CATALYST BIOSCIENCES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-K)

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The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties,
including those set forth under the heading "Risk Factors" and elsewhere in this
Annual Report on Form 10-K. Our actual results and the timing of selected events
discussed below could differ materially from those expressed in, or implied by,
these forward-looking statements.

Overview

We are a research and clinical development biopharmaceutical company focused on
developing protease therapeutics to address unmet medical needs in disorders of
the complement system or where complement components are associated with
progression of the disease state. Proteases are an important class of enzymes,
which are key natural regulators of many biological processes, including the
complement system. We use our protease engineering platform to create improved
or novel molecules for the treatment of diseases that result from dysregulation
of the complement system. Our complement pipeline consists of a preclinical
complement component 3 ("C3") degrader program for geographic atrophy ("GA") in
dry age-related macular degeneration ("dAMD"), an improved Complement Factor I
("CFI") protease, CB 4332, for subcutaneous ("SQ") or intravitreal ("IVT")
therapy to restore complement homeostasis in disease of overactive complement of
CFI deficiencies, and proteases from our ProTUNE™ C3b/C4b degrader and
ImmunoTUNE™ C3a/C5a degrader platforms designed to target specific disorders of
the complement or inflammatory pathways. Historically, we also used our protein
engineering platform to develop potential therapies for coagulation disorders,
including marzeptacog alfa (activated) ("MarzAA"), a SQ administered
next-generation engineered coagulation Factor VIIa ("FVIIa") for the treatment
of episodic bleeding and prophylaxis in subjects with rare bleeding disorders,
and dalcinonacog alfa ("DalcA"), a next-generation SQ FIX, both of which has
shown sustained efficacy and safety in mid-stage clinical trials.

The product candidates generated by our protease engineering platform are
designed to have improved functional properties such as longer half-life,
improved specificity and targeting, higher potency, and increased
bioavailability. These characteristics potentially allow for improved safety and
efficacy for SQ administration of recombinant complement regulators, or less
frequently dosed intravitreal products than current therapeutics in development.

Our current complement portfolio consists of the development candidates CB 4332
and CB 2782-PEG. CB 4332 is a wholly owned, first-in-class improved
albumin-fused CFI molecule intended for prophylactic SQ or IVT administration in
individuals with an imbalance in complement homeostasis or a CFI deficiency. CB
2782-PEG is a potential best-in-class C3 degrader product candidate in
preclinical development for the treatment of dry AMD that we had licensed to
Biogen. In March 2022, we re-acquired the full rights to CB 2782-PEG adding to
our promising portfolio, which includes CB 4332 our enhanced CFI development
candidate. We have several engineered protease programs in discovery or early
non-clinical development. These programs all target diseases caused by deficient
regulation of the complement system and inflammation.

In July 2021 we commenced patient enrollment in the screening ("CFI-001") and
natural history of disease ("CFI-002") studies to assess CFI blood levels in
patients who have diseases related to CFI deficiency and identify those who
might benefit from CB 4332 treatment ("ConFIrm" and "ConFIdence" studies,
respectively). As of February 2022, we have completed enrollment of these
studies.

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The following table summarizes our current development programs.

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We continue to experience operational and other challenges as a result of the
COVID-19 global pandemic, which could delay or impact our development programs.
See Note 7, Commitments and Contingencies, Other Recent Developments and Item 1A
- Risk Factors for further discussion of the current and expected impact on our
business and development programs.

Recent Development Program Updates

Complement

Our protease programs are designed to take advantage of nature's natural
complement regulators that restore complement homeostasis and potentially treat
a variety of complement-mediated disorders. We have several protease programs
currently in preclinical discovery or early non-clinical development. These
programs target diseases caused by aberrant regulation of the complement system
including both ocular programs, specifically for dry AMD, and systemic
complement disorders, all of which are wholly owned by Catalyst.

The complement system is an enzyme-based innate immune defense system with the
primary role of protecting the body from pathogens. The system is naturally
regulated by proteases which is the basis for our approach to addressing
complement-driven diseases. Deficient or excessive activation of the complement
system may lead to severe disorders, including microthrombotic, autoimmune
and/or immune-complex diseases, severe infectious diseases, and degenerative
ophthalmic or neurologic diseases affecting a variety of tissues and organ
systems. The absence of regulation can cause the complement system to become
self-destructive or not provide the necessary protection when needed. The
protease therapeutic candidates generated by our platforms are designed to
correct or restore the missing balance in the complement system that drives
several diseases.

Proteases are uniquely poised to regulate key biological functions such as the
complement system, either by promoting or limiting the cascade of events that
leads to eventual clearing of foreign and damaged proteins, inflammation, and
formation of the membrane attack complex, which is deposited on the surface of
cells and drives their destruction. Compared with antibodies and small molecule
inhibitors that generally require a sustained excess of therapeutic compound
over that of the target, Catalyst's protease therapeutic candidates are based on
natural regulatory proteins that are capable of rapidly engaging and modulating
large quantities of target molecules, as each protease molecule can degrade many
target molecules over their effective lifetime. This means that our proteases
are ideal for regulating high abundancy targets such as complement proteins in a
way antibodies and small molecule inhibitors cannot.

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CB 2782-PEG is an engineered pegylated C3 degrader previously licensed to Biogen
that we designed with a best-in-class anti-C3 profile for geographic atrophy
("GA") in dry AMD. Dry AMD is an ocular disease that leads to vision loss and
blindness for which there is currently no approved therapy. CB 2782-PEG degrades
C3 in the eye reducing the steady state level of C3 activity. It is expected
that maintaining low C3 levels in the eye can significantly slow disease
progression and vision loss in patients with dry AMD. We have demonstrated in
preclinical non-human primate models that we have the potential to reduce C3
levels in humans based on modeling studies for up to 3 months with a single
intravitreal injection. In September 2021, Apellis released the results of the
DERBY and OAKS phase 3 trials for GA secondary to dry AMD, showing that
once-monthly pegcetacoplan, a pegylated C3 targeted inhibitor, was safe and
efficacious, meeting its primary endpoint in one trial and narrowly missing the
primary endpoint in a second trial for reducing GA lesion growth over a 12-month
period. Further subpopulation analyses demonstrated a greater effect of reducing
GA lesion growth in those subjects with extrafoveal lesions at baseline. CB
2782-PEG provides a differentiated mechanism of action by degrading both C3 and
one of its byproducts, C3a potentially offering not only less frequent dosing
but a more efficacious mechanism than pegcetacoplan or other complement
inhibitors in development for GA. In March 2022, Biogen terminated the license
agreement and returned full rights to CB 2782-PEG.

CB 4332 is an engineered albumin-fused version of the CFI protease with an
extended half-life that can be dosed subcutaneously or intravitreally in
individuals who would benefit from enhanced regulation of complement. CFI is the
central regulator of the complement system and CB 4332 has the potential to
address several mechanistically related diseases driven by complement imbalance
such as: Lupus Nephritis ("LN"), Systemic Lupus Erythematosus ("SLE"), warm
Autoimmune Hemolytic Anemia ("wAIHA"), atypical Hemolytic Uremic Syndrome
("aHUS"), C3 Glomerulonephritis ("C3G"), and Immune Complex
Membranoproliferative Glomerulonephritis ("IC-MPGN"), dry AMD and complete CFI
deficiency ("CFID"), a rare immunodeficiency primarily affecting children. These
are severe, chronic, life-threatening diseases that result in a significantly
decreased quality of life for the afflicted individual.

CB 4332 can be dosed subcutaneously for systemic diseases and has the potential
for infrequent IVT injections for ophthalmic indications. As a key complement
regulator, CFI has the potential to be used in several complement dysregulated
diseases (e.g., those associated with hyperactive complement) in which
additional upstream regulation may prove more effective than inhibiting specific
downstream targets such as C3 or C5, where many of current molecules in
development are targeted.

Individuals with complete or significant absence of endogenous CFI may present
with a variety of disease manifestations, such as recurrent invasive infections
with encapsulated bacteria, but these patients are also at risk of developing
autoimmune and/or immune-complex diseases such as chronic inflammation of the
blood vessels of the brain, spinal cord, heart, or kidneys. No CFI replacement
therapy, including for prophylactic use, has been approved, and patients often
receive supportive care with lifelong antibiotic treatment, which may cause a
range of additional problems. We have received pre-IND guidance from the FDA as
well as Rare Pediatric Disease Designation of CB 4332 for treatment of CFI
deficiency in January 2022.

Low circulating serum CFI levels have been shown to be associated with rare CFI
genetic variants and all forms of AMD ranging from early to late-stage
manifestations. Studies have estimated the prevalence rates of CFI deficiency in
GA to be approximately 20%, suggesting that CFI is a prognostic biomarker for
progression of GA. Approximately 1 million individuals globally are predicted to
have low serum CFI levels and may potentially benefit from targeted CFI therapy.
Gyroscope released interim results from its FOCUS phase 1/2a trial for patients
with GA and having rare CFI variants, showing that gene therapy with GT005, an
AAV-delivered CFI rebalanced the overactivation of complement observed in the
vitreous with sustained expression of CFI. The FOCUS data also showed that
AAV-delivered CFI reduced complement biomarkers in the broader GA population who
do not have a rare CFI genetic variant.

We have additional early-stage complement discovery programs that target
different proteins of the complement system including proteases from our
ProTUNE™ C3b/C4b degrader and ImmunoTUNE™ C3a/C5a degrader platforms. These
proteases are designed to target specific disorders of the complement or
inflammatory pathways. The ProTUNE™ platform generates optimized,
next-generation engineered CFI molecules that are selectively enhanced for
potency and target engagement. We expect to nominate a development candidate and
target indication from this platform in 2022.

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Coagulation Programs

MarzAA

MarzAA is a potent, subcutaneously administered, next-generation Factor VIIa
variant. We commenced enrollment of a Phase 3 registrational trial of MarzAA for
episodic treatment of spontaneous or traumatic bleeding episodes in adolescents
and adults with congenital hemophilia A or hemophilia B with inhibitors in May
2021. We have discontinued this trial based on a number of factors, including
challenges in enrollment resulting from the limited number of potential patients
eligible to enroll in this trial, competition from competing approved therapies,
delays in enrollment resulting from COVID-19, the capital requirements to
complete the trial, and other factors. Patients enrolled in the study returned
to their standard of care and completed all required safety assessments. In the
patients enrolled to date, we have successfully treated bleeds with SQ MarzAA
and have not observed any adverse events. We plan to report these data at an
appropriate medical conference in the future. We had also begun enrollment of a
Phase 1/2 trial of MarzAA for treatment of bleeding in individuals with Factor
VII Deficiency, Glanzmann Thrombasthenia, and hemophilia A with inhibitors on
emicizumab prophylaxis. We have discontinued this trial as well, in light of the
difficulties in identifying and enrolling eligible patients, the capital
requirements to complete the trial and other factors. We believe that a SQ
recombinant Factor VIIa therapy, like MarzAA, has the potential to be an
important treatment option for patients with various bleeding disorders and are
exploring opportunities to license or sell MarzAA to another party for further
development.

DalcA

DalcA is a next-generation SQ Factor IX product candidate for the prophylactic
treatment of individuals with hemophilia B. An open-label, Phase 2b study was
completed in 2020, demonstrating that FIX plasma activity levels were raised
from severe to mild hemophilia B levels and maintained throughout the course of
the study. We have received guidance from the FDA on the design of the
registrational Phase 3 clinical trial, have the necessary data to support its
initiation, and are exploring opportunities to license or sell DalcA to another
party for further development.

Recent Manufacturing Updates

CB 4332

CB 4332 is an albumin-fused version of the CFI protease with an extended half-life that is designed to be a subcutaneous or intravitreal dosed therapy for people who would benefit from improved complement regulation.

Other Recent Developments

COVID-19 Business Impact

The global coronavirus pandemic has resulted in widespread requirements for
individuals to work from their homes, strained medical facilities worldwide, and
disruptions to certain pharmaceutical manufacturing and product supply chains.
While our offices in California have reopened for all employees, we may
experience future disruptions in applicable guidelines for workplace safety,
necessitating a return to a remote working environment. We are also still
experiencing operational and other challenges as a result of the COVID-19 global
pandemic, which delayed our enrollment in MAA-304 and MAA-202, contributing to
the decision to discontinue these trials, and which may delay or halt our other
development programs.

Recent Financing

In the first quarter of 2021, we issued and sold a total of 9,185,000 common shares (including 485,000 shares sold following the exercise of the underwriters’ over-allotment option) at a price of $5.75 per share. The net is returned to us, after deduction $3.6 million in rebates and underwriting fees and offering costs, were approximately $49.3 million.

We have no drug products approved for commercial sale and have not generated any
revenue from drug product sales. From inception to December 31, 2021, we have
raised net proceeds of approximately $509.3 million,

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primarily from private placements of convertible preferred stock since converted
to common stock, proceeds from our merger with Targacept, issuances of shares of
common stock and warrants, including $83.5 million in total cash receipts from
our license and collaboration agreements.

We have never been profitable and have incurred significant operating losses in
each year since inception. Our net losses were $87.9 million and $56.2 million
for the years ended December 31, 2021 and 2020, respectively. As of December 31,
2021, we had an accumulated deficit of $402.7 million. As of December 31, 2021,
our cash, cash equivalents and short-term investments balance were $46.9
million. Substantially all our operating losses were incurred in our research
and development programs and in our general and administrative operations.

We expect to incur significant expenses and increasing operating losses for at
least the next several years as we continue preclinical, manufacturing and
clinical development, and seek regulatory approval for our drug candidates. Our
operating losses may fluctuate significantly from quarter to quarter and year to
year due to timing of preclinical, manufacturing, clinical development programs
and regulatory guidance spending.

Direction changes

On July 14, 2021, we promoted Grant Blouse, Ph.D., to chief scientific officer
and Tom Knudsen, DVM, Ph.D., to senior vice president, corporate development.
Howard Levy, M.B.B.Ch, Ph.D., M.M.M., chief medical officer, announced his plan
to retire and transition to a senior clinical advisor role to Catalyst.

On September 9, 2021 (the "Effective Date"), we appointed Ms. Jeanne Y. Jew as a
Class III director of Catalyst with a term to expire at the 2024 Annual Meeting
of Stockholders. In connection with the appointment, the Board approved an
increase in the size of the Board, from seven to eight members, effective as of
the Effective Date.

On October 13, 2021, Clinton Musil, the chief financial officer, resigned for
personal reasons effective October 29, 2021. We promoted Seline Miller, the
Company's controller, to senior vice president, finance. She will serve as the
interim chief financial and principal accounting officer while the Company
initiates a search for a successor.

Overview of financial operations

Licensing and Collaboration Revenue

License and collaboration revenue consist of revenue earned for performance
obligations satisfied pursuant to our license and collaboration agreement with
Biogen which was entered into in December 2019. In consideration for the grant
of an exclusive license and related know-how, we received an up-front license
payment of $15.0 million in January 2020, which was recorded in license revenue
during the year ended December 31, 2020. We recognized collaboration revenue for
reimbursable third-party vendor, out-of-pocket and personnel costs pertaining to
the Biogen Agreement of $7.3 million and $5.8 million during the years ended
December 31, 2021 and 2020, respectively. In March 2022, we received notice that
Biogen is terminating the license and collaboration agreement. Under the terms
of the Biogen Agreement, termination will be effective in May 2022.

We have not generated any revenue from the sale of pharmaceuticals and we do not expect to generate revenue from the sale of pharmaceuticals until we obtain regulatory approval and commercialize our product candidates.

Cost of license and collaboration

Cost of license and collaboration revenue consists of fees for research and
development services payable to third-party vendors, and personnel costs,
corresponding to the recognition of license and collaboration revenue from
Biogen. Cost of license and collaboration revenue does not include any allocated
overhead costs. In connection with the license revenue recognized from Biogen as
discussed above in 2020, we paid Mosaic a $3.0 million sublicense fee and
recorded such payment as cost of license. We recognized third-party vendor,
out-of-pocket and personnel costs, most of which were reimbursable, pertaining
to the Biogen Agreement of $7.4 million and $6.1 million during the years ended
December 31, 2021 and 2020, respectively, and recorded such costs as cost of
collaboration revenue.

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Research and development costs

Research and development expenses represent costs incurred to conduct research,
such as the discovery and development of our product candidates. We recognize
all research and development costs as they are incurred. Nonrefundable advance
payments for goods or services used in research and development are deferred and
capitalized. The capitalized amounts are then expensed as the related goods are
delivered or services are performed, or until it is no longer expected that the
goods or services will be delivered.

Research and development expenses mainly consist of the following items:

     •   employee-related expenses, which include salaries, benefits and
         stock-based compensation;

• laboratory and supplier expenses, including payments to consultants and

third parties, related to the execution of preclinical, non-clinical and

         clinical studies;


     •   the cost of acquiring and manufacturing preclinical and clinical
         materials and developing manufacturing processes;

• clinical trial costs, including third party clinical research costs

         organizations;


  • performing toxicity and other preclinical studies; and


     •  facilities and other allocated expenses, which include direct and

charges allocated to rent and maintenance of premises, depreciation

and depreciation and other supplies.


The table below details our internal and external costs for research and
development for the period presented (in thousands). See Overview and Recent
Development Program Updates for further discussion of the current research and
development programs.
                                           Year Ended December 31,
                                                    2021
Hemophilia                                $                  25,791
Complement                                                   24,698
Personnel and other                                          17,198
Stock-based compensation                                      1,202
Total research and development expenses   $                  68,889


The largest component of our total operating expenses has historically been our
investment in research and development activities, including the clinical and
manufacturing development of our product candidates. We are focusing
substantially all our resources and development efforts on our complement
programs. Costs listed for our hemophilia and complement programs above consist
of clinical trial, manufacturing and research costs. Our internal resources,
employees and infrastructure, identified above as personnel and other, are
generally not directly tied to individual product candidates or development
programs. As such, we do not maintain information regarding these costs incurred
for these research and development programs on a project-specific basis.

We expect our aggregate research and development expenses will fluctuate during
the next year as we continue to explore strategic opportunities for the clinical
and manufacturing development of our programs. The global coronavirus pandemic
may also delay and increase costs of our current development plans.

On May 20, 2016, we signed a development and manufacturing services agreement
with AGC, formerly known as CMC ICOS Biologics, Inc., pursuant to which AGC will
conduct manufacturing development of agreed upon product candidates. We will own
all intellectual property developed in such manufacturing development activities
that are specifically related to our product candidates and will have a
royalty-free and perpetual license to use AGC's intellectual property to the
extent reasonably necessary to make these product candidates, including
commercial manufacturing. As of December 31, 2021, six GMP batches have been
manufactured at AGC in addition to an engineering batch.

The initial term of the agreement is ten years or, if later, until all stages
under outstanding statements of work have been completed. Either party may
terminate the agreement in its entirety upon written notice of a material
uncured breach or upon the other party's bankruptcy, and we may terminate the
agreement upon prior notice for any reason. In addition, each party may
terminate the agreement in the event that the manufacturing development
activities

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cannot be completed for technical or scientific reasons. We had firm work orders
with AGC to manufacture MarzAA and DalcA to support clinical trials totaling
$15.8 million. The payment obligations were fully paid off as of December 31,
2021. We also have firm work orders with AGC to perform certain manufacturing
services related to our collaboration agreement with Biogen totaling $0.7
million and the payment obligations remaining as of December 31, 2021 were $0.3
million.

In July 2021, we entered into two separate agreements, one for additional
clinical trial services for MarzAA, and another for our screening and natural
history of disease clinical studies related to CFI deficiency, with total
payments of up to $3.2 million and $6.5 million, respectively. In November 2021,
we provided notice of intent to terminate our MarzAA manufacturing agreements
and incurred charges of $3.8 million to write-off prepaid manufacturing costs
that will no longer be used for the clinical development of MarzAA. We can
terminate the CFI agreement at our discretion and upon termination will be
responsible to pay for those services incurred prior to termination plus
reasonable wind-down expenses.

On September 16, 2021, we signed a Manufacturing and Research and Development
Studies Agreement to support the lyophilized drug product, CB 4332. The
agreement will cover analytical method qualification to support GMP
manufacturing. We have firm work orders related to this agreement totaling $0.2
million and the payment obligations were fully paid off as of December 31, 2021.

We also have a long-term clinical supply services agreement with Catalent
Indiana, LLC ("Catalent"). Catalent has facilities in the U.S. and Europe and
conducts drug product development and manufacturing for MarzAA and DalcA. We
successfully completed development work for a variety of vial sizes which
supports flexible dosing.

The process of conducting clinical trials necessary to obtain regulatory
approval is costly and time consuming. We may never succeed in achieving
marketing approval for our product candidates. The probability of success of
each product candidate may be affected by numerous factors, including clinical
data, competition, manufacturing capability and commercial viability. As a
result, we are unable to determine the duration of and costs to complete our
research and development projects or when and to what extent we will generate
revenue from the commercialization and sale of any of our product candidates.

Successful development of current and future product candidates is highly
uncertain. Completion dates and costs for our research programs can vary
significantly for each current and future product candidate and are difficult to
predict. Thus, we cannot estimate with any degree of certainty the costs we will
incur in the development of our product candidates. We anticipate we will
determine which programs and product candidates to pursue and how much funding
to direct to each program and product candidate on an ongoing basis in response
to the scientific success of early research programs, results of ongoing and
future clinical trials, our ability to enter into collaborative agreements with
respect to programs or potential product candidates, as well as ongoing
assessments as to each current or future product candidate's commercial
potential.

General and administrative expenses

General and administrative expenses consist of personnel costs, allocated
expenses and other expenses for outside professional services, including legal,
human resources, audit and accounting services. Personnel costs consist of
salaries, bonus, benefits and stock-based compensation. We incur expenses
associated with operating as a public company, including expenses related to
compliance with the rules and regulations of the Securities and Exchange
Commission ("SEC") and Nasdaq Stock Market LLC ("Nasdaq"), insurance expenses,
audit expenses, investor relations activities, Sarbanes-Oxley compliance
expenses and other administrative expenses and professional services. We expect
such expenses to fluctuate as we continue to explore strategic opportunities for
our programs.

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Operating results

The following tables present our results of operations for the periods presented (in thousands, except percentages):

                                             Year Ended December 31,
                                               2021             2020         Change ($)       Change (%)
Revenue:
License                                    $          -       $  15,100     $    (15,100 )              *
Collaboration                                     7,338           5,848            1,490               25 %
License and collaboration revenue                 7,338          20,948          (13,610 )            (65 )%
Operating expenses:
Cost of license                                       -           3,102           (3,102 )              *
Cost of collaboration                             7,380           6,061            1,319               22 %
Research and development                         68,889          52,975           15,914               30 %
General and administrative                       18,963          16,180            2,783               17 %
Total operating expenses                         95,232          78,318           16,914               22 %
Loss from operations                            (87,894 )       (57,370 )        (30,524 )             53 %
Interest and other income (expense), net            (39 )         1,129           (1,168 )              *
Net loss                                   $    (87,933 )     $ (56,241 )   $    (31,692 )             56 %



*Not meaningful

Licensing and Collaboration Revenue

License and collaboration revenues were $7.3 million and $20.9 million for the
years ended December 31, 2021 and 2020, respectively. In the year ended December
31, 2021, revenue consisted primarily of reimbursable collaboration expenses
from our Biogen Agreement. In the year ended December 31, 2020, revenue
consisted primarily of a license payment of $15.0 million and reimbursable
collaboration expenses of $5.8 million from our Biogen Agreement.

Cost of license and collaboration

Cost of license and collaboration revenues were $7.4 million and $9.2 million
during the years ended December 31, 2021 and 2020, respectively. Cost of
collaboration for the year ended December 31, 2021 was primarily related to
reimbursable third-party vendor and personnel costs we incurred pertaining to
the Biogen Agreement. Cost of license for the year ended December 31, 2020 was
primarily the $3.0 million sublicense fee we paid to Mosaic in connection with
the recognition of the license revenue from Biogen. Cost of collaboration
revenue for the year ended December 31, 2020 was primarily reimbursable
third-party vendor, out-of-pocket and personnel related costs we incurred
pertaining to the Biogen Agreement.

Research and development costs

Research and development expenses were $68.9 million and $53.0 million during
the years ended December 31, 2021 and 2020, respectively, an increase of
approximately $15.9 million, or 30%. The increase was due primarily to an
increase of $9.3 million in clinical manufacturing costs of which $3.8 million
related to the write-off of prepaid manufacturing costs as part of our
restructuring, an increase of $3.9 million in preclinical research, an increase
of $2.1 million in personnel-related costs which includes approximately $0.3
million related to one-time severance costs associated with our restructuring,
and an increase of $0.6 million in facilities costs.

General and administrative expenses

General and administrative expenses were $19.0 million and $16.2 million over the past years December 31, 2021 and 2020, respectively, an increase of approximately $2.8 million, or 17%. The increase is mainly due to an increase in $1.4 million staff costs and an increase of $1.4 million in professional services.

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Interest and other income (expenses), net

The $1.2 million decrease in interest and other income (expense), net for the
year ended December 31, 2021 compared to the year ended December 31, 2020 was
primarily due to a decrease in interest income and due to the payment received
in the first quarter of 2020 under an agreement associated with neuronal
nicotinic receptor asset sold in 2016.

Recent accounting pronouncements

Refer to Note 3, Summary of Significant Accounting Policies, to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K
for a description of recent accounting pronouncements adopted and not yet
adopted for the year ended December 31, 2021.

Cash and capital resources

As of December 31, 2021, we had $46.9 million of cash, cash equivalents and
short-term investments. During the year ended December 31, 2021, we had a $87.9
million net loss and $83.8 million cash used in operating activities. We have an
accumulated deficit of $402.7 million as of December 31, 2021. Our primary uses
of cash are to fund operating expenses, including research and development
expenditures and general and administrative expenditures. Cash used to fund
operating expenses is impacted by the timing of when we pay these expenses, as
reflected in the change in our outstanding accounts payable and accrued
expenses.

We believe that our existing capital resources, including cash, cash equivalents
and investments will be sufficient to meet our projected operating requirements
for at least the next 12 months from the date of this filing. We have based this
estimate on assumptions that may prove to be wrong, and we could utilize our
available capital resources sooner than we currently expect. We plan to continue
to fund losses from operations and capital funding needs through future equity
and/or debt financings, as well as potential additional asset sales, licensing
transactions, collaborations or strategic partnerships with other companies. At
the year ended December 31, 2021, we had effective registration statements on
Form S-3 that enable us to sell up to $150.0 million in securities subject to
limitations under SEC rules. 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. Licensing
transactions, collaborations or strategic partnerships may result in us
relinquishing valuable rights. 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, and/or suspend or curtail planned programs. Any of these
actions could materially harm our business.

In October 2021, we entered into the ATM Agreement with Piper Sandler, which
provides that, upon the terms and subject to the conditions and limitations set
forth in the ATM Agreement, we may elect to issue and sell, from time to time,
shares of our common stock having an aggregate offering price of up to $50.0
million through Piper Sandler acting as our sales agent. Under the ATM
Agreement, Piper Sandler may sell the shares of common stock by methods deemed
to be an "at the market" offering as defined in Rule 415 under the Securities
Act of 1933, as amended, including sales made directly on the Nasdaq Capital
Market or any other trading market for the common stock. Piper Sandler will use
commercially reasonable efforts to sell the shares of common stock subject to
the ATM Agreement from time to time, based upon our instructions (including any
price, time or size limits or other customary parameters or conditions that we
may impose). We will pay Piper Sandler a commission of 3.0% of the gross
proceeds of any shares sold through Piper Sandler under the ATM Agreement;
however, we are not obligated to make any sales of common stock. For the year
ended December 31, 2021, no shares of common stock were sold under the ATM
Agreement.

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The following table summarizes our cash flows for the periods presented (in thousands):

                                              Year Ended December 31,
                                                2021             2020
Cash used in operating activities           $    (83,755 )     $ (55,048 )
Cash provided by investing activities             48,189           9,663
Cash provided by financing activities             49,553          60,376

Net increase in cash and cash equivalents $13,987 $14,991

Cash flow from operating activities

Cash used in operating activities for the year ended December 31, 2021 was $83.8
million. The most significant component of our cash used was a net loss of $87.9
million. This included non-cash expense related to stock-based compensation of
$3.4 million and depreciation and amortization of $0.3 million. In addition,
cash inflow of $0.5 million was attributable to the change in our net operating
assets and liabilities primarily as a result of a $3.9 million decrease in
prepaid and other assets, a $1.5 million decrease in accounts receivable, and a
$0.5 million increase in accounts payable, offset by a $3.7 million decrease in
accrued compensation and other accrued liabilities and a $1.8 million decrease
in deferred revenue related to the Biogen Agreement.

Cash used in operating activities for the year ended December 31, 2020 was $55.0
million, due primarily to a net loss of $56.2 million and a net change in our
operating assets and liabilities of $2.6 million, due primarily to a $11.7
million decrease in accounts receivable and a $1.7 million increase in accounts
payable, partially offset by a $13.0 million decrease in deferred revenue
related to the Biogen Agreement and a $3.0 million increase in prepaid and other
assets. This is partially offset by non-cash charges of $3.8 million.

Cash flow from investing activities

Cash provided by investing activities for the year ended December 31, 2021 was
$48.2 million, due to $49.0 million in proceeds from maturities of investments,
offset by $0.8 million in purchases of property and equipment.

Cash provided by investing activities for the year ended December 31, 2020 was
$9.7 million, due to $107.6 million in proceeds from maturities of investments,
offset by $97.6 million in purchases of short-term and long-term investments and
$0.3 million in purchases of property and equipment.

Cash flow from financing activities

Cash provided by financing activities for the year ended December 31, 2021 was
$49.6 million, due to $49.3 million in net proceeds from the issuance of common
stock related to our public offering in the first quarter of 2021 and $0.3
million in proceeds from ESPP purchases of common stock and stock option
exercises.

Cash provided by financing activities for the year ended December 31, 2020 was
$60.4 million, due to $32.0 million in net proceeds from the issuance of common
stock related to our public offering in February 2020, $28.0 million in net
proceeds from the issuance of common stock related to our public offering in
June 2020, and $0.4 million in proceeds from ESPP purchases of common stock and
stock option exercises.

Critical accounting policies and estimates

The preparation of the consolidated financial statements and related disclosures
in conformity with U.S. generally accepted accounting principles ("GAAP") and
the Company's discussion and analysis of its financial condition and operating
results require the Company's management to make judgments, assumptions and
estimates that affect the amounts reported in its consolidated financial
statements and accompanying notes. Our significant accounting policies and
methods used in preparation of the Company's consolidated financial statements
are described in Note 3, "Summary of Significant Accounting Policies," of the
Notes to the Consolidated Financial Statements of this Annual Report on Form
10-K. Management bases its estimates on historical experience and on various
other assumptions it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may differ from these estimates, and
such differences may be material.

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Management believes the Company's critical accounting policies and estimates
discussed below are critical to understanding its historical and future
performance, as these policies relate to the more significant areas involving
management's judgments and estimates.

Revenue recognition

License and collaboration agreements

We may enter into collaboration arrangements that fall under the scope
Collaborative Arrangements (Topic 808) ("ASC 808"). We analyze collaboration
arrangements to assess whether they are within the scope of ASC 808 to determine
whether such arrangements involve joint operating activities performed by
parties that are both active participants in the activities and exposed to
significant risks and rewards dependent on the commercial success of such
activities. This assessment is performed throughout the life of the arrangement
based on changes in the responsibilities of all parties in the arrangement. The
accounting for some of the activities under collaboration arrangements may be
analogized to ASC 606 for distinct units of accounting that are reflective of a
vendor-customer relationship.

Under ASC 606, in determining the appropriate amount of revenue to be recognized
as we fulfill our obligations under its agreements, we perform the following
steps: (i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance
obligations including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance
obligations based on estimated selling prices; and (v) recognition of revenue
when we satisfy each performance obligation.

If a license to our intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, we recognize
revenues attributed to the license when the license is transferred to the
customer and the customer is able to use and benefit from the license. For
licenses that are bundled with other promises, we use our judgement to assess
the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time.

At the inception of each arrangement that contains development milestones, we
evaluate whether the development milestones included are considered probable of
being reached and estimate the amount to be included in the transaction price
using the most likely amount method. If it is probable that a significant
revenue reversal would not occur, the associated milestone value is included in
the transaction price. Milestone payments that are not within our control or the
licensee, such as regulatory approvals, are not generally considered probable of
being achieved until those approvals are received.

At the end of each reporting period, we re-evaluate the probability of
achievement of any development milestones, and if necessary, adjust its estimate
of the transaction price. Any such adjustments would be recorded on a cumulative
catch-up basis, which would affect revenues and earnings in the period of
adjustment.

For research and development services, the Company elected the practical
expedient to recognize revenue as the research and development services are
invoiced. As the Company has a right to consideration from the collaboration
agreement with Biogen, in an amount that corresponds directly with the value of
the Company's performance completed to date for the research services, the
Company recognized revenue related to the research services as invoiced, in line
with the practical expedient in ASC 606-10-55-18.

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The transaction price is allocated to each performance obligation on a relative
stand-alone selling price ("SSP") basis. We recognize revenue as or when the
performance obligations under the contract are satisfied. As part of the
accounting for these arrangements, we must develop assumptions that require
judgment to determine the timing of recognition and the SSP for each performance
obligation identified in the contract.

The SSP for licenses are calculated using the residual approach if we have not
yet established a price for such license and the license has not previously been
sold on a standalone basis. Otherwise, selling prices for licenses are
determined using an income approach model and include key assumptions such as:
development timeline, revenue forecast, commercialization expenses, discount
rate and probabilities of technical and regulatory success. To estimate the SSP
for research and development services, we use a cost-plus margin approach.

Accumulated research and development costs

We record accrued expenses for estimated costs of our research and development
activities conducted by external service providers, which include the conduct of
preclinical studies and clinical trials and contract manufacturing activities.
We record the estimated costs of research and development activities based upon
the estimated amount of services provided but not yet invoiced and includes
these costs in other accrued liabilities in the consolidated balance sheet and
within research and development expense in the consolidated statement of
operations. These costs are a significant component of our research and
development expenses. We record accrued expenses for these costs based on the
estimated amount of work completed and in accordance with agreements established
with these external service providers.

We estimate the amount of work completed through discussions with internal
personnel and external service providers as to the progress or stage of
completion of the services and the agreed-upon fee to be paid for such services.
We make significant judgments and estimates in determining the accrued balance
in each reporting period. As actual costs become known, we adjust its accrued
estimates.

Stock-based Compensation

We measure the cost of employee and director services received in exchange for
an award of equity instruments based on the fair value-based measurement of the
award on the date of grant and recognize the related expense over the period
during which an employee or director is required to provide service in exchange
for the award on a straight-line basis. The estimated fair value of equity
awards that contain performance conditions is expensed over the term of the
award once we have determined that it is probable that performance conditions
will be satisfied.

Determining the fair value of stock-based awards at the grant date requires
judgment. We use the Black-Scholes option-pricing model to determine the fair
value of stock options. The determination of the grant date fair value of
options using an option-pricing model is affected by our assumptions regarding a
number of variables including the fair value of our common stock, our expected
common stock price volatility over the expected life of the options, expected
term of the stock option, risk-free interest rates and expected dividends. We
record stock-based compensation as a compensation expense, net of the forfeited
awards. We elected to account for forfeitures when they occur. As such, we
recognize stock-based compensation expense only for those stock-based awards
that are expected to vest, over their requisite service period, based on the
vesting provisions of the individual grants. See Note 10, Stock Based
Compensation, to our consolidated financial statements included in this Annual
Report on Form 10-K for more information.

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