days written notice. The Agreement requires license fees payable to ALSTDI, subject to the achievement of certain milestones and otherconditions.

The first and second milestones of the Agreement are the dosing of the first subjects in a first toxicity study in non-human primates and the dosing of the first patient in a Phase I Clinical Trial, respectively. Both of these milestones were achieved as of December 31, ~~2016,~~2018 and 2017. The fee due for the achievement of these milestones was $1.0 million each. During 2018 and 2017, Anelixis issued $1.0 million worth of its common stock in lieu of making a cash payment. There were 0 milestones achieved during the nine months ended September 30, 2021 and the year ended December 31, 2020.

The Agreement was amended and restated in February 2020, and a first amendment to the restated license agreement was executed in September 2020. As amended in September 2020, the remaining milestone payments for a first licensed product total $6.0 million. In the event that the Company ~~maintained~~develops a ~~$14,000 restricted cash balance~~ ~~that was used~~second licensed product, the Company is obligated to pay up to $2.5 million in additional milestone payments.

In addition to the milestone payments, the Company is required to pay ALSTDI an amended annual license maintenance fee of $0.1 million beginning on the earlier of January 1, 2022, the Company’s first sublicense, or change in control, as ~~security for lease payments for Otic’s Israel facility and was invested~~defined in ~~highly liquid deposits~~the Agreement.

Furthermore, the Company shall pay ALSTDI fees based on reaching certain levels of annual net sales of any product produced with ~~original maturities~~the patent rights. A royalty in the low single digits will be due on aggregate net sales. Upon the first calendar year of ~~less than three months.~~reaching $500.0 million in aggregate net sales, the Company shall pay ALS TDI a one-time milestone payment of $15.0 million. Upon the first calendar year of reaching $1.0 billion in aggregate net sales, the Company is obligated to pay ALSTDI a one-time milestone payment of $30.0 million.

From 2012 through 2015, the Company received grants in the amount of approximately ~~$537,000~~$0.5 million from the Israeli Innovation Authority (previously the Office of Chief ~~Scientist~~Scientist) of the Israeli Ministry of Economy and Industry designated for investments in research and development. The grants are linked to the U.S. ~~dollar~~Dollar and bear annual interest of LIBOR. The grants are to be repaid out of royalties from sales of the products developed by the Company from ~~their~~its investments in research and development. Because the Company has not yet earned revenues related to these investments and cannot estimate potential royalties, no liabilities related to these grants have been recorded as of each period presented.

In November 2015, the Company entered into an exclusive license agreement with Scientific Development and Research, Inc. and Otodyne, Inc. (collectively, the “Licensors”) granting it an exclusive worldwide rights to develop and commercialize OP-02, a potential first-in-class treatment option for patients at risk for or with otitis media (middle ear inflammation with or without infection), which is often caused by Eustachian tube dysfunction. Under the terms Repayment of the ~~agreement,~~grant is contingent upon the ~~Company is obligated to use commercially reasonable efforts to seek approval for~~successful completion of the Company’s research and ~~commercialize at least one product for otitis media in the U.S.~~development programs and key European markets (France, Germany, Italy, Spain, and the United Kingdom). The Company is responsible for prosecuting, maintaining, and enforcing all intellectual property and will be the sole owner of improvements. Under the agreement with the Licensors, the Company paid license fees totaling $700,000 and issued 9,780 common shares to the Licensors.

In December 2015, the Licensors completed transfer of all technology, including the active Investigational New Drug application (“IND”) to the Company. The Company is obligated to pay up to $42.1 million in development and regulatory milestones if OP-02 is approved for three indications in the U.S., two in Europe, and two in Japan. The Company is also obligated to pay up to $36.0 million in sales based milestones, beginning with sales exceeding $1.0 billion in a calendar year. The Company is also obligated to pay a tiered royalty for a period up to eight years, on a country-by-country basis. The royalty ranges from a low-single to mid-single percentage of netgenerating sales.

The Company has ~~a master license agreement with~~no obligation to repay these grants, if the ~~University of Maryland, Baltimore (“UMB”), which was originally entered into by Tokai. Pursuant to the license agreement, UMB granted an exclusive, worldwide license, with the right to sublicense,~~research and ~~under certain patents and patent applications to make, have made, use, sell, offer to sell and import certain anti-androgen steroids, including galeterone, for the prevention, diagnosis, treatment~~development program fails, is unsuccessful or ~~control of any human~~aborted or ~~animal disease. In addition, UMB granted the Company a first option to receive an exclusive license to UMB’s rights in certain improvements to the licensed products.~~if no sales are generated. The Company has exercised its option and acquired exclusive rights to licensed improvements under four amendments to the license agreement. The Company is obligated to pay UMB an annual maintenance fee of $10,000 each year until the first commercial sale of a product developed using the licensed technology. The Company is also obligated to make milestone payments of an additional $50,000 for the filing of each additional investigational new drug application filed for a licensed product, aggregate milestone payments of up to $150,000 associated with the development of a licensed product for a particular non-prostate disease indication, and a $100,000 milestone payment upon the approval by the U.S. Food and Drug Administration (“FDA”) of each new drug application (“NDA”) for a licensed product. There were no milestones achieved during the nine months ended September 30, 2017 or 2016.

The Company must also pay UMB a low-single digit percentage royalty on aggregate worldwide net sales of licensed products, including sales by sublicensees, on a licensed product-by-licensed product and country-by-country basis until the later of the expiration of the last-to-expire applicable licensed patent or ten years after the first commercial sale of the applicable licensed product, in each case in the applicable country. The royalty obligations are subject to specified reductions in the event that additional licenses need to be obtained from third parties or in the event of specified competition from third-party products licensed by UMB. Minimum annual royalty payments to UMB are $50,000 beginning in the year following the year in which the first commercial sale occurs. The Company must also pay UMB 10% of all non-royalty sublicense income received from sublicensees. Finally, the Company is responsible for all patent expenses related to the prosecution and maintenance of the licensed patents. As of September 30, 2017, the Company has not yet ~~developed a commercial product using the licensed technologies, nor has it entered into any sublicense agreements for the technologies.~~

In January 2015, the Company (through Tokai) entered into an exclusive license agreement with The Johns Hopkins University (“Johns Hopkins”) pursuant to which Johns Hopkins granted the Company an exclusive, worldwide license under certain patents and patent applications, and a non-exclusive license under certain know-how, in each case with the right to sublicense, and to make, have made, use, sell, offer to sell and import certain assays to identify androgen receptor variants for usegenerated sales as a companion diagnostic with galeterone. In addition, Johns Hopkins granted the Company an option to negotiate an exclusive license to Johns Hopkins’s rights in certain improvements to the licensed intellectual property.

In consideration for the rights granted to the Company under the license agreement, the Company made an upfront payment to Johns Hopkins of $75,000 following the execution of the license agreement, which was recognized as research and development expense during the year ended December 31, 2015. The Company is obligated to pay Johns Hopkins an annual minimum royalty of up to $30,000 and to make milestone payments to Johns Hopkins upon the achievement of specified technical and commercial milestones. If all such milestones were achieved, the total milestone payments owed to Johns Hopkins would equal $700,000 in the aggregate. During the year ended December 31, 2015, the Company expensed $50,000 upon the achievement of two of these milestones. The Company has not achieved any other milestones and, therefore, no additional liabilities for such milestone payments have been recorded in the Company’s financial statements.

The Company must also pay Johns Hopkins single digit percentage royalties on aggregate worldwide net sales of licensed products (but not galeterone), including sales by sublicensees, on a licensed product-by-licensed product and country-by-country basis until the later of the expiration of the last-to-expire applicable licensed patent or ten years after first commercial sale of the applicable licensed product, in each case in the applicable country. These royalty obligations are subject to specified reductions in the event that additional licenses from third parties are required. The Company must also pay Johns Hopkins 20% of all non-royalty sublicense income received from sublicensees and reimburse Johns Hopkins for patent costs. As of September 30, ~~2017,~~2021; therefore, no liability was recorded for the ~~Company has not yet developed a commercial product using~~repayment in the ~~licensed technologies.~~

On October 5, 2017, the Company submitted notice of termination to all parties. The Company will no longer have any obligations to UMB after December 4, 2017, and to John Hopkins after January 3, 2018.accompanying condensed consolidated financial statements.

The Company ismay be involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. In connection with these matters, the Company assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The amount of ultimate loss may differ from these estimates. Each matter presents its own unique circumstances, and prior litigation does not necessarily provide a reliable basis on which to predict the outcome, or range of outcomes, in any individual proceeding. Because of the uncertainties related to the occurrence, amount, and range of loss on any pending litigation or claim, the Company does not consider a liability probable and is currently unable to predict their ultimate outcome, and, with respect to any pending litigation or claim where no liability has been accrued, to make a meaningful estimate of the reasonably possible

loss or range of loss that could result from an unfavorable outcome. In the event that opposing litigants in outstanding litigation proceedings or claims ultimately succeed at trial and any subsequent appeals on their claims, any potential loss or charges in excess of any established accruals, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

~~On August 1, 2016,~~We are not currently a ~~purported stockholder of Tokai filed a putative class action lawsuit~~party to any material legal proceedings. We may, however, in the ~~U.S. District Court for the Southern District~~ordinary course of ~~New York against Tokai, Jodie P. Morrison,~~business face various claims brought by third parties or government regulators and ~~Lee H. Kalowski, entitled~~ ~~Doshi v. Tokai Pharmaceuticals, Inc., et al.,~~ ~~No. 1:16-cv-06106 (“Doshi Action”). The plaintiff sought~~we may, from time to represent a class of purchasers of Tokai securities between June 24, 2015, and July 25, 2016, and alleges that, in violation of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder, defendants made false and misleading statements and omissions about Tokai’s clinical trials for its drug candidate, galeterone. The lawsuit sought, among other things, unspecified compensatory damages, interest, costs, and attorneys’ fees. On October 3, 2016, the case was transferredtime, make claims or take legal actions to ~~the U.S. District Court for the District of Massachusetts. On September 28, 2017, this action was consolidated with~~ ~~Garbowski, et al. v. Tokai Pharmaceuticals, Inc., et al.,~~ ~~No. 1:16-cv-11963 (see below). Given the uncertainty of litigation, the preliminary stage of the case,~~assert our rights, including claims relating to our directors, officers, stockholders, intellectual property rights, employment matters and the ~~legal standards that must be met for, among other things, success on the merits, we are unable to predict the ultimate outcome~~safety or efficacy of ~~these actions, and therefore we cannot estimate the reasonably possible loss or range of loss that may result from this action.~~

On September 22, 2014, Tokai completed the initial public offering of its common stock (the IPO”). Subsequent to the IPO, several lawsuits were filed against Tokai, Jodie Pope Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the underwriters of the IPO. The lawsuits allege that, in violation of the Securities Act of 1933 (“Securities Act”), Tokai’s registration statement for the IPO made false and misleading statements and omissions about Tokai’s clinical trials for galeterone. Each lawsuit sought, among other things, unspecified compensatory damages, interest, costs, and attorneys’ fees. Further details on each lawsuit are set forth below. ~~Given the uncertainty of litigation, the preliminary stage of these cases, and the legal standards that must be met for, among other~~

~~things, success on the merits,~~ ~~we are unable to predict the ultimate outcome of these actions, and therefore~~ ~~we cannot estimate the reasonably possible loss or range of loss that may result from these actions.~~

In connection with the Reverse Merger, two putative securities class actions have been filed in the U.S. District Court for the District of Massachusetts against Tokai, Jodie P. Morrison, Seth L. Harrison, Stephen Buckley, Jr., Cheryl L. Cohen, David A. Kessler, and Joseph A. Yanchik, III. The two complaints are captioned as follows: ~~Bushansky v. Tokai Pharmaceuticals, Inc., et al., No. 1:17-cv-10621-DPW (filed April 11, 2017), and~~ ~~Wilson v. Tokai Pharmaceuticals, Inc., et al.~~, No. 1:17-cv-10645-DPW (filed April 14, 2017). Each lawsuit alleges that Tokai’s definitive proxy statement on Schedule 14A filed with the SEC on April 7, 2017 (the “Definitive Proxy Statement”) made false and misleading statements and omissions in connection with the Reverse Merger, in violation of the Exchange Act and Rule 14a-9, promulgated thereunder. Each plaintiff sought to represent a class of all persons and entities that owned Tokai common stock. Each lawsuit sought, among other things, preliminary and permanent injunctions of the Reverse Merger unless Tokai disclosed certain information requested by plaintiff, rescission and unspecified damages if the Reverse Merger is consummated, and attorneys’ fees. These two actions are collectively referred to as the “Stockholder Litigation.” On June 6, 2017, each of the plaintiffs in the two actions constituting the Stockholder Litigation, voluntarily dismissed the actions with prejudice as to such plaintiff only and without prejudice as to the putative class in the action.

In May 2017, the Company entered into a settlement agreement with the two complainants resolving the Stockholder Litigation. Under the terms of the settlement, the Company filed a Form 8-K on April 28, 2017, making certain disclosures that supplement and revise those contained in the Definitive Proxy Statement to avoid the risk of the Stockholder Litigation delaying or adversely affecting the closing of the Share Purchase Agreement and to minimize the expense of defending the Stockholder Litigation, and without admitting any liability or wrongdoing. The Company also remitted payment in the amount of $150,000 to resolve the plaintiffs’ claim for attorneys’ fees and expenses in full satisfaction of any of their claims for fees or costs.

~~The Company has always maintained and continues to believe that it did not engage in any wrongdoing or otherwise commit any violation of federal or state securities laws or other laws.~~our products.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future because of these indemnification obligations. NoNaN amounts associated with such indemnifications have been recorded to date.

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. There have been no0 contingent liabilities requiring accrual at September 30, ~~2017.~~2021.

The Company is subject to income taxes under the Israeli and U.S. tax laws. The Company was subject to an Israeli corporate tax rate of 25% in the year 2016 and will be subject to an Israeli corporate tax rate of 24% in the year 2017 and 23% in the year 2018 and thereafter. The Company was subject to a blended U.S. tax rate (Federal as well as state corporate tax) of 35% in 2016.

InOn March ~~2017, OrbiMed Israel Partners Limited Partnership, a related party, exercised a warrant to purchase 22,679 shares of Preferred B shares of~~31, 2021, the Company ~~at $17.64 per share for an aggregate amount of approximately $400,000.~~

~~In May 2017, OrbiMed Israel Partners Limited Partnership,~~filed a ~~related party, exercised warrants to purchase 149,686 shares of Preferred B shares~~prospectus and ~~10,737 Ordinary Shares of the Company at a weighted-average price of $16.46 per share for an aggregate amount of approximately $2.6 million.~~

In May 2017, Peregrine Management II Ltd., a related party, exercised warrants to purchase 4,460 shares of Preferred B shares and 2,148 Ordinary Shares of the Company at a weighted-average price of $11.91 per share for an aggregate amount of approximately $79,000.

~~In May 2017, Pontifax, in a cashless exercise of its warrants, purchased 18,940 Ordinary Shares of the Company.~~

~~On August 21, 2017, the Company entered into an equity distribution agreement~~prospectus supplement (the ~~“Equity Distribution Agreement”~~“2021 Prospectus”) ~~with Piper Jaffray & Co. (“Piper Jaffray”), as sales agent, pursuant to~~under which the Company may offer and sell, from time to time, ~~through Piper Jaffray,~~pursuant to an equity distribution agreement with Jeffries LLC, up to ~~$8.5~~$75.0 million in shares of its common stock. During the nine months ended September 30, 2021, 0 shares were sold under the 2021 Prospectus.

As of September 30, 2021, a total of 1,145,631 warrants were exercisable into common stock. The shares of common stock underlying the warrants are registered for offer and sale under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s effective registration statements on Form S-1.

On September 21, 2021, the Company ~~has no obligation to sell any~~issued warrants exercisable for 298,692 shares of common stock in exchange for warrants exercisable for 5,376.456 shares of Series X¹ Non-Voting Convertible Preferred Stock (“Series X¹Preferred Stock”) previously issued as part of the ~~shares, and may at any time suspend offers under~~Anelixis merger. These Series X¹ Preferred Stock warrants were replaced by Eledon for the ~~Equity Distribution Agreement.~~outstanding warrants issued by Anelixis that were not settled upon completion of the merger.

As of September 30, 2021, 50,207.419 warrants were exercisable into Series X¹Preferred Stock. Each share of Series X¹ Preferred Stock is convertible into approximately 55.5556 shares of common stock.

On ~~August 21, 2017,~~December 31, 2020, the Company entered into an ~~Equity Distribution Agreement~~exchange agreement (the “Series X Exchange Agreement”) with ~~Piper Jaffray,~~Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS, L.P. , MSI BVF SPV, L.L.C. (collectively, the “BVF Exchanging Stockholders”) and Cormorant Global Healthcare Master Fund, LP (together with the BVF Exchanging Stockholders, the “Series X Exchanging Stockholders”), pursuant to which the Series X Exchanging Stockholders exchanged (the “Series X Exchange”) 344,666 shares of the Company’s common stock for 6,203.98 shares of Series X Convertible Preferred Stock.

In addition, on December 31, 2020 the Company ~~may~~entered into an exchange agreement (the “Warrant Exchange Agreement,” and together with the Series X Exchange Agreement, the “Exchange Agreements”) with the BVF Exchanging Stockholders, pursuant to which the BVF Exchanging Stockholders exchanged (the “Warrant Exchange,” and together with the Series X Exchange, the “Exchanges”) 509,117 shares of the Common Stock for one or more pre-funded warrants to purchase an aggregate of 509,117 shares of the Common Stock at a nominal exercise price (the “Warrants”).

The Company recorded the shares of Series X Convertible Preferred Stock and Warrants issuable as preferred stock and warrant subscriptions at December 31, 2020 since the physical settlement of the Exchanges was made on January 5, 2021, whereby the transfer agent recorded the exchange of common stock for the issuance of preferred stock and warrants.

Following the Exchanges, the Company had6,203.98 shares of Series X Preferred Stock outstanding, which are convertible into 344,663 shares of Common Stock (after rounding for fractional shares).

As of September 30, 2021, a total of 509,117 warrants were available for exercise. The shares of common stock underlying the registered direct placement agent warrants are registered for offer and sale under the Securities Act, pursuant to the Company’s effective registration statements on Form S-1.

Total stock-based compensation expense was recognized in our condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

On September 14, 2020, the Company acquired Anelixis pursuant to that certain Agreement and Plan of Merger, dated September 14, 2020 (the “Merger Agreement”), by and among Eledon, Nautilus Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of Eledon (“First Merger Sub”), Nautilus Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Eledon (“Second Merger Sub”), and Anelixis. Pursuant to the Merger Agreement, First Merger Sub merged with and into Anelixis, pursuant to which Anelixis was the surviving entity and became a wholly owned subsidiary of Eledon (the “First Merger”). Immediately following the First Merger, Anelixis merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity (the “Second Merger,” together with the First Merger, the “Merger”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. Following the acquisition of Anelixis, the Company has continued to maintain its corporate headquarters in Southern California and maintain research and development facilities in the Boston area.

Under the terms of the Merger Agreement, at the closing of the Merger, Eledon issued to the stockholders of Anelixis 175,488 shares of the common stock of Eledon, par value $0.001 per share and 140,026 shares of newly designated Series X¹ Preferred Stock. Subject to stockholder approval, each share of Series X¹ Preferred Stock is convertible into approximately 55.5556 shares of common stock. The preferences, rights and limitations applicable to the Series X¹ Preferred Stock are set forth in the Certificate of Designation, as filed with the SEC.

In addition to the common stock and preferred stock issued, certain outstanding warrants issued and equity awards granted by Anelixis were not settled upon completion of the merger, and instead were assumed and then replaced with Eledon warrants and equity awards. The amounts for the assumed and replaced warrants and equity awards attributed to pre-merger services are included in other consideration amounts transferred and added to goodwill.

The Company determined that FASB Accounting Standards Codification Topic 805 (“ASC 805”), Business Combinations, is the authoritative guidance in accounting for this transaction and for determining whether Anelixis was a dormant, non-operating entity that would not meet the definition of a business under ASC 805. If Anelixis was not an operating entity, the acquisition would instead be considered a capital transaction and equivalent to the issuance of shares by Eledon for the net monetary assets of Anelixis accompanied by a recapitalization. Conversely, if Anelixis was determined to be a business, the acquisition method of accounting would apply and the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed would be recorded as goodwill.

The Company evaluated the terms of the Merger Agreement and the transaction under the applicable accounting guidance and determined that Anelixis satisfied the definition of a business under ASC 805 and as further clarified by ASU 2017-01. Based on this analysis, the Company accounted for the acquisition of Anelixis as a business combination under the acquisition method of accounting as it had determined that Anelixis’ assets acquired in the transaction included an input and a substantive process that together significantly contributed to the ability to create outputs. Additionally, the Company was determined to be both the legal and accounting acquirer as it had issued equity interests to acquire all of Anelixis’ equity interests.Goodwill generated from the acquisition was primarily attributable to the expected synergies from combining

operations and expanding market potential, together with certain intangible assets that do not qualify for separate recognition. None of the approximately $48.6 million in goodwill is expected to be deductible for tax purposes.

Concurrently and in connection with the execution of the Merger Agreement, the Company entered into the Purchase Agreement with certain institutional and accredited investors. Pursuant to the Stock Purchase Agreement, the Company agreed to sell an aggregate of approximately 199,112 shares of Series X¹ Preferred Stock for an aggregate purchase price of approximately $99.1 million in the Financing (collectively, the “Financing”). Eledon had commitments for an additional $9.0 million in equity financing that was contingent upon the satisfaction of certain incremental closing conditions, including stockholders’ approval of the issuance of the Company’s common stock upon the conversion of the Company’s Series X¹ Preferred Stock and the effective registration of its common stock. The merger was a pre-requisite in order for the Financing to transpire; without the merger, those certain institutional and accredited investors would not have purchased the Company’s Series X¹ convertible preferred stock.

On December 18, 2020, the Company held the Special Meeting, whereby the Company’s stockholders approved the issuance of the Company’s common stock, upon conversion of the Company’s Series X¹ Preferred Stock, par value $0.001 per share, issued in September 2020. As a result, approximately 231,068 shares of Series X¹ Preferred Stock were converted into 12,837,056 shares of the Company’s common stock. As of September 30, 2021 and December 31, 2020, approximately 108,070 shares of Series X¹ Preferred Stock remain outstanding.

On December 23, 2020, the Company sold 1,004,111 shares of its common stock ~~through Piper Jaffray. From October 2, 2017 through November 6, 2017, the Company had sold 142,356 shares of its common stock through Piper Jaffray under the Equity Distribution Agreement~~ for gross proceeds of ~~$653,000. Refer~~$9.0 million that was contingent upon the satisfaction of certain incremental closing conditions, as described above.

The following table summarizes the fair value of purchase price consideration to ~~Note 9~~acquire Anelixis (in thousands):

The following is an allocation of purchase price as of the September 14, 2020, acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

Acquisition costs of approximately $2.9 million were included in general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss for ~~additional~~the year ended December 31, 2020.

The net deferred tax liability was based upon the difference between the estimated book basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of Anelixis.

Through its acquisition of Anelixis, the Company acquired intangible assets that consisted of in-process research and development (“IPR&D”) with an estimated fair value of $32.4 million, related to its clinical development program of AT-1501. The estimated fair value of the IPR&D was determined by management based on external valuation specialists’ analysis of replacement costs to recreate AT-1501 in its current clinical stage. The replacement cost method contemplates the cost to recreate the utility of AT-1501 but in a form that is not a replica of AT-1501. In this method, the replacement cost is determined and reduced for depreciation of the asset. In this context, depreciation has three components: (i) physical deterioration, (ii) functional obsolescence, and (iii) economic obsolescence.

Under the acquisition method of accounting, goodwill of approximately $48.6 million would be generated after accounting for Anelixis’ assets acquired, liabilities assumed, and intangible assets identified and valued.

The following unaudited pro forma combined financial information is presented to illustrate the estimated effects of the Merger based on the ~~Equity Distribution Agreement.~~historical financial statements and accounting records of Eledon and Anelixis after giving effect to the Merger and the Merger-related pro forma adjustments.

The unaudited pro forma combined statements of operations for the three and nine months ended September 30, 2020 combine the historical statements of operations of Eledon and Anelixis, giving effect to the Merger as if it had occurred on January 1, 2020, the first day of the fiscal year ended December 31, 2020.

The unaudited pro forma combined financial information has been presented for informational purposes only. The unaudited pro forma combined financial information does not purport to represent the actual results of operations that Eledon and Anelixis would have achieved had the companies been combined during the periods presented in the unaudited pro forma combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the Merger. The unaudited pro forma combined financial information does not reflect any potential cost savings that may be realized as a result of the Merger and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.

Additionally, the unaudited pro forma combined financial information does not reflect any merger-related expenses, which totaled approximately $2.7 million during the three and nine months ended September 30, 2020. There were 0 merger related expenses during the periods ended September 30, 2021.

The Company has evaluated events subsequent to September 30, 2021 through the filing date of this Quarterly Report on Form 10-Q. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the condensed consolidated financial statements and accompanying notes.

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

The unaudited interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our audited financial statements and accompanying notes for the year ended December 31, ~~2016~~2020 included in ~~Item 9.01 of our Current~~the Annual Report on Form ~~8-K/A~~10-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on ~~July 25, 2017.~~March 31, 2021, as amended. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please see Part II, Item 1A. Risk Factors for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period. ~~The term “Otic Pharma” refers to Novus Therapeutics, Inc., prior to the consummation of the Reverse Merger.~~ Unless otherwise indicated, references to the terms ~~the “combined company”, “Novus”~~“Eledon”, the “Company”, “we”, “our”, and “us” refer to ~~Otic Pharma, prior~~Eledon Pharmaceuticals, Inc. References to the ~~consummation of the Reverse Merger and Novus Therapeutics, Inc., upon the consummation of the Reverse Merger described herein. The~~ term “Tokai” ~~refers~~refer to Tokai Pharmaceuticals, Inc. ~~prior to~~, the ~~Reverse Merger.~~legal predecessor of the Company.

Eledon Pharmaceuticals, Inc. (“~~Novus”~~Eledon” or the “Company”) is a ~~development-stage, specialty pharmaceutical~~clinical stage biopharmaceutical company focused on discovering or acquiring, and then developing life-changing, targeted medicines for persons requiring an organ or cell-based transplant, living with autoimmune disease, or living with amyotrophic lateral sclerosis (“ALS”). The company’s lead compound in development is AT-1501, an IgG1, anti-CD40L antibody with high affinity for CD40 ligand (CD40L, also called CD154), a well-validated biological target with broad therapeutic potential. AT-1501 is engineered to potentially both improve safety and provide pharmacokinetic, pharmacodynamic, and dosing advantages compared to other anti-CD40 approaches. The CD40L/CD40 pathway is recognized for its prominent role in immune regulation. CD40L is primarily expressed on activated CD4+ T cells, platelets and endothelial cells while the ~~development~~CD40 receptor is constitutively expressed on antigen presenting cells such as B cells, macrophages, and dendritic cells. By blocking CD40L and not the CD40 receptor, AT-1501 inhibits both the CD40 and CD11 costimulatory signaling pathways, providing the potential for improved efficacy compared to anti-CD40 receptor approaches. Blocking CD40L also increases polarization of ~~products~~CD4+ lymphocytes to Tregs, a specialized subpopulation of T cells that act to suppress an immune response, thus creating a more tolerogenic environment, which may also play a therapeutic role for autoimmune diseases and in the transplant setting.

In September 2020, we acquired Anelixis Therapeutics, Inc. (“Anelixis”), the company that owned or controlled the intellectual property related to AT-1501.

Our business strategy is to optimize the clinical and commercial value of AT-1501, and become a global biopharmaceutical company with a focused autoimmune franchise.

AT-1501 is designed to negate the risk of thrombolytic events seen in the first generation of anti-CD40L antibodies by introducing structural modifications that have been shown in preclinical models to eliminate binding to the Fcγ receptors associated with platelet activation without altering the binding of AT-1501 to CD40L. In non-human primate studies, dosing of AT-1501 up to 200 mg/kg per week for 26 weeks, demonstrated no adverse events regarding coagulation, platelet activation or thromboembolism.

We have completed a single ascending dose Phase 1 study of AT-1501 in healthy volunteers and people with ALS. In this study, the doses of AT-1501 studied were well tolerated in healthy subjects and adults with ALS. AT-1501 demonstrated low anti-drug antibody responses that were not dose related, linear dose proportionality across the dose ranges, and a half-life of up to 26 days.

We plan to develop AT-1501 in up to four indications: ALS, prevention of kidney allograft rejection, prevention of islet cell allograft rejection, and IgA Nephropathy. We selected our indications based on preclinical and clinical data that was generated with either our molecule or historical anti-CD40L molecules. In October 2020, we initiated a Phase 2a clinical trial of AT-1501 in ALS. In November 2020, we received clearance from Health Canada to proceed with the initiation of a Phase 2 clinical trial of AT-1501 in islet cell transplantation for the treatment of type 1 diabetes. In July 2021, we received clearance from Health Canada to proceed with initiation of a Phase 1b clinical trial of AT-1501 in patients undergoing kidney transplantation.

Prior to our acquisition of Anelixis, we had focused on developing medicines for patients with disorders of the ear, nose, and throat ~~(ENT)~~(“ENT”).

Novus, a Delaware corporation, owns 100% of the issued and outstanding common stock or other ownership interest in Otic Pharma, Ltd.(“Otic”), a private limited company organized under the laws of the State of Israel. Otic owns 100% of the issued and outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc.

~~Novus has no products approved for commercial sale. Novus has~~ In June 2020, we announced that our lead program did not generated any revenue and has incurred significant operating losses in each year since its inception in 2008. Substantially all of Novus’ operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations. Novus will need to expend substantial resources and expects to continue to generate operating lossesachieve statistical significance for the ~~foreseeable future as it continues to pursue its research and development programs for~~primary efficacy endpoints in the treatment of acute otitis ~~externa (“AOE” or “swimmers ear”)~~media. As a result of this failure to achieve the primary study endpoint, we suspended the clinical development of our legacy ENT assets while we assessed potential development

strategies. Following the June 2020 announcement, we significantly curtailed development expenses as we sought to identify strategic alternatives that would maximize stockholder value. As a result of these activities, we acquired Anelixis and ~~otitis media (“OM” or middle ear inflammation~~raised additional capital in September 2020, as described above.

Subsequent to our acquisition of Anelixis, we undertook a strategic review of the legacy ENT assets. We concluded this review and determined that the best path forward was to terminate license agreements associated with ~~or without infection). Novus is subject to a number of risks~~these ENT assets and ~~uncertainties similar to those of other life science companies developing new products, including, among others,~~return the ~~risks related~~rights to the ~~necessity~~original license holders, which we did in July. There was no financial impact to ~~obtain adequate additional financing,~~returning these assets.

ALS is a progressive, paralytic disorder characterized by degeneration of motor neurons in the brain and spinal cord. In the U.S., the incidence is estimated at approximately 5,000 cases per year with a prevalence of approximately 30,000 cases overall. Despite 2 approved drugs, in most cases, death from respiratory failure occurs approximately 2 to ~~successfully develop product candidates,~~5 years after diagnosis, with 50% of patients living ≥3 years from diagnosis and only 20% of patients living ≥5 years from diagnosis.

Neuroinflammation in ALS is characterized by the infiltration of lymphocytes and macrophages into the central nervous system, and the activation of microglia and reactive astrocytes. Reactive astrocytes and microglia as well as infiltrating lymphocytes, dendritic cells, monocytes, macrophages and immune complexes have been identified in cerebrospinal fluid and neural tissues in both animal models of ALS and at autopsy in ALS patients. While the exact pathogenic mechanism of ALS is still not fully understood, there is strong evidence indicating that this neuroinflammation plays an important role in the disease’s pathogenesis.

AT-1501 is designed to ~~obtain regulatory approval~~block CD40L binding to CD40, thereby potentially inhibiting neuroinflammatory pathways leading to disease progression in ALS. In vitro proof-of-concept studies have shown that AT-1501 binds to CD40L in human cells and blocks CD40L binding on APCs and activated T cells. The potential for therapeutic benefit of ~~product candidates,~~CD40L blockage in treating ALS has been demonstrated in a SOD1 mouse model of ALS, where a murine anti-CD40L antibody, MR1, prolonged survival and delayed the onset of neurological disease progression. These clinical manifestations are believed to ~~comply with government regulations, to successfully commercialize its potential products, to protect its proprietary technology and to mitigate the dependence on key individuals. Furthermore,~~be due to reduced immune cell infiltration of macrophages into skeletal muscle and their destroying denervated nerves. The plasticity of the ~~uncertainty of pharmaceutical product development, Novus may never achieve future revenue through product sales, licensing or partnership agreements.~~

OP-02 is being developed as a potential first-in-class treatment option for patients at risk for or with OM, which is often caused by Eustachian tube dysfunction (“ETD”). Globally, OM affects more than 700 million adults and children every year. OM is a common disorder seen in pediatric practice andnervous system to repair itself in the ~~United States~~absence of this immune cell attack is ~~the most frequent reason children are prescribed antibiotics~~believed to result in improved neuromuscular junction occupancy and ~~undergo surgery. OP-02 is~~improved muscle function. Blocking CD40L signaling also prevents pro-inflammatory polarization of lymphocytes, reduced neuroinflammation and improved motor neuron survival in rodent ALS models.

In October 2020, we initiated a ~~daily nasal spray designed~~Phase 2a, open-label, multi-center study to improve and maintain the Eustachian tube’s ability to drain and ventilate the middle ear. The Company has not manufactured a current Good Manufacturing Procedures (“cGMP”) batch of OP-02 suitable for clinical trials. Subject to successful completion of formulation development and manufacture of a cGMP batch, the Company expects to initiate a phase 1 clinical program in 2018 to exploreevaluate the safety and tolerability of ~~OP-02 in healthy subjects. The phase 1 program will evaluate single and repeated intranasal~~multiple doses of ~~OP-02. Upon completion~~AT-1501 in adult subjects with ALS. Approximately 54 subjects with ALS are planned to be enrolled into the study in the United States and Canada at up to 13 ALS treatment sites. Ascending doses of AT-1501 will be administered as IV infusions to four sequentially enrolling cohorts. The first two cohorts will consist of nine participants, and the ~~phase 1 program, Novus intends to initiate phase 2~~last two cohorts of 18 participants, who will each receive six bi-weekly infusions of AT-1501 over a 12-week study period. Blood samples for target engagement, and ~~3 studies~~exploratory biomarkers for inflammation and neurodegeneration will be taken and analyzed. Participant-focused clinical outcomes will also be assessed.

Kidney transplantation is the most common type of solid organ transplantation in the United States with an ~~initial focus on~~estimated 200,000 Americans living with a ~~development program~~transplanted kidney. In 2019, an estimated 23,000 kidneys were transplanted in the U.S., of which 10-15% were re-transplants in persons that ~~will lead~~had already received at least one other kidney. Over 90,000 people in the U.S. are waiting for a kidney transplant and in 2014, nearly 5,000 Americans died waiting for a kidney with another nearly 4,000 becoming too sick to ~~registration~~receive a transplant.

Calcineurin inhibitor (“CNI”s) are a critical component of ~~OP-02 in North America and key European markets as a treatment~~many immunosuppressive regimens to prevent acute ~~OM, recurrent OM, and/or~~and long-term kidney transplant rejection. However, chronic OMexposure to certain CNIs, including tacrolimus, is associated with nephrotoxicity, cardiotoxicity, an increase in ~~children. Additional development activities~~opportunistic infections, increased malignancies, and an increase in diabetes due to ~~support registration~~pancreatic Beta cell toxicity. These liabilities may result in ~~other countries and/or~~a requirement for ~~other OM disorders, or in other patient populations, may occur~~reduced exposures to CNIs over long periods of time and a resulting decrease in the ~~future.~~ability to prevent long-term rejection.

AT-1501 seeks to address challenges associated with current immunosuppressive transplantation regimens using CNI-based therapies. The ability to prevent acute and chronic transplant rejection without the need for CNIs has the potential to transform the clinical management of preventing graft rejection by mitigating the adverse events associated with CNIs and improving long-term graft survival, thus potentially decreasing the need for repeat kidney transplants.

~~OP-01~~Several historical studies have described the effects of anti-CD40L antibodies in nonhuman primate models of kidney transplant and shown that even short courses of anti CD40L therapy can prevent both acute rejection and long-term rejection in nonhuman primates with durable efficacy.

In July 2021, we received clearance from Health Canada to proceed with initiation of a Phase 1b clinical trial of AT-1501 as a replacement for tacrolimus (a CNI), as an immunosuppressive regimen component in patients undergoing kidney transplantation.

Type 1 diabetes is ~~being developed~~a T cell mediated autoimmune disease with progressive loss of insulin producing pancreatic beta cells and affects over one million persons in the U.S. Of these individuals, an estimated 70,000 people have a particularly hard to control type 1 diabetes called Brittle Diabetes (“BT1D”) which is in part characterized by large swings in blood glucose levels and impaired awareness of hypoglycemia. Impaired awareness of hypoglycemia for people with type 1 diabetes is associated with severe hypoglycemic events which can lead to significant symptoms and even death. Pancreatic islet cell transplantation may be a therapeutic option for type 1 diabetes because it can restore physiological insulin secretion, minimize the risk of hypoglycemic unawareness, and reduce the risk of death due to severe hypoglycemia. The advances made in this field over the past decade have improved patient outcomes, and the procedure has been evolving from an experimental treatment to a clinical treatment option. In November 2020, we received clearance from Health Canada to proceed with the ~~intent~~initiation of a Phase 2 clinical trial of AT-1501 in islet cell transplantation for the treatment of type 1 diabetes.

A number of issues are believed to continue to hamper the overall success of ICT and to need to be ~~used~~addressed in order for there to be widespread clinical acceptance. These include the acute loss of transplanted islets with current immunosuppressive treatments, particularly those with CNI-based therapies, due to islet cell toxicity and alloreactive immunologic responses to transplanted islets. Over time, the progressive loss of islet cells and decline in islet cell function often leads to the need for multiple donors in order for BTID patients to have optimal response to blood glucose levels and possibly achieve insulin independence. AT-1501 seeks to address the challenges associated with current ICT immunosuppressive regimens using CNI-based therapies, by replacing the CNIs with AT-1501. CD40L blockade may abolish many effector mechanisms of inflammation, prevent and intervene in the progression of alloimmunity, and instill transplant tolerance.

Historical studies in nonhuman primate models of islet cell transplantation have demonstrated that treatment with anti-CD40L antibodies induces long term islet cell function and graft survival, even as a ~~delivery vehicle~~monotherapy. AT-1501 has shown preclinical, proof-of-concept efficacy in a non-human primate model of type 1 diabetes, where animals undergoing ICT maintained glucose control and sustained levels of C-peptide with chronic AT-1501 treatment for ~~drugs~~up to ~~be administered into~~a year. Compared to combination immunosuppressive therapy including CNIs, AT-1501 monotherapy was more effective in preventing long term islet cell rejection, associated with better graft function, and showed an improved safety profile.

IgA Nephropathy (“IgAN”) is the ~~ears,~~leading cause of glomerulonephritis. Disease manifestation and clinical presentation involves renal dysfunction characterized by proteinuria with a slow relentless course. Approximately 30%-40% of patients ultimately reach end stage renal disease (ESRD). The standard of care for ESRD is dialysis or kidney transplant, which represents a significant economic burden as well as a major impact on a patient’s quality of life. With an estimated prevalence of approximately 140,000 persons in the ~~nasal and sinus cavities. Specifically, OP-01~~United States, IgAN is ~~being developed as an improved treatment option for AOE, a common medical condition~~one of the ~~outer ear canal that affects tens~~most common, orphan, kidney diseases. There are currently no European Medicines Agency (“EMA”) or U.S. Food and Drug Administration (“FDA”) approved treatments for IgAN.

The pathophysiology of ~~millions~~IgAN has been well characterized, and based on its mechanism of ~~adults and children each year. Novus~~action, AT-1501 has ~~completed four clinical trials of OP-01 in 353 adult and pediatric subjects, including a successful phase 2b study with a steroid-free, antibiotic-only formulation of OP-01 that performed similarly~~the potential to ~~standard of care.~~

~~In 2016, Novus stopped development~~impact the disease process both upstream, at the source of the ~~first-generation, antibiotic-only OP-01 product~~immune complexes, and ~~began development~~downstream in the kidney itself, where it may reduce inflammation in the glomeruli. By disrupting multiple steps in the pathophysiology, AT-1501 has the potential to affect the clinical course of ~~a second-generation formulation~~the disease and improve outcomes for patients. The inhibition of ~~OP-01.~~ CD40L has been shown to be effective in models of multiple glomerulonephritides, including lupus nephritis and focal segmental glomerulosclerosis.

The ~~goal for this second-generation formulation is to produce a clinically differentiated product that rapidly relieves ear pain (an unmet need in AOE)~~COVID-19 pandemic and ~~eradicates infection with less than seven days of treatment. If approved, we believe OP-01 will meaningfully improve the standard of care~~resulting global disruptions have adversely affected our business and ~~may become a best-in-class treatment option for AOE. Subsequent~~operations, including, but not limited to, the ~~completion~~operations of third parties upon whom we rely. The effects of government orders and public health restrictions, as well as our work-from-home policies may negatively impact our productivity and disrupt our business. As a result of this pandemic, we have experienced delays in certain studies and resulting delays in data collection, and have also experienced inefficiencies in planning and executing trials. In addition, in response to public health directives and orders, we have limited non-essential business travel and implemented flexible work policies allowing for both in-office and work-from-home arrangements. The resurgence of COVID-19 cases, including highly contagious COVID-19 variants (e.g. the Delta variant), could force localities and countries to reinstate more severe restrictions to reduce the spread of the ~~Reverse Merger, the Company paused the OP-01 development program and began focusing substantially all~~disease. The magnitude of ~~its resources~~such effects which will depend, in part, on the ~~advancement~~length and severity of ~~its surfactant program (OP-02) for middle ear disease.~~the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

~~On December 21, 2016, Novus, formerly known as Tokai Pharmaceuticals, Inc. (“Tokai”),~~The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial and credit markets. We have utilized a ~~Delaware corporation,~~range of financing methods to fund our operations in the past; however, current conditions in the financial and credit markets may limit the ~~shareholders~~availability of ~~Otic (each a “Seller”~~funding or increase the cost of funding. Due to the rapidly evolving nature of the global situation, including the emergence and ~~collectively,~~potential impact of new COVID-19 viral strains, it is not possible to predict the ~~“Sellers”), entered into a Share Purchase Agreement (the “Share Purchase Agreement”), pursuant~~extent to which ~~among other things, each Seller agreed to sell to Tokai,~~these conditions could adversely affect our liquidity, capital resources, and Tokai agreed to purchase from each Seller, all of the common and preferred shares of Otic (“Otic Shares”) owned by such Seller in exchange for the issuance of a certain number of shares of common stock of Tokai, as determined pursuant to the terms of the Share Purchase Agreement (the “Reverse Merger”). The parties amended and restated the Share Purchase Agreement on March 2, 2017.

~~On May 9, 2017, Tokai, Otic, and the Sellers closed the transaction contemplated by the Share Purchase Agreement and subsequently effected a reverse stock-split at a ratio of one-for-nine (see~~ ~~Reverse Stock-Split~~ below). On a post-split basis, Tokai issued to the Sellers an aggregate of 4,027,693 shares of Tokai’s common stock in exchange for 836,857 Otic Shares. Following the completion of the Reverse Merger, the business being conducted by Tokai became primarily the business conducted by Otic. Subsequent to the Reverse Merger, the name of the surviving corporation was changed to “Novus Therapeutics, Inc.”

On January 31, 2017, Novus entered into the Share Purchase Agreement with the Purchasers, pursuant to which the Purchasers agreed to purchase approximately $4 million of the Company’s common stock through the purchase of 400,400 shares of the Company’s common stock at a price of $9.99 per share. The Private Placement closed on May 10, 2017. After giving effect to the issuance of the sharesoperations in the ~~Private Placement, the shareholders of Otic owned approximately 64% of the Company’s common stock.~~

On May 11, 2017, Novus effected a reverse stock-split of its issued and outstanding common stock and options for common stock at a ratio of one-for-nine. The Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware effecting the reverse stock-split. The accompanying condensed consolidated financial statements and notes give retroactive effect to the reverse stock-split for all periods presented.future.

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with ~~GAAP.~~accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements ~~require~~requires us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies and significant judgments and estimates during the ~~three and~~ nine months ended September 30, ~~2017,~~2021, as compared to those disclosed in ~~Exhibit 99.1 of our Current~~the Annual Report ~~filed~~ on Form ~~8-K/A filed on July 25, 2017, except as described below.~~

Accounting for acquisitions requires extensive use of estimates and judgment to measure the fair value of the identifiable tangible and intangible assets acquired, including in-process research and development and liabilities assumed. Additionally, we must determine whether an acquired entity is considered a business or a set of net assets because the excess

~~of the purchase price over the fair value of net assets acquired can only be recognized as goodwill in a business combination. We accounted~~10-K for the ~~Reverse Merger with Tokai as a business combination under~~year ended December 31, 2020, filed by the acquisition method of accounting. Consideration paid to acquire Tokai was measured at fair value and included the exchange of Tokai’s common stock. The allocation of the purchase price resulted in recognition of goodwill.

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting. Goodwill is not amortized but is evaluated for impairment during the last fiscal quarter of the year or if indicators of impairment exist that would, more likely than not, reduce the fair value from its carrying amount.

~~Significant management judgment is required in the forecasts of future operating results that are used in our impairment evaluation. The estimates we have used are consistent~~Company with the plans and estimates that we use to manage our business. It is possible, however, that the plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in the future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur future impairment charges.SEC on March 31, 2021.

Comparison of the Three Months Ended September 30, ~~2017~~2021 and ~~2016~~2020

The following table provides comparative unaudited results of operations for the three months ended September 30, ~~2017~~2021 and ~~2016~~2020 (in thousands):

~~During~~Research and development expenses increased $7.0 million, to $7.7 million for the three months ended September 30, ~~2017, research and development expenses of $517,000 were primarily comprised of formulation development costs~~2021, as compared to $0.6 million for ~~OP-02 and clinical development costs for Tokai’s legacy programs. During~~ the three months ended September 30, ~~2016, research~~2020. The increase was primarily due to increases in costs related to the production of clinical trial materials and ~~development expenses~~clinical costs of ~~$1.1~~$3.2 million ~~were comprised of expenses associated with the development of a second-generation formulation for OP-01~~ and development costs for OP-02. The decrease from period to period is primarily attributed to decreased spending on OP-01, offset by wind down costs incurred for legacy Tokai programs. We expect research and development expenses to increase in subsequent periods$1.8 million, respectively, as we advance our ~~OP-02 programs.~~AT-1501 program, an increase in consulting costs of $0.8 million, as well as increases in personnel costs of $0.7 million, and stock-based compensation costs of $0.5 million, due to increased headcount.

General and administrative expenses ~~increased in~~decreased $0.9 million, to $2.8 million for the ~~2017 period~~three months ended September 30, 2021, as compared to $3.7 million for the three months ended September 30, 2020. The decrease was primarily due to ~~the recognition~~$2.2 million of ~~merger‑~~merger related expenses ~~an increase in administrative costs associated with operating a public company and the ongoing legal costs related to Tokai’s shareholder lawsuits.~~

~~The change in other income (expense), net was primarily related to the fair value adjustment for convertible notes~~that were incurred in the three months ended September 30, ~~2016.~~2020. No ~~such adjustment was necessary during~~merger related expenses were recorded for the three months ended September 30, ~~2017~~2021. This was partially offset by an increase in stock-based compensation costs and personnel costs of $0.6 million and $0.3 million, respectively, due to increased headcount. The remaining increase of $0.4 million was primarily due to an increase in legal fees and professional costs, higher insurance premiums, as well as higher general operating expenses.

On June 11, 2020, following the prior announcement of topline results of the Phase 2a Clinical Trial of OP0201 in acute otitis media, the Board of the Company approved a reduction in force. Following the acquisition of Anelixis, the severance terms of certain terminated employees were modified. Additionally, on September 3, 2020, the board of directors (the “Board”) of the Company accepted the resignation of Gregory Flesher as the ~~convertible notes were converted to common stock contemporaneously~~Company’s Chief Executive Officer and a member of the Board. Mr. Flesher’s resignation was effective as of the close of business on September 4, 2020. The resignation of Mr. Flesher was not the result of any dispute or disagreement with the ~~Reverse Merger.~~Company on any matter relating to the Company’s operations, policies or practices. The Company incurred charges totaling $1.8 million for the estimated cash payments related to employee separation costs, including severance and post-employment health benefits for the three months ended September 30, 2020. No restructuring expenses were recorded for the three months ended September 30, 2021.

The decrease in other income, net, was primarily due to a decrease in interest income for the three months ended September 30, 2021.

The Company recognized an income tax benefit of $0.7 million for the three months ended September 30, 2021 due to the current quarter change in deferred tax liabilities for acquired IPR&D related to the Anelixis acquisition.

The following table provides comparative unaudited results of operations for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 (in thousands):

~~During~~Research and development expenses increased $14.5 million, to $17.6 million for the nine months ended September 30, ~~2017, research and development expenses of $1.5~~2021 as compared to $3.1 million ~~were primarily comprised of OP-02 formulation development costs and clinical development costs~~ for ~~Tokai’s legacy programs. During~~ the nine months ended September 30, ~~2016, research~~2020. The increase was primarily due to increases in production of clinical trial materials and ~~development expenses of $2.3 million were comprised of expenses associated with the development of a second-generation formulation for OP-01 and development~~clinical costs for ~~OP-02. The decrease from period~~AT-1501 of $6.3 million and $3.0 million, respectively, as well as increases in personnel costs of $1.6 million and stock-based compensation costs of $1.8 million, due to ~~period is primarily attributed to decreased spending on OP-01, offset by wind down~~increased headcount, and consulting costs ~~incurred for legacy Tokai programs. We expect research and development expenses to increase in subsequent periods as we advance our OP-02 programs.~~of $1.8 million.

General and administrative expenses increased in$3.2 million, to $9.9 million for the nine months ended September 30, ~~2017,~~2021, as compared to $6.7 million for the nine months ended September 30, ~~2016,~~2020. The increase was primarily due to ~~the recognition~~an increase in stock-based compensation costs and personnel costs of ~~$7.2~~$2.5 million ~~of merger~~ and ~~public company related expenses, including severance costs for Tokai employees,~~$1.1 million, respectively, due to increased headcount, as well as ~~the increase in administrative~~legal and professional costs, ~~associated with~~higher insurance premiums and general operating asexpenses of $1.8 million. This was partially offset by a ~~public company and the ongoing legal costs~~decrease of merger related ~~to Tokai’s shareholder lawsuits.~~

~~The change in other income (expense), net was primarily related to the fair value adjustment for convertible notes~~expenses of $2.2 million that were incurred in the nine months ended September 30, ~~2016.~~2020.

On June 11, 2020, following the prior announcement of topline results of the Phase 2a Clinical Trial of OP0201 in acute otitis media, the Board of the Company approved a reduction in force. The restructuring was completed on June 30, 2020. Following the acquisition of Anelixis, the severance terms of certain terminated employees were modified. Additionally, on September 3, 2020, the Board of the Company accepted the resignation of Gregory Flesher as the Company’s Chief Executive Officer and a member of the Board. Mr. Flesher’s resignation was effective as of the close of business on September 4, 2020. The resignation of Mr. Flesher was not the result of any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices. The Company incurred charges totaling $2.3 million for the estimated cash payments related to employee separation costs, including severance and post-employment health benefits. No ~~such adjustment was necessary during~~restructuring expenses were recorded for the nine months ended September 30, ~~2017~~2021.

The change in other income, net, was related to a decrease in interest income and an increase in realized losses on foreign currency translation for the nine months ended September 30, 2020.

In January 2020, the Company recognized warrant inducement expense of $4.8 million as a result of the ~~convertible notes were converted~~Warrant Exercise Transaction in addition to ~~common stock contemporaneously with~~ the ~~Reverse Merger.~~fair value of the Private Placement Warrants issued.

The Company recognized an income tax benefit of $1.8 million for the nine months ended September 30, 2021 due to the year to date change in deferred tax liabilities for acquired IPR&D related to the Anelixis acquisition.

As of September 30, ~~2017,~~2021, we had cash and cash equivalents of ~~$19.1 million. See Part 1, Item 3,~~ ~~Quantitative and Qualitative Disclosures About Market Risk, for a discussion~~$94.0 million, consisting of ~~potential risks associated with~~readily available cash in bank accounts. While we believe our cash ~~and~~is not subject to excessive risk, we maintain significant amounts of cash ~~equivalents.~~at one or more financial institutions that are in excess of federally insured limits. To date, our operations have been financed primarily by net proceeds from the sale of preferred and common stock, the sale of warrants, and the issuance of convertible promissory ~~notes,~~notes.

We do not have any approved products for commercial sale and have never generated revenue from product sales, and have incurred significant net losses since our inception and expect to continue to incur net operating losses for the foreseeable future. We do not expect to receive any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our product candidates or enter into collaborative arrangements with third parties. Our primary use of cash ~~received~~is to fund operating expenses, which consist of research and development expenses and general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of when we pay or prepay these expenses. We expect our expenses to increase in connection with our ongoing activities, particularly as we expand our clinical program with AT-1501, continue the ~~Reverse Merger with Tokai.~~ research and development of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

We ~~believe~~will continue to require additional financing in order to advance our ~~cash~~product candidates through clinical development, to manufacture, obtain regulatory approval for and ~~cash equivalents~~to commercialize our product candidates, to develop, acquire or in-license other potential product candidates, and to fund operations for the foreseeable future. Therefore, we will seek to raise additional capital through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Adequate additional funding may not be available to us on acceptable terms on a timely basis, or at all. Any such failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, and may cause us to delay the scope of or suspend one or more of our clinical trials, research and development programs or commercialization efforts, out-license intellectual property rights to our product candidates or sell unsecured assets, or a combination of the above. Any of these actions could materially harm our business. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be ~~sufficient~~diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. 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 to grant licenses on terms that may not be favorable to us. Please see Part II, Item 1A. Risk Factors for additional risks associated with our substantial capital requirements and the challenges we may face in raising capital.

We plan to continue to fund losses from operations and capital funding needs through cash on hand and future equity or debt financings, as well as potential additional collaborations or strategic partnerships with other companies. The sale of additional equity or convertible debt could result in additional dilution to our ~~operations for at least the next 12 months from the date~~stockholders. The incurrence of ~~issuance of these financial statements.~~

~~On May 9, 2017, we completed~~indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our Reverse Merger with Tokai, which provided $23.3 million in cash and cash equivalents. Immediately following the Reverse Merger, we raised $4.0 million in aggregate gross proceeds from a private placement of our common stock.operations.

Our primary uses of capital are, and we expect will continue to be, funding research efforts and the development of our product candidates, compensation and related expenses, hiring additional staff (including clinical, scientific, operational, financial, and management personnel) and costs associated with operating as a public company. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates.

months ended September 30, 2017, we entered into an equity distribution agreement pursuant to which we may sell shares of common stock from time to time in “at-the-market” offerings. 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. We can provide no assurance 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 delay, make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm our business.

The following table provides a summary of our net cash flow activity (in thousands):

Net cash used in operating activities for the nine months ended September 30, ~~2017~~2021 consisted primarily of our net loss of ~~$11.0~~$25.7 million, and a decrease in the deferred tax liability of $1.8 million, partially offset by non-cash items consisting ~~primarily~~ of ~~depreciation, loss on disposal of fixed assets, and~~ stock-based compensation ~~totaling $435,000.~~of $5.9 million, and amortization of operating lease assets of $0.1 million. Additionally, cash used in operating ~~expenses~~activities for the nine months ended September 30, ~~2017~~2021 reflected a net ~~decrease~~increase in cash from changes in operating assets and liabilities of $1.8 ~~million,~~million. The increase in cash from changes in operating assets and liabilities was primarily due to an increase in ~~our~~accounts payable and other accrued expenses of $2.0 million, partially offset by an increase in prepaid ~~expenses~~ and ~~accrued liabilities.~~other assets as well as an increase in operating lease assets, net of lease liabilities, totaling $0.2 million.

Net cash used in operating activities for the nine months ended September 30, ~~2016~~2020 consisted primarily of our net loss of ~~$4.1~~$16.9 million, partially offset by non-cash items consisting primarily of ~~depreciation,~~ stock-based compensation and ~~fair value adjustment for convertible debt~~depreciation and amortization totaling ~~$675,000.~~$1.7 million, as well as warrant inducement expense of $4.8 million. Additionally, cash used in operating ~~expenses~~activities for the nine months ended September 30, ~~2017~~2020 reflected a net ~~decrease~~increase in cash from changes in ~~net~~ operating assets and liabilities of ~~$176,000, primarily~~$4.6 million, due to an increase in ~~our~~accounts payable and accrued expenses ~~partially offset by decreases~~and a decrease in prepaid expenses and ~~accounts payable.~~other asset, offset by a decrease in operating lease liability.

There was no cash provided by or used in the Company’s investing activities for the nine months ended September 30, 2021.

Net cash provided by investing activities for the nine months ended September 30, ~~2017~~2020 consisted ~~primarily~~ of cash and cash equivalents received from the ~~Reverse Merger~~acquisition of ~~$23.3 million.~~Anelixis.

Net cash used in ~~investing~~financing activities for the nine months ended September 30, ~~2016 consisted~~2021 was comprised of $0.5 million of offering costs accrued as of December 31, 2020 in connection with the ~~purchase~~sale of ~~property~~shares of common stock and ~~equipment in~~paid during the ~~amount of $12,000.~~nine months ended September 30, 2021.

Net cash provided by financing activities for the nine months ended September 30, ~~2017~~2020 was primarily comprised of ~~$4.0~~$95.2 million in net proceeds from the ~~Stock~~2020 Purchase Agreement for the ~~purchase~~sale of ~~400,400~~199,112 shares of ~~Novus common~~Series X¹ preferred stock and $5.2 million in net proceeds from the exercise of warrants ~~in the amount~~by stockholders to purchase approximately 0.4 million shares of ~~$3.1 million. Cash provided by significant financing activities in the nine months ended September 30, 2016 consisted of $2.9 million in proceeds from a convertible bridge financing transaction.~~common stock.

~~No material changes~~Per §229.303 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in §229.10(f)(1) of Regulation S-K, is not required to ~~contractual obligations and commitments occurred during~~provide the ~~nine months ended September 30, 2017.~~disclosure required by this Item.

We do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Item 3. Quantitative and ~~Qualitati~~veQualitative Disclosures About Market Risk.

~~Our cash and cash equivalents~~Per §229.305 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in §229.10(f)(1) of ~~September 30, 2017 consisted of readily available cash in bank accounts. Our primary exposure~~Regulation S-K, is not required to ~~market risk is interest income sensitivity, which is affected~~provide the disclosure required by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on Novus’s financial condition or results of operations. We do not believe that our cash or cash equivalents have significant risk of default or illiquidity. While we believe our cash and cash equivalents are not subject to excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.this Item.

~~Our~~As of September 30, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures, ~~(as~~” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~or the Exchange Act) are~~(the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in ~~our~~the reports ~~filed~~that it files or submits under the Exchange Act ~~such as this report,~~ is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures ~~are also~~include, without limitation, controls and procedures designed to ensure that ~~such~~ information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to ~~our~~the Company’s management, including ~~the Principal Executive Officer~~its principal executive and ~~Principal Financial Officer,~~principal financial officers, as appropriate to allow timely decisions regarding required disclosure. ~~Our management evaluates these~~Management recognizes that any controls and procedures, ~~on an ongoing basis.~~

~~There are inherent limitations to the effectiveness of any system of disclosure controls~~no matter how well designed and ~~procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and~~operated, can provide only reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance of achieving their ~~objectives.~~

~~Our Principal Executive Officer and our Principal Financial Officer, after~~management necessarily applies its judgment in evaluating the ~~effectiveness~~cost benefit relationship of ~~our disclosure~~possible controls and ~~procedures, believe~~procedures. Based on this evaluation, management concluded that ~~as of the end of the period covered by this report,~~ our disclosure controls and procedures were effective as of September 30, 2021 in ~~providing the requisite reasonable assurance that~~alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.SEC.

There ~~has~~have been no ~~change~~changes in our internal control over financial reporting ~~identified~~(as defined in ~~connection with our evaluation~~Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2021 that ~~occurred during our most recent fiscal quarter that has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

Information pertaining to legal proceedings is provided under the heading “Legal Proceedings” in Note 7,5, Commitments and Contingencies, to the condensed consolidated financial statements and is incorporated by reference herein.

~~Investing~~An investment in shares of our common stock involves a high degree of risk. You should carefully consider ~~carefully~~ the ~~risks described below, together with~~following risk factors, as well as the other information ~~included or incorporated by reference~~in this Quarterly Report on Form 10-Q and in our ~~annual report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. If~~other public filings. The occurrence of any of ~~the following~~these risks ~~occur,~~could harm our business, financial condition, results of operations ~~and future~~and/or growth prospects ~~could be~~or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and ~~adversely affected. In these circumstances,~~those we may make from time to time. You should consider all of the ~~market price of~~risk factors described in our ~~common stock could decline.~~public filings when evaluating our business.

Unless otherwise indicated, references to the terms ~~the “combined company”, “Novus”~~“Eledon”, the “Company”, “we”, “our”, and “us” refer to Otic Pharma, Ltd., and subsidiary (“Otic”) prior to the consummation of the Reverse Merger, and Novus Therapeutics, Inc., upon the consummation of the Reverse Merger described herein. The term “Tokai” refers to the TokaiEledon Pharmaceuticals, Inc.~~, and its subsidiaries (“Tokai”) prior to the Reverse Merger.~~

Our short operating history and the Anelixis acquisition may make it difficult to evaluate the success of our business to date and to assess our future viability.

We are a clinical stage biopharmaceutical company. Our ongoing operations to date have been limited to organizing and staffing the Company, business planning, raising capital, acquiring and developing technology, identifying potential product candidates. We have not yet demonstrated our ability to successfully manufacture drug product in large enough quantities and with stability to support additional clinical trials, execute pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. It can take many years to develop a new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions made about our future success or viability based on our short operating history to date may not be as accurate as they could be if we had a longer operating history. In addition, as a result of the acquisition of Anelixis our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management.

In addition, as an early stage business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. To successfully market any of our product candidates, we will need to transition from a company with a clinical development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We have incurred significant operating losses since our inception and expect that we will continue to incur losses over the next several years and may never achieve or maintain profitability.

~~Since inception, Otic, the accounting acquirer in the Reverse Merger, has~~We have incurred significant annual net operating ~~losses. Otic’s~~losses in every year since our inception. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other general and administrative expenses related to our ongoing operations. If AT-1501 or any future product candidates we develop are not successfully developed and approved, we may never generate any revenue from sales of products. The Company has experienced recurring net ~~loss was $5.7 million for the year ended December 31, 2016~~losses and ~~$4.2 million for the year ended December 31, 2015. As of December 31, 2016, Otic had an accumulated deficit of $14.4 million.~~negative cash flows from operating activities since its inception. The Company’s net loss for the nine months ended September 30, ~~2017~~2021 is ~~$11.0 million and~~$25.7 million. As of September 30, 2021, the Company ~~has~~had cash and cash equivalents of $94.0 million, working capital of $91.5 million and an accumulated deficit of ~~$25.4~~$106.1 million.

We are focused primarily on developing OP-02 as a potential first-in-class treatment option for patients at risk for or with otitis media (“OM”) (middle ear inflammation with or without infection). We have not ~~manufactured~~generated any revenues from product sales, have not completed the development of any product candidate and may never have a ~~cGMP batch of OP-02 suitable~~product candidate approved for clinical trials. Subject to successful completion of formulation development and manufacture of a cGMP batch, we expect to initiate a phase 1 clinical program in 2018 to explore the safety and tolerability of OP-02 in healthy subjects. The phase 1 program will evaluate single and repeated intranasal doses of OP-02. Upon completion of the phase 1 program, Novus intends to initiate phase 2 studies of OP-02, with an initial focus on prevention of acute, recurrent, and chronic OM in children.commercialization. We expect ~~that~~ it will be several years, if ever, before we have a product candidate ready for commercialization. ~~If we are unable~~We have financed our operations to ~~successfully complete the formulation~~date primarily through sales of ~~OP-02~~equity. We have devoted substantially all of our financial resources and ~~begin~~efforts to ~~generate~~research and development, including preclinical studies and our clinical ~~data for this program, we may have greater difficulty raising additional capital on favorable terms, or at all.~~

~~We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The~~trials. Our net losses ~~that we incur~~ may fluctuate significantly from quarter to ~~quarter. We~~quarter and year to year and will depend, in part, on the rate at which we incur expenses and our ability to generate revenue. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

Although we raised approximately $108.1 million in total gross offering proceeds from our September and December 2020 financings, we anticipate that ~~our~~we will continue to incur significant expenses ~~will increase substantially if and~~ as we:

To become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, obtaining marketing approval for these product candidates and manufacturing, marketing and selling those products for which we obtain marketing approval. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the Company, could impair our ability to raise capital, maintain our nonclinical and clinical development efforts, and expand our business or continue our operations and may require us to raise additional capital that may dilute the ownership interest of common stockholders. A decline in the value of the Company could also cause stockholders to lose all or part of their investment.

WeOur product candidates are in the early ~~in our~~stages of clinical development ~~efforts~~ and ~~have only two drug candidates, OP-01 and OP-02.~~may not be successfully developed. If we are unable to successfully develop and commercialize ~~OP-01~~these or ~~OP-02,~~any other product candidate, or if we experience significant delays in doing so, our business will be materially harmed.

We currently do not have any products that have gained regulatory approval. We have invested substantially all of our efforts and financial resources in product development, including funding our formulation development, manufacturing, nonclinical studies, and clinical ~~studies.~~trials. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of ~~OP-01, OP-02~~one or ~~additional product~~more drug candidates. As a result, our business is substantially dependent on our ability to successfully complete the development of and obtain regulatory approval for ~~OP-01, OP-02,~~one of our or potential future additional product candidates.

We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. For example, to execute our business plan, we will need to successfully:

If we are unsuccessful in accomplishing these objectives, we may not be able to successfully develop and commercialize ~~OP-01, OP-02~~our or other product candidates, and our business will suffer.

~~Our short operating history~~The ongoing COVID-19 pandemic and actions taken in response to it may ~~make it difficult~~result in additional disruptions to ~~evaluate the success of~~ our business operations, which could have a material adverse effect on our business.

Our business and its operations, including but not limited to ~~date~~ongoing or planned research and ~~to assess our future viability.~~

~~We are an early~~ development ~~stage pharmaceutical company. Our ongoing operations to date~~activities, have been adversely affected by the ongoing COVID-19 pandemic, which has also caused significant disruption in the operations of third parties upon whom we rely. The COVID-19 pandemic and actions taken by governments, businesses, and individuals in response to it, including governmental orders and public health restrictions, as well as work-from-home policies, have had effects that have and may continue to negatively impact productivity and disrupt our business. For example, we have experienced delays in certain studies, including our islet cell transplantation study in Canada, and resulting delays in data collection and have also experienced inefficiencies in planning and executing trials. In addition, in response to public health directives and orders, we have limited ~~to organizing~~non-essential business travel and ~~staffing~~implemented flexible work policies allowing for both in-office and work-from-home arrangements. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

Quarantines, shelter-in-place, executive and similar government orders, or the Company, business planning, raising capital, acquiring and developing technology, identifying potential product candidates, undertaking nonclinical studies, and, up until the consummation of the Reverse Merger, early stage clinical studies of our most advanced product candidate, OP-01. ~~Subsequent to the completion of the Reverse Merger, we paused the OP-01 development program and began focusing substantially all of our resources~~perception that such orders, shutdowns or other restrictions on the ~~advancement~~conduct of ~~our surfactant program (OP-02) for middle ear disease.~~ ~~Operations~~business operations could occur, related to ~~OP-02 include arranging~~COVID-19 or other infectious diseases, could also impact personnel at the third parties on whom we are highly dependent for third party vendors to formulate and manufacture material using current Good Manufacturing Procedures (“cGMP”) and preparing for phase 1 clinical studies. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials ~~obtain marketing approvals, manufacture a commercial scale~~as well as formulation and product development in the United States and other countries, or ~~arrange for a third party~~the timing, availability or cost of materials we use or require to ~~do so on~~conduct our ~~behalf, or conduct sales~~business.

If COVID-19 continues to spread in the United States, Canada and marketing activities necessary for successful product commercialization. It can take many years to develop a new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions made about our future success or viability based on our short operating history to date may not be as accurate as they could be if we had a longer operating history.

~~In addition, as an early stage business,~~elsewhere, we may ~~encounter unforeseen expenses, difficulties, complications, delays~~experience additional disruptions that could severely impact our business and ~~other known and unknown factors. To successfully market any of our product candidates, we will need~~development activities, including, but not limited to ~~transition from a company with a clinical development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.~~:

Drug development involves a lengthy and expensive process with an uncertain outcome, including failure to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the formulation and commercialization of our product candidates.

Reformulation work for OP-01 to explore adding a second active ingredient (anesthetic) to address immediate relief of ear pain associated with Acute Otitis Externa (infection/inflammation of the outer ear canal) commenced in 2016, but was subsequently put on hold until further funding is obtained. At such time as when we recommence development of OP-01, additional clinical studies with the new OP-01 combination formulation (antibiotic + anesthetic) will need to be conducted. There is a risk that additional nonclinical and/or clinical safety studies will be required by the FDA or similar regulatory authorities outside the United States and/or that subsequent studies will not match results seen in prior studies. We have not manufactured a cGMP batch of OP-02 suitable for clinical trials. Formulation development for OP-02 is ongoing. Subject to successful completion of formulation development and manufacture of a cGMP batch, we expect to initiate a phase 1 clinical program in 2018 to explore the safety and tolerability of OP-02 in healthy subjects. Given the early stage of development for ~~both products,~~our product candidates, the risk of failure ~~for both of our product candidates~~ is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must ~~complete formulation development for our products,~~ conduct nonclinical trials, and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Formulation and product development, and nonclinical and clinical testing are all expensive activities, difficult to design and implement, and can take years to complete. ~~The outcome of nonclinical and clinical trials are inherently uncertain.~~ Failure can occur at any time during the development program, including during the clinical trial process. Further, the results of nonclinical studies and early clinical trials of our product candidates, as well as earlier generation formulations may not be predictive of the results of later-stage clinical trials. Interim results of a clinical trial do not necessarily predict final results. ~~For instance, the results of our studies with earlier generation formulations of OP-01 may not be predictive of the results of studies conducted with a different formulation of OP-01.~~ Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical and clinical trials have nonetheless failed to obtain marketing approval of their products. There is a risk that additional nonclinical and/or clinical safety studies will be required by the FDA or similar regulatory authorities outside the United States and/or that subsequent studies will not match results seen in prior studies. It is impossible to predict when or if any of our product candidates will prove effective, safe and ~~safe~~well-tolerated in humans or will receive regulatory ~~approval.~~approval.

We may experience delays in our clinical trials, and we do not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. There can be no assurance that the ~~European Medicines Agency (the “EMA”),~~FDA or equivalent foreign regulatory bodies will approve investigational new drug applications and allow us to start clinical trials for any of our product candidates in the ~~Medicines & Healthcare Products Regulatory Agency (the “MHRA”),~~future, including for islet cell transplant. Once a clinical trial has commenced, there is also no assurance that the UKFDA or equivalent foreign regulatory ~~authority, or the FDA~~body will not put any of our product candidates on clinical ~~hold in the future.~~hold. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such ~~as:~~as:

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may:

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our nonclinical studies or clinical trials will need to be restructured or will be completed on schedule, or at all. Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or may allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented and expenses for the development of our product candidates could increase.

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 to demonstrate safety and efficacy. We ~~have yet to initiate the first clinical studies of OP-02 and plan to reformulate and initiate the clinical studies of OP-01 in the future, and we~~ do not know whether the ~~planned~~ongoing or ~~ongoing~~planned clinical trials will enroll subjects in a timely fashion, require redesign of essential trial elements or be completed on its projected schedule. In addition, competitors may have ongoing clinical trials for product candidates that treat related or the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether.

Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of the Company to decline and limit our ability to obtain additional financing.

If serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.

If our product candidates are associated with undesirable effects in nonclinical or clinical trials or have characteristics that are unexpected, we may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. ~~OP-01~~Any occurrences of clinically significant adverse events with our product candidates may harm our business, financial condition and ~~OP-02 are early clinical phase~~ prospects significantly.

AT-1501 is an early‑product ~~candidates,~~candidate, and the side effect profile in humans has not been fully established. Currently unknown, drug-related side effects may be identified through ~~further~~ongoing and future clinical ~~studies~~trials and, as such, these possible drug-related side effects could affect patient recruitment, the ability of enrolled subjects to complete the trial, or result in potential product liability claims.

Although ~~the one reported serious adverse event in the Phase 2 study of OP-01 was determined not~~we have raised significant capital, we will require additional funding to be able to complete the development of our lead drug ~~related, other adverse events may arise and the occurrence of adverse events, whatever the cause, may impact the conduct of future OP-01 clinical studies. To date, OP-02~~

~~has not been evaluated in any human clinical studies. Any occurrences of clinically significant adverse events may harm our business, financial condition and prospects significantly.~~

~~We will need substantial additional funding.~~candidate. If we are unable to raise capital when needed, we ~~would~~may be ~~compelled~~forced to ~~delay, reduce~~significantly alter our business strategy, substantially curtail our current operations, or ~~eliminate our product development programs or commercialization efforts.~~liquidate and cease operations altogether.

We expect our expenses to increase in parallel with our ongoing activities, particularly as we ~~continue our nonclinical and clinical development,~~incur expenses relating to the exploration of strategic options intended to maximize shareholder value, seek to identify new clinical candidates and ~~initiate clinical trials of, and~~potentially seek ~~marketing approval for,~~to partner, out-license or otherwise monetize our ~~product~~drug candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. If we are unable to raise capital when needed or on attractive terms, we ~~would~~may be forced to ~~delay, reduce or eliminate~~significantly alter our ~~nonclinical and clinical development programs or any future commercialization efforts.~~

~~Based upon current operating plans, we expect~~business strategy, substantially curtail our current ~~working capital will be sufficient to fund our~~ operations, ~~for at least the next 12 months. We will require additional capital to complete the development~~or liquidate and ~~commercialization of OP-01 and OP-02, if approved, and may also need to raise additional funds to pursue other development activities related to additional product candidates.~~cease operations altogether. Our funding needs may fluctuate significantly based on a number of factors, such as:

Identifying potential product candidates and conducting formulation development, nonclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary

data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. ~~Adequate~~Even if we generate positive clinical data, additional financing may not be available to us on acceptable terms, or at all.

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

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings. We do not have any committed external source of funds. ~~We have entered into an equity distribution agreement pursuant to which we may sell shares of common stock from time to time in “at-the-market” offerings.~~ ~~To the extent that we raise additional capital through~~ ~~this at-the-market offering facility or otherwise through~~ the sale of equity or convertible debt securities, the ownership interest of common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of 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.

~~We cannot be certain that additional funding will be available on acceptable terms, or at all.~~ If we are unable to raise ~~additional funds when needed,~~sufficient capital to fund our planned operations, we may be ~~required~~forced to ~~delay, limit, reduce~~significantly alter our business strategy, substantially curtail our current operations, or ~~terminate~~liquidate and cease operations altogether.

Our future success depends on our ability to retain executives and key employees and to attract, retain and motivate qualified personnel in the future.

We are highly dependent on the product development, ~~or future commercialization efforts.~~

~~Future sales of shares by existing stockholders could cause the Company’s stock price to decline.~~

~~If existing stockholders~~clinical and business development expertise of the ~~Company sell,~~principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executives and key employees, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or ~~indicate an intention to sell, substantial amounts~~other employees. Our recent acquisition of Anelixis and the resulting integration of the ~~Company’s common stock~~company may increase the likelihood that employees depart in the ~~public market after~~foreseeable future.

Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel is critical to our success. Due to the Reverse Merger lock-up period and other legal restrictions on resale lapse, the trading price of the common stock of the combined company could decline. At September 30, 2017, the Company had approximately 6.9 million shares outstanding.

The Share Purchase Agreement by and among Tokai, Otic, and shareholders of Otic contains a lock-up covenant from the Otic shareholders, which provides that for 180 days following the closing of the Reverse Merger (November 5, 2017), no Otic shareholder shall offer, sell, or otherwise dispose of, directly or indirectly, any securities of the Company, or otherwise enter into a transaction that would have similar effect. ~~Concurrent with the Reverse Merger, the company completed the Private Placement. A~~ registration statement covering the resale of the shares of Company common stock issuable in connection with the Private Placement is in effect, allowing up to 400,400 shares of common stock to be sold in the public market. Further, shares held by directors, executive officerssmall size of the Company and ~~other affiliates will be eligible for sale~~the limited number of employees, each of our executives and key employees serves in ~~the public market, subject to volume limitations under Rule 144 under the Securities Act, after November 5, 2017.~~

~~Because the Reverse Merger resulted in an ownership change under Section 382~~a critical role. The loss of the ~~Internal Revenue Code, for Tokai, Tokai’s pre-merger net operating loss carryforwards~~services of our executive officers or other key employees could impede the achievement of our development and ~~certain other tax attributes may be subject to limitations. The net operating loss carryforwards~~commercialization objectives and ~~other tax attributes of Otic and of the post-merger Company may also be subject to limitations as a result of ownership changes.~~

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Reverse Merger resulted in an ownership change for Tokai and, accordingly, Tokai’s net operating loss carryforwards and certain other tax attributes may be subject to limitations (or disallowance) on their use after the Reverse Merger. Otic’s net operating loss carryforwards may also be subject to limitation as a result of prior shifts in equity ownership and/or the transaction. Additional ownership changes in the future could result in additional limitations on Tokai’s, Otic’s and the post-merger Company’s net operating loss carryforwards. Consequently, even if the Company achieves profitability, it may not be able to utilize a material portion of Tokai’s, Otic’s, or the post-merger Company’s net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.

~~The failure to integrate successfully the businesses of Otic and Tokai in the expected timeframe could adversely affect the future results of the Company.~~

~~Our success will depend, in large part, on~~seriously harm our ability to ~~realize the anticipated benefits from combining the businesses~~successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of ~~Tokai and Otic. The continued operation~~time because of the ~~two~~limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of, and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating drug product, nonclinical development, clinical development, regulatory strategy, and commercial strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to provide services to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be ~~complex.~~limited.

The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in our failure to achieve some or all of the anticipated benefits of the Reverse Merger.

~~Potential difficulties that may be encountered in the integration process include the following:~~

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, or the approvals may be for a narrow indication, we may not be able to commercialize our product candidates, and our ability to generate revenue may be materially impaired.

Our product candidates must be approved by the FDA pursuant to a new drug application in the United States and by other regulatory authorities outside the United States prior to ~~commercialization.~~commercialization in the respective regions. The process of obtaining marketing approvals, both in the United States and outside the United States, is expensive and takes several years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any country. We have no experience in filing and supporting the applications necessary to gain marketing approvals for ~~ear, nose, or throat (ENT)~~our products and may engage third-party consultants to assist in this process. Securing marketing approval requires the submission of extensive nonclinical and clinical data, and other supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product formulation and manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other data. In addition, varying interpretations of the data obtained from nonclinical and clinical ~~studies~~trials could delay, limit or prevent marketing approval of a product candidate. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may also cause delays in or prevent the approval of an application.

Any marketing approval we ultimately obtain may be for fewer or more limited indications than requested or subject to restrictions or post-approval commitments that render the approved product not commercially viable or its market potential significantly impaired. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

~~Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed outside the United States.~~

In order to market and sell our products in the ~~European Union~~EU and other international jurisdictions outside of the United States, we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may require additional nonclinical, clinical or health outcome data. In addition, the time required to obtain approval may differ substantially amongst international jurisdictions. The regulatory approval process outside the United States generally includes all the risks associated with obtaining FDA approval. In addition to regulatory approval, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We

If we experience delays in obtaining approval or ~~these third parties~~if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the EMA, MHRA, or FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,be harmed and ~~approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not~~our ability to generate revenues will be ~~able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.~~materially impaired.

Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Our product candidates and the activities associated with their development and commercialization, including their testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation that are specific to those defined by regulatory authorities in the countries where the product is

approved. In the United States and other countries that follow the International Conference on Harmonization, ~~(ICH),~~ these requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authorities, requirements regarding the distribution of samples to physicians and recordkeeping.

The FDA, or other regulatory authorities, may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products and if we promote our products beyond their approved indications, we may be subject to enforcement action for off-label promotion. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state ~~health care~~healthcare fraud and abuse laws, as well as state consumer protection laws.

In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

Non-compliance with ~~European Union~~EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the ~~European Union’s~~EU’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

~~Recently enacted~~Legislation regulating the pharmaceutical and ~~future legislation~~healthcare industries may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes ~~regarding~~intended to contain healthcare costs and modify the ~~healthcare system that~~regulation of drug and biologic products. These and other regulatory changes could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

For example, in 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”). Among the provisions of the PPACA of importance to our potential product candidates are the following:

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Further, under the current Trump administration there may be additional regulatory changes, as well as the potential repeal (in whole or in part) of the PPACA, that could negatively affect insurance coverage and/or drug prices. Any such new laws may result in additional reductions in Medicare and other healthcare funding.

We expect that ~~the PPACA, as well as other~~additional state and federal healthcare reform measures ~~that may~~and regulations will be adopted in the ~~future, may~~future. Any of these measures and regulations could limit the amounts that federal and state governments will pay for healthcare products and services, result in ~~more rigorous coverage criteria and in additional downward pressure on the price that we receive~~reduced demand for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Additionally, legislation has been introduced to repeal the PPACA. We cannot be 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~~additional pricing pressures and affect our product development, testing, marketing ~~approval, as well as subject us to more stringent product labeling~~approvals and ~~post-marketing testing and other requirements.~~post-market activities.

Laws, restrictions, and other regulatory measures are also imposed by healthcare laws and regulations in international jurisdictions and in those jurisdictions we face the same issues as in the United ~~State~~States regarding difficulty and cost for us to obtain marketing approval and commercialization of our product candidates and which may affect the prices we may obtain.

~~Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.~~

In some countries, particularly the countries of the ~~European Union,~~EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. 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 product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

Our business operations and relationships with ~~customers~~healthcare providers, physicians, third-party payers, and ~~third-party payers~~customers will be subject to applicable anti-kickback, fraud and abuse and other broadly applicable healthcare laws, ~~and regulations,~~ which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payers will play a primary role in the recommendation and prescription of any product candidates for which we receive marketing approval. Our current and future arrangements ~~with third-party payers and customers~~ may expose us to broadly applicable fraud and abuse and other healthcare laws ~~and regulations~~ that may constrain the business or financial arrangements and relationships through which we would market, sell and distribute the products for which we receive marketing approval. ~~Restrictions under applicable~~Even though we will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, federal and state healthcare laws are and ~~regulations~~will be applicable to our business. Such laws include, ~~the following:~~

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physiciansPharmaceutical and other healthcare ~~providers or~~companies have been prosecuted under these laws for a variety of promotional and marketing ~~expenditures. State~~activities, such as: providing free trips, free goods, sham consulting fees and ~~foreign laws also govern~~grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the ~~privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.~~

Medicaid Rebate Program to reduce liability for Medicaid rebates. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations.

If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, disgorgement, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, ~~they~~that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Laws, restrictions, and other regulatory measures are also imposed by anti-kickback, fraud and abuse, and other healthcare laws and regulations in international jurisdictions, and in those jurisdictions we face the same issues as in the

United State regarding exposure to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm, and diminished profits and future earnings.

We depend on our information technology systems and those of our third-party collaborators, service providers, contractors or consultants. Our internal computer systems, or those of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches, disruptions, or incidents, which could result in a material disruption of our development programs or loss of data or compromise the privacy, security, integrity or confidentiality of sensitive information related to our business and have a material adverse effect on our reputation, business, financial condition or results of operations.

In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. Our internal technology systems and infrastructure, and those of our current or future third-party collaborators, service providers, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access or use resulting from malware, natural disasters, terrorism, war and telecommunication and electrical failures, denial-of-service attacks, cyber-attacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks, persons inside our organizations (including employees or contractors), loss or theft, or persons with access to systems inside our organization. Attacks on information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized foreign governments, groups and individuals with a wide range of motives and expertise. In addition to extracting or accessing sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the security, confidentiality, integrity and availability of information. The prevalent use of mobile devices that access sensitive information also increases the risk of data security incidents which could lead to the loss of confidential information or other intellectual property. While to our knowledge we have not experienced any material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations or the operations of third-party collaborators, service providers, contractors and consultants, it could result in a material disruption of our development programs and significant reputational, financial, legal, regulatory, business or operational harm. The costs to us to mitigate, investigate and respond to potential security incidents, breaches, disruptions, network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our business and our competitive position.

For example, the loss of clinical trial data from completed, ongoing or planned clinical trials for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any real or perceived security breach affects our systems (or those of our third-party collaborators, service providers, contractors or consultants), or results in the loss of or accidental, unlawful or unauthorized access to, use of, release of, or other processing of personally identifiable information or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed. Such a breach may require notification to governmental agencies, the media or individuals pursuant to various foreign, domestic (federal and state) privacy and security laws, if applicable, including HIPAA, as amended by HITECH, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related incidents.

Any failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with our privacy, confidentiality, data security or similar obligations, or any data security incidents or other security

breaches that result in the accidental, unlawful or unauthorized access to, use of, release of, processing of, or transfer of sensitive information, including personally identifiable information, may result in negative publicity, harm to our reputation, governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause third parties to lose trust in us or could result in claims by third parties, including those that assert that we have breached our privacy, confidentiality, data security or similar obligations, any of which could have a material adverse effect on our reputation, business, financial condition or results of operations. To the extent we maintain individually identifiable health information, we could be subject to fines and penalties (including civil and criminal) under HIPAA for any failure by us or our business associates to comply with HIPAA’s requirements. Moreover, data security incidents and other security breaches can be difficult to detect, and any delay in identifying them may lead to increased harm. While we have implemented data security measures intended to protect our information, data, information technology systems, applications and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or data security incidents.

European data collection is governed by restrictive regulations governing the collection, use, processing and cross-border transfer of personal information.

We may collect, process, use or transfer personal information from individuals located in the European Economic Area in connection with our business, including in connection with conducting clinical trials in the EEA. Additionally, if any of our product candidates are approved, we may seek to commercialize those products in the European Economic Area. The collection and use of personal health data in the European Economic Area is governed by the provisions of the General Data Protection Regulation ((EU) 2016/679) (the “GDPR”), along with other European Union and country-specific laws and regulations. The United Kingdom and Switzerland have also adopted data protection laws and regulations. These legislative acts (together with regulations and guidelines) impose requirements relating to having legal bases for processing personal data relating to identifiable individuals and transferring such data outside of the European Economic Area, including to the United States, providing details to those individuals regarding the processing of their personal data, keeping personal data secure, having data processing agreements with third parties who process personal data, responding to individuals’ requests to exercise their rights in respect of their personal data, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers or corporate representatives, conducting data protection impact assessments and record-keeping. The GDPR imposes additional responsibilities and liabilities in relation to personal data that we process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. Failure to comply with the requirements of the GDPR and related national data protection laws of the member states of the European Economic Area and other states in the European Economic Area may result in substantial fines, other administrative penalties and civil claims being brought against us, which could have a material adverse effect on our business, financial condition and results of operations. European data protection authorities may interpret the GDPR and national laws differently and may impose additional requirements, which adds to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance on implementation and compliance practices are often updated or otherwise revised.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our nonclinical or clinical development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Even if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for commercial success.

If any of our product candidates receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payers and others in the medical community. In addition, physicians, patients and third-party payers may prefer other novel products to ours. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

If ~~OP-01, OP-02,~~our current product candidates, or a future product candidate receives marketing approval and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, the ability to market the product could be compromised.

Clinical trials are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent beneficial effect of a product candidate that is greater than the actual positive effect in a broader patient population or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following events could occur:

Any of these events could have a material and adverse effect on our operations and business. The commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

We currently have no marketing and sales force. If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.

We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able to obtain regulatory approval. In order to commercialize any product candidates, we must build on a territory-by-territory basis marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If our product candidates receive regulatory approval, we intend to establish an internal sales and marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time-consuming, will require significant attention of our executive officers to manage and may nonetheless fail to effectively market and sell our product candidates. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our products that we obtain approval to market. With respect to the commercialization of all or certain of our product candidates, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements when needed on acceptable terms or at all, we may not be able to successfully commercialize any of

our product candidates that receive regulatory approval, or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may incur significant additional losses.

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are ~~a number of~~several large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Specifically, there are a number of companies developing ~~or marketing treatments for AOE,~~competing anti-CD40 and anti-CD40L therapeutics, including ~~many major pharmaceutical~~Novartis, Boehringer Ingelheim, Astellas, Abbvie, Sanofi, UCB, Horizon Therapeutics (post acquisition of Viela Bio), Bristol Myers Squibb and ~~biotechnology companies. We~~Kiniksa. All of these companies are larger than Eledon and have significantly greater resources to develop their drug candidates.

If approved, we expect that ~~OP-01~~AT-1501 will face competition from numerous FDA-approved therapeutics for the prevention of transplant rejection, including ~~CIPRODEX~~PROGRAF^®, ASTAGRAF XL^®, ENVARSUS XR^®, NULOJIX^®, CELLCEPT^®, MYFORTIC^®, and numerous other branded and generic ~~ear anti-infectives.~~immunosuppressive agents. Multiple companies are working on islet cell and kidney transplant solutions that may ultimately potentially negate the need for immunosuppressive agents in these indications altogether.

~~In OM, there~~If approved, we expect AT-1501 will face competition from other FDA-approved therapeutics for the treatment of IgAN, Lupus Nephritis (“LN”) or focal segmental glomerulosclerosis (“FSGS”), including LUPKYNIS™ and BENLYSTA®, and numerous other branded and generic medicines are ~~currently no drug therapies approved~~already being used “off-label” to ~~prevent OM.~~ treat them.

We expect that ~~OP-02~~AT-1501 will ~~compete primarily with a surgery where~~face competition from FDA-approved therapeutics for the ~~tympanic membrane is perforated~~treatment of ALS including RADICAVA^®, riluzole, and numerous other branded and generic immunosuppressive agents. Multiple pharmaceutical and biotechnology companies, including but not limited to ~~improve drainage~~Biogen, Ionis Pharmaceuticals, Alexion Pharmaceuticals, Orion Pharma, Orphazyme, AZTherapies, Voyager Therapeutics, Apic Bio, Brainstorm Cell Therapeutics, Cytokinetics and ~~ventilation of the middle ear (myringotomy or tympanostomy tube insertions) as a means of preventing recurrent or chronic OM. We may~~Amylyx Pharmaceuticals are also compete with a medical device product primarily that uses a small intranasal balloon inserted into the Eustachian tube to facilitate ventilation of the Eustachian tube in patients with Eustachian tube dysfunction of a particular type. Surgery may continue to be the preferred treatment for preventing recurrent or chronic OM in children whereas the intranasal balloon may be the preferred treatment for preventing recurrent or chronic OM in adults. Neither of theseworking on competing ~~products are used to prevent acute OM. Patients may be prescribed concurrent antibiotic~~ALS pharmaceutical, gene therapy ~~for acute OM, but these products will not be competitive with, but likely used in conjunction with OP-02.~~and cell therapy approaches.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of generic products.

Generic products are currently available, with additional generic products expected to become available over the coming years, potentially creating pricing pressure. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic products.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, conducting nonclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

The availability and extent of reimbursement by governmental and private payers is essential for most patients to be able to afford expensive treatments. Sales of our product candidates will depend substantially, both domestically and internationally, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payers. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by ~~the Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human Services,~~CMS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payers tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

Moreover, increasing efforts by governmental and third-party payers, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. Increased expense is incurred to cover costs of health outcome focused research used to generate data necessary to justify the value of our products in order to secure reimbursement. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.

In addition, many private payers contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our products.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result ~~in:~~

We currently hold $2$10.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $2$10.0 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of our product candidates. Insurance

coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Future development collaborations may be important to us. If we are unable to enter into or maintain these collaborations, or if these collaborations are not successful, our business could be adversely affected.

For some of our product candidates, we may in the future determine to seek to collaborate with pharmaceutical and biotechnology companies for development of products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential development schedule or reduce the scope of research activities, or increase our expenditures and undertake discovery or nonclinical development activities at our own expense. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development activities, we may not be able to further develop our product candidates or continue to develop our product candidates, and our business may be materially and adversely affected.

Additionally, subject to its contractual obligations to us, if a collaborator is involved in a business combination, the collaborator might deemphasize or terminate the development of any of our product candidates. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.

If our collaborations do not result in the successful development of products or product candidates, product candidates could be delayed and we may need additional resources to develop product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this periodic report also apply to the activities of our collaborators.

We contract with third parties for the manufacture of our product candidates for nonclinical and clinical ~~studies~~trials and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.

We have utilized, and intend to continue utilizing, third parties to formulate, manufacture, package, and distribute clinical supplies of our drug candidates. We have no experience in manufacturing and do not have any manufacturing facilities. Currently, we ~~have sole suppliers~~rely on third parties for ~~one or more~~the manufacturing of ~~our active pharmaceutical ingredients (“API”),~~drug substance and ~~a different sole manufacturer~~drug product for ~~each~~nonclinical and clinical activities. Our manufacturing vendors utilize proprietary cell culture media, cell lines, buffers, manufacturing equipment, manufacturing supplies, and storage buffers for the manufacturing of ~~our~~AT-1501 and other product candidates. ~~In addition, these~~These materials are custom-made and available from only a limited number of sources. ~~In particular, there may be a limited supply source for APIs for OP-02 or other future product candidates.~~ Although we believe that our third-party suppliers maintain a significant supply of ~~APIs~~these materials and equipment on hand, any sustained disruption in this supply, including as a result of operational disruptions related to the ongoing COVID-19 pandemic, could adversely affect our operations. We do not have any long-term agreements in place with our current ~~API~~ suppliers. If we are required to change manufacturers, we may experience delays associated with finding an alternate manufacturer that is properly qualified to produce supplies of our products and product candidates in accordance with regulatory requirements and our specifications. Any delays or difficulties in obtaining ~~APIs~~ or in manufacturing, packaging or distributing approved product candidates could negatively ~~affect our sales revenues, as well as delay~~impact our clinical trials.

We expect to rely on third-party manufacturers or third-party collaborators for the manufacture of commercial supply of any other product candidates for which our collaborators or we obtain marketing approval. Despite drug substance and product risk management, this reliance on third parties presents a risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. In addition, the operations of these third parties have been and may continue to be significantly disrupted by the ongoing COVID-19 pandemic. Any delay or performance failure on the part of our existing or future manufacturers of drug substance or drug products could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply. If suppliers cannot supply us with our requirements, we may be required to identify alternative manufacturers, which would lead us to incur added costs and delays in identifying and qualifying any such replacement.

~~The formulation~~Formulations used in early studies isare not a final ~~formulation~~formulations for commercialization. Additional changes may be required by the FDA or other regulatory authorities on specifications and storage conditions. These may require additional studies and may result in a delay in our clinical ~~trials.~~trials and commercialization activities.

We also expect to rely on other third parties to label, store, and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

The third parties we rely on for manufacturing and packaging are also subject to regulatory review, and any regulatory compliance problems with these third parties could significantly delay or disrupt our clinical or commercialization activities. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result

in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products. Additionally, macro-economic conditions may adversely affect these third parties, causing them to suffer liquidity or operational problems. If a key third-party vendor becomes insolvent or is forced to lay off workers assisting with our projects, our results and development timing could suffer.

Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

We depend on CROs and other contracted third parties to perform nonclinical and clinical testing and certain other research and development activities. As a result, the outcomes of the activities performed by these organizations will be, to a certain extent, beyond our control.

The nature of outsourcing a substantial portion of our business will require that we rely on CROs and other contractors to assist us with research and development, clinical testing activities, patient enrollment, data collection, and regulatory submissions to the FDA or other regulatory bodies. As a result, our success will depend partially on the success of these third parties in performing their responsibilities. Although we intend to pre-qualify our CROs and other contractors and we believe that the contractors selected will be fully capable of performing their contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise that they apply to these activities. Additionally, macro-economic conditions may affect our development partners and vendors, which could adversely affect their ability to timely perform their tasks. If our contractors do not perform their obligations in an adequate and timely manner, the pace of clinical development, regulatory approval and commercialization of our drug candidates could be significantly delayed, and our prospects could be adversely affected.

If we are unable to obtain and maintain intellectual property protection for our technology and products or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our success depends in large part on our ability to obtain and maintain patent protection in ~~the European Union, the United States and other~~relevant countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States and internationally that are related to our novel technologies and product candidates. This patent portfolio includes issued patents and pending patent applications covering pharmaceutical compositions and methods of ~~use.~~use.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our discovery and nonclinical development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, India and China do not allow patents for methods of treating the human body. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our

patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the ~~European Union,~~EU, the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent and Trademark Office (“USPTO”) recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without

infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States 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 products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to our own.

The risks described ~~elsewhere~~ pertaining to our patents and other intellectual property rights also apply to the intellectual property rights that we license, and any failure to obtain, maintain and enforce these rights could have a material adverse effect on our business. In some cases, we may not have control over the prosecution, maintenance or enforcement of the patents that we license, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain and enforce the licensed patents. Any inability on our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results and financial position.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection 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 applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S. governmental patent agencies require compliance with ~~a number of~~several procedural, documentary, fee payment and other similar provisions during the patent application process. In certain situations, non-compliance 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. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

IfIn addition, we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experiences disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We have acquired rights to ~~our OP-02 technology~~AT-1501 and other product candidates through a license agreement with ~~Otodyne, Inc.~~The ALS Therapy Development Institute, and may in the future enter into other license agreements with third parties for other intellectual property rights or assets. These license agreements may impose various diligence, milestone payment, royalty, and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. Additionally, the milestone and other payments associated with these licenses will make it less profitable for us to develop our drug candidates than if we had developed the licensed technology ~~internally.~~internally.

In some cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we may control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

Because competition in our industry is intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could be significant. 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.

~~We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.~~

A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. If we were not able to obtain a license, or were not able to obtain a license on commercially reasonable terms, our business could be harmed, possibly materially.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could 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, 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 harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could be significant. 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.

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. If we were not able to obtain a license, or are not able to obtain a license on commercially reasonable terms, our business could be harmed, possibly materially.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would
be harmed.

In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Any NDAs or similar agreements entered into by the Company may not be with all relevant parties, or adequately protect the confidentiality of our trade secrets. Moreover, to the extent we enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate them, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

~~Risks Related to Our Employee Matters, Managing Growth and Macroeconomic Conditions~~

Our future success depends on our ability to retain executives and key employees and to attract, retain and motivate
qualified personnel in the future.

We are highly dependent on the product development, clinical and business development expertise of the principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executives and key employees, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.

~~Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel is critical to our success.~~ ~~Due to the small size of the Company and the limited number of employees, each of our executives and key employees serves in a critical role.~~ The loss of the services of our executive officers or other key employees could impede the achievement of our development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of, and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating drug product, nonclinical development, clinical development, regulatory strategy, and commercial strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to provide services to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our research and development function, as well as our corporate operations, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We may be subject to claims ~~that our employees or directors have wrongfully used or disclosed alleged~~of misappropriation of trade secrets from former employers of ~~their former employers.~~Company personnel.

Many of our employees and certain of our directors were previously employed at ~~universities~~or affiliated with research foundations or other biotechnology or pharmaceutical ~~companies, including our competitors or potential competitors.~~companies. Although we try to ensure that our employees and directors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees or directors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or director’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

~~Unfavorable global economic conditions could adversely affect our business, financial condition or results~~
~~of operations.~~

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. This is particularly true in Europe, where the United Kingdom’s vote to leave the European Union has created additional economic uncertainty. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Despite the implementation of security measures, our internal computer systems and those of the CROs, collaborators and third-parties on whom we rely are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Furthermore, we have little or no control over the security measures and computer systems of our third-party collaborators. While we and, to our knowledge, our third-party collaborators have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations or our third-party collaborators, it could result in a material disruption of our drug development programs. For example, the loss of research data could delay development of our product candidates and the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data. ~~Similarly, we have no control over the security measures and computer systems of the regulatory bodies to whom we provide financial and other sensitive information.~~ If any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development of our product candidates could be delayed.

We expect our stock price to be volatile, and the market price of our common stock may drop unexpectedly.

The market price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biopharmaceutical, and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

~~If securities analysts do not publish research or reports about our business, or if they publish negative evaluations, the price of our common stock could decline.~~

The trading market for our common stock may be impacted by the availability or lack of research and reports that third-party industry or financial analysts publish about the Company. There are many large, publicly traded companies active in the biopharmaceutical industry, which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover the Company downgrade our stock, our stock price would likely decline. If we do not receive adequate coverage by reputable analysts that have an understanding of our business and industry, we could fail to achieve visibility in the market, which in turn could cause our stock price to decline.

~~Our executive officers, directors and principal stockholders, if they choose to act together, will have the ability to control all matters submitted to stockholders for approval.~~

Our executive officers and directors, combined with our principal stockholders, beneficially own shares representing approximately 81.8% of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

~~We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.~~

We will incur significant legal, accounting and other expenses that Otic did not incur as a private company, including costs associated with public company reporting requirements. We will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act and rules and regulations promulgated by the SEC and Nasdaq. These rules and regulations are expected to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These rules and regulations may also make it difficult and expensive for the Company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on our board of directors or as executive officers of the Company, which may adversely affect investor confidence in the Company and could cause our business or stock price to suffer.

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

Ensuring that we will have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with ~~GAAP.~~

~~Through the fiscal year ended December 31, 2014, Otic’s financial statements have been audited in accordance with~~accounting principles generally accepted ~~auditing standards in Israel. The consolidated financial statements for the years ended December 31, 2016 and 2015 were audited in accordance with generally accepted auditing standards~~ in the United ~~States.~~States (“GAAP”).

For the fiscal year ended December 31, 2017, our financial statements will be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States). In addition, we will be required to be compliant with public company internal control requirements mandated under Section 302 and 906 of the Sarbanes-Oxley Act. We will be implementing measures designed to improve our internal controls over financial reporting, including bringing in additional accounting resources and establishing new accounting and financial reporting procedures to establish an appropriate level of internal controls over financial reporting. However, we are still in the process of implementing these measures and cannot provide assurances that we will be successful in doing so. If we are unable to successfully ~~implement~~maintain internal controls over financial reporting, the accuracy and timing of our financial reporting, and our stock price, may be adversely affected and we may be unable to maintain compliance with the applicable stock exchange listing requirements. Additionally, as we become a larger company, we will become subject to Section 404(b) of the Sarbanes-Oxley Act, which requires our independent auditors to document and test our internal controls. These additional requirements are costly, and our auditors may identify control deficiencies.

Implementing any appropriate changes to our internal controls may distract the officers and employees of the Company, entail substantial costs to modify its existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of the internal controls of the Company, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase operating costs and harm the business. In addition, investors’ perceptions that the internal controls of the Company are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm the stock price of the Company.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and bylaws may discourage, delay or prevent a merger, acquisition or other change in control of the Company that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because the board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by stockholders to replace or remove the current management by making it more difficult for stockholders to replace members of the board of directors. Among other things, these provisions:

Moreover, because the Company is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns in excess of 15% of its outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

We expect to retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain, if any, for any stockholders for the foreseeable future.

Item 2. U~~nregistered~~Unregistered Sales of ~~Equit~~yEquity Securities and Use of Proceeds.

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index 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		20-1000967
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

19900 MacArthur Blvd., Suite 550 Irvine, California		92612
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do not check if a small reporting company)~~☒	~~Small~~Smaller reporting company	☒

		Emerging growth company	☒☐

		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements ~~(Unaudited)~~- Unaudited	47
7
	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2021 and December 31, ~~2016~~	4

	~~Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016~~	5

	~~Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016~~	6

	~~Notes to Condensed Consolidated Financial Statements~~2020	7

~~Item 2.~~	~~Management’s Discussion~~Condensed Consolidated Statements of Operations and ~~Analysis of Financial Condition~~Comprehensive Loss for the Three and ~~Results of Operations~~Nine Months Ended September 30, 2021 and 2020	198

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	9

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	10

	Notes to Condensed Consolidated Financial Statements	11

Item 3.2.	~~Quantitative~~Management’s Discussion and ~~Qualitative Disclosures About Market Risk~~Analysis of Financial Condition and Results of Operations	24

Item 4.3.	~~Controls~~Quantitative and ~~Procedures~~Qualitative Disclosures About Market Risk	2431

Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2533

Item 1A.	Risk Factors	2533

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4952

Item 3.	Defaults Upon Senior Securities	4952

Item 4.	Mine Safety Disclosures	4952

Item 5.	Other Information	4952

Item 6.	Exhibits	4952

Exhibit Index		5053

Signatures		5154

	Three Months Ended September 30,						Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016			2021			2020			2021			2020
Operating expenses
Research and development	$	517		$	1,053		$	1,529		$	2,335		$	7,658		$	615		$	17,553		$	3,095
General and administrative		2,448			564			9,487			1,326			2,848			3,731			9,929			6,730
Restructuring expense														—			1,802			—			2,292
Total operating expenses		2,965			1,617			11,016			3,661			10,506			6,148			27,482			12,117
Loss from operations		(2,965	)		(1,617	)		(11,016	)		(3,661	)		(10,506	)		(6,148	)		(27,482	)		(12,117	)
Other income (expense), net		(5	)		(418	)		10			(479	)
Other income, net														3			4			7			39
Warrant inducement expense														—			—			—			(4,829	)
Loss before income tax benefit														(10,503	)		(6,144	)		(27,475	)		(16,907	)
Income tax benefit														686			—			1,775			—
Net loss and comprehensive loss	$	(2,970	)	$	(2,035	)	$	(11,006	)	$	(4,140	)	$	(9,817	)	$	(6,144	)	$	(25,700	)	$	(16,907	)
Net loss per share, basic and diluted (Note 2)	$	(0.43	)	$	(4.35	)	$	(2.25	)	$	(9.09	)
Net loss per share, basic and diluted													$	(0.66	)	$	(5.51	)	$	(1.73	)	$	(16.81	)
Weighted-average common shares outstanding, basic and diluted		6,943,058			81,339			3,845,258			79,026			14,815,852			1,114,133			14,820,822			1,006,008

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands, except share and per share data)
Net loss available to stockholders of the company	$	(2,970	)	$	(2,035	)	$	(11,006	)	$	(4,140	)
Interest accumulated on preferred shares and on preferred shares contingently issuable for little or no cash		—			(458	)		(328	)		(917	)
Net loss attributable to shareholders of preferred shares and to shareholders of preferred shares contingently issuable for little or no cash		—			2,139			2,666			4,339
Net loss used in the calculation of basic and diluted loss per share	$	(2,970	)	$	(354	)	$	(8,668	)	$	(718	)
Net loss per share, basic and diluted	$	(0.43	)	$	(4.35	)	$	(2.25	)	$	(9.09	)
Weighted-average number of common shares		6,943,058			81,339			3,845,258			79,026

	September 30,		December 31,
	2017		2016
Cash and cash equivalents	$	19,094	$	1,103
Restricted cash, as part of current assets		—		14
Restricted cash, as part of long term assets		70		—
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	19,164	$	1,117

Fair value of Tokai common stock outstanding (1)	$	14,486
Premium paid (2)		8,889
Purchase price	$	23,375

Cash, cash equivalents, and restricted cash	$	23,250
Prepaids and other current assets		1,132
Property and equipment		73
Goodwill		1,867
Accounts payable, accrued expenses and other liabilities		(2,947	)
Net assets acquired	$	23,375

	Level 1		Level 2		Level 3		Total
Liabilities
Convertible notes	$	—	$	3,447	$	—	$	3,447
Total liabilities at fair value	$	—	$	3,447	$	—	$	3,447

	Nine Months Ended September 30, 2021
Operating lease cost^(a)	$	145
^(a)Includes variable operating lease expenses, which are immaterial

	Nine Months Ended September 30, 2021
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating lease	$	146
Remaining lease term
Operating lease	1.25
Discount rate
Operating lease		3.18	%

2021 (remainder of)	$	45
2022		181
Total minimum lease payments		226
Less imputed interest		(4	)
Present value of lease liabilities		222
Less current portion of operating lease liability		(177	)
Non-current operating lease liability	$	45

	Rollforward of Warrant Activity
	Registered direct warrants, placement agent		Private placement warrants		Private placement warrants, placement agent		Warrants exchanged for common stock		Warrants exchanged for preferred stock warrants		Total
Balance as of December 31, 2020		9,581		319,064		9,177		0		0		337,822
Issued		0		0		0		509,117		298,692		807,809
Exercised		0		0		0		0		0		0
Cancelled/Expired		0		0		0		0		0		0
Balance as of September 30, 2021		9,581		319,064		9,177		509,117		298,692		1,145,631

	Rollforward of Warrant Activity
		Warrants assumed and replaced in acquisition			Total
Balance as of December 31, 2020			55,583.875			55,583.875
Assumed and replaced			0			0
Exercised			0			0
Cancelled/Exchanged			(5,376.456	)		(5,376.456	)
Balance as of September 30, 2021			50,207.419			50,207.419

Description	Amount
Fair value of purchase consideration:
Common shares issued (1)	$	1,194
Preferred shares issued (2)		69,723
Options assumed (3)		2,950
Warrants assumed (3)		12,944
Total purchase consideration	$	86,811

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020			2020
Revenue	$	120		$	120

Net loss and other comprehensive loss	$	(5,375	)	$	(19,140	)

Exhibit Number		Description

3.1		Restated Certificate of Incorporation of Novus Therapeutics, Inc., a Delaware corporation, dated September 22, 2014 (filed with the SEC as Exhibit 3.1 on the Company’s Current Report on Form 8-K filed on September 26, 2014).

~~10.6~~3.2		~~Management Continuity Agreement, dated August 7, 2017, between~~Certificate of Amendment to Certificate of Incorporation of Novus Therapeutics, Inc. ~~and Gregory J. Flesher. (1)~~(effecting, among other things a reverse stock-split), filed with the Secretary of the State of Delaware on May 9, 2017 (filed with the SEC as Exhibit 3.1 on the Company’s Current Report on Form 8-K filed on May 15, 2017).

~~10.7~~3.3		~~Management Continuity Agreement, dated August 7, 2017, between~~Certificate of Amendment to Certificate of Incorporation of Novus Therapeutics, Inc. (effecting, among other things a change in the corporation’s name to “Novus Therapeutics, Inc.”), filed with the Secretary of the State of Delaware on May 9, 2017 (filed with the SEC as Exhibit 3.2 on the Company’s Current Report on Form 8-K filed on May 15, 2017).

3.4		Certificate of Amendment to the Restated Certificate of Incorporation of Novus Therapeutics, Inc., (effecting, among other things a reverse stock-split) effective as of October 5, 2020 (filed with the SEC as Exhibit 3.1 on the Company’s Current Report on Form 8-K filed on October 6, 2020).

3.5		Certificate of Amendment to the Restated Certificate of Incorporation of Novus Therapeutics, Inc., (effecting, among other things a change in the corporation’s name to “Eledon Pharmaceuticals, Inc.”) effective as of January 5, 2021 (filed with the SEC as Exhibit 3.1 on the Company’s Current Report on Form 8-K filed on January 5, 2021).

3.6		Certificate of Designations of Series X Convertible Preferred Stock (filed with the SEC as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2020).

3.7		Certificate of Designations of Series X¹ Convertible Preferred Stock (filed with the SEC as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 15, 2020).

3.8		Amended and ~~Jon S. Kuwahara. (1)~~Restated Bylaws of Eledon Pharmaceuticals, Inc. (filed with the SEC as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 5, 2021).

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	~~Novus Therapeutics,~~Eledon Pharmaceuticals, Inc.

Date: November ~~8, 2017~~12, 2021	By:	/s/ ~~Gregory J. Flesher~~David-Alexandre C. Gros, M.D.
		~~Gregory J. Flesher~~David-Alexandre C. Gros, M.D.
		Chief Executive Officer and Director (Principal Executive Officer)