Atea Pharmaceuticals, Inc. (AVIR) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company leveraging our deep understanding of antiviral drug development, medicinal chemistry, biology, biochemistry and virology to discover and develop novel orally administered product candidates to treat serious viral diseases. Currently, we are developing our lead product candidate, bemnifosbuvir, in a global Phase 3 clinical trial as a monotherapy for the treatment of COVID-19, and in a global Phase 2 clinical trial as part of a combination therapy with ruzasvir, an NS5A inhibitor, for the treatment of HCV infection.

Bemnifosbuvir

Derived from our internal discovery program, bemnifosbuvir (AT-527), is an investigational, novel, orally administered guanosine nucleotide analog polymerase inhibitor that combines a unique nucleotide scaffold with novel double prodrugs for the intended purpose of inhibiting the enzymes central to viral replication. We believe that utilizing this double prodrug moiety approach allows us to maximize formation of the active metabolite potentially resulting in an oral antiviral product candidate that is selective for and highly effective at preventing replication and transcription of SARS-CoV-2, the causative agent of COVID-19, HCV and other single ssRNA viruses while avoiding toxicity to host cells.

COVID-19 – Our Strategy and Objective

More than four years after emerging as a global pandemic and public health crisis, COVID-19 remains a persistent and serious health threat because of continued variant fueled surges of infection. The SARS-CoV-2 virus is accumulating mutations with amino acid substitutions faster than any other endemic ssRNA virus and the constant evolution of new variants has resulted in continued waves of infections globally.

Our COVID-19 strategy is focused on the development of bemnifosbuvir for the treatment of COVID-19. We believe that oral antivirals protecting against the development of severe infection and transmission remain urgently needed particularly for high-risk patients who currently have few or no treatment options due to limitations of currently available vaccines and therapeutics. High-risk patients include those who are unvaccinated, patients who fail to respond to available vaccines, vaccinated patients with waning efficacy, which can occur between three to six months after immunization, and patients for whom current treatments are contraindicated. Without suitable treatments, high-risk patients remain vulnerable to severe COVID-19 and associated hospitalization and death.

As COVID-19 continues to persist as a global endemic disease, we believe that the global COVID-19 therapeutic market, and in particular the US market, will remain a multi-billion-dollar commercial opportunity for many years to come. Further, as the commercialization of COVID-19 therapeutics enters more fully into traditional distribution and reimbursement channels in 2024 and after, we anticipate that a major consideration for third-party payers will be a cost/value analysis that is driven in part by the economic burden of hospitalization, especially for high-risk populations.

The objective of our COVID-19 development program is to address the current unmet medical needs of high-risk patients who remain vulnerable to hospitalization and death from COVID-19 by developing bemnifosbuvir, as a safe, effective, convenient, oral antiviral without the key limitations of current treatment options, including drug-drug interactions, tolerability and other safety concerns. The FDA has granted Fast Track designation for the investigation of bemnifosbuvir to treat COVID-19. Currently, we

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are evaluating bemnifosbuvir in SUNRISE-3, a global Phase 3 clinical trial that is enrolling high-risk patients with mild to moderate COVID-19.

For COVID-19, bemnifosbuvir targets the SARS-CoV-2 RNA polymerase (Nsp12), a highly conserved enzyme that is unlikely to change as the virus mutates and new variants continue to emerge. The RNA polymerase complex is responsible for both replication and transcription of SARS-CoV-2. Bemnifosbuvir has a unique dual mechanism of action at both the RdRp and nidovirus RdRp associated NiRAN active sites on the highly conserved SARS-CoV-2 RNA polymerase, which has the potential to create a high barrier to resistance. In vitro data have shown that bemnifosbuvir was active with similar activity against all SARS-CoV-2 VOC and VOI that have been tested to date, including Omicron subvariants BA.4, BA.5 and XBB and EG.5.1.

HCV – Our Strategy and Objective

Despite the availability of direct acting antiviral oral combination treatment regimens, HCV continues to be a serious viral disease in the US and globally. Approximately 58 million people globally are living with chronic HCV infection. The WHO estimates a global incidence of 1.5 million new infections and 290,000 deaths per year.

In the US, HCV is recognized as a health crisis with approximately 2.4 million individuals estimated to be infected. Prevalence of HCV in the US is expected to remain constant over the coming years as rising HCV is incidence largely attributable to the opioid crisis, IV drug use, and HCV reinfection, especially among younger adults, offsets the number of new patients treated.

Our HCV strategy focuses on the development of bemnifosbuvir in combination with ruzasvir, an HCV NS5A inhibitor, a product candidate which we have exclusively licensed from Merck. Combination therapy utilizing two or more direct acting antivirals with different mechanisms of action is a scientifically and clinically well-established approach that is utilized by currently available human immunodeficiency virus, hepatitis B virus and HCV treatment regimens.

The objective of our HCV development program is to improve upon the current SOC by offering, if successfully developed, the combination of bemnifosbuvir and ruzasvir, as a potentially differentiated eight-week duration, pan-genotypic protease inhibitor-free regimen for HCV-infected patients with or without cirrhosis. Currently, we are conducting a Phase 2 clinical trial of bemnifosbuvir in combination with ruzasvir in treatment naïve HCV infected patients, either without cirrhosis or with compensated cirrhosis.

For HCV, the combination of bemnifosbuvir and ruzasvir targets the HCV NS5B and the HCV NS5A, respectively, and is designed to inhibit these enzymes which are essential for HCV replication. Both bemnifosbuvir and ruzasvir have individually demonstrated potent, pan-genotypic, antiviral activity against HCV and the combination of bemnifosbuvir and ruzasvir has exhibited synergistic activity against HCV in vitro.

Key Clinical Trials

COVID-19 – SUNRISE-3: Global Phase 3 Clinical Trial of Bemnifosbuvir

SUNRISE-3, is a currently ongoing global, multicenter, randomized, double-blind, placebo-controlled Phase 3 clinical trial that is evaluating bemnifosbuvir (550 mg BID) for five days) in high-risk non-hospitalized patients with mild or moderate COVID-19. SUNRISE-3 is designed to evaluate bemnifosbuvir as monotherapy (primary analysis) but it is also exploring the effect of combination therapy in a smaller sub-set of patients who receive a compatible antiviral drug along with bemnifosbuvir (secondary analysis).

The trial consists of two study populations derived from the type of SOC received: 1) a “supportive care population” (those patients who do not qualify for another antiviral treatment or where other antivirals are not locally available) which is assessing bemnifosbuvir given as monotherapy (primary analysis) and 2) a “combination antiviral population” which is assessing combination therapy if the SOC includes treatment with other compatible antiviral drugs against COVID-19 (secondary analysis). Patients are being randomized 1:1 to receive either bemnifosbuvir 550 mg BID plus locally available SOC or placebo BID plus locally available SOC for five days.

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The primary endpoint of the SUNRISE-3 study is all-cause hospitalization or death through Day 29 in approximately 2,200 patients in the supportive care monotherapy population. Secondary endpoints in each of the supportive care monotherapy patient population and the combination antiviral population include COVID-19 related hospitalization or death, COVID-19 complications, medically attended visits, symptom rebound/relapse and viral load rebound.

The trial is enrolling patients who are ≥70 years old (regardless of other risk factors), patients ≥55 years old with one or more risk factors, patients ≥50 years old with two or more risk factors and patients ≥18 years old with certain risk factors including immunocompromised conditions, all regardless of COVID-19 vaccination status. We believe that this population encompasses those patients who currently remain at high-risk for progression of COVID-19 to severe disease and associated hospitalization and death.

In January and February 2024, we announced the enrollment of more than 650 patients and more than 1,350 patients, respectively, in the supportive care monotherapy cohort. Each of these patient enrollment milestones triggers an interim analysis by an independent DSMB principally for safety and futility after the respective patient group has completed Day 29 post treatment. As a result, we currently anticipate that the first interim analysis by the DSMB will occur in March of 2024 and the second interim analysis by the DSMB will occur in the second quarter of 2024. Patient enrollment in the SUNRISE-3 trial, which has currently surpassed 1,400 patients in the supportive care monotherapy population, continues and topline data from the trial are anticipated in the second half of 2024.

HCV – Global Phase 2 Clinical Trial of the Combination of Bemnifosbuvir and Ruzasvir

Currently, we are conducting a global Phase 2 clinical trial of bemnifosbuvir in combination with ruzasvir in treatment-naïve, HCV-infected patients either without cirrhosis or with compensated cirrhosis. This study is designed to evaluate the safety and efficacy of eight weeks of treatment with the combination consisting of once daily bemnifosbuvir 550 mg and ruzasvir 180 mg. Up to approximately 280 HCV-infected, treatment-naïve patients across HCV GTs, including a lead-in cohort of 60 patients without cirrhosis, are expected to be enrolled in this Phase 2 clinical trial. The primary endpoints of the study are safety and SVR12. Other virologic endpoints include virologic failure, SVR24 and resistance.

In February 2024, we announced final results from the full lead-in cohort in which a 98% SVR4 rate was observed [58 of 59 subjects achieved SVR4 with one patient who did not return for post-treatment follow-up]. The one patient who did not achieve SVR4 had poor adherence, and was infected with HCV GT-2. These results are consistent with the initial results announced in January 2024. The SVR4 rate exceeded the protocol-defined efficacy criterion of ≥90% SVR4 for continuing the study. As a result, in January 2024 we commenced enrolling up to an additional 220 patients in the study, including patients with cirrhosis. In the lead-in cohort, very rapid kinetics were observed with viral load for each patient near or below the LLOQ at four weeks of treatment, which we believe is supportive of an eight-week treatment regimen for the combination of bemnifosbuvir and ruzasvir. All 60 patients in the lead-in cohort achieved viral load below the LLOQ by the end of the eight-week treatment regimen.

The combination of bemnifosbuvir and ruzasvir in the lead-in cohort was generally safe and well tolerated and there were no drug related SAEs, no treatment discontinuations and adverse events AEs were mostly mild. Final SVR12 results from all 280 patients enrolled in the global Phase 2 study are anticipated in the second half of 2024.

If the Phase 2 study is successfully completed, subject to discussion and alignment with regulatory authorities, we anticipate initiating a Phase 3 clinical development program in the second half of 2024.

Dengue

After conducting a Phase 2 clinical trial, in February 2023, we decided not to pursue further clinical development of AT-752 for the treatment and prophylaxis of dengue. This action was taken due to the long timelines anticipated for patient enrollment, expected clinical operational challenges, including the challenge of successfully identifying patients shortly after infection which is not feasible with the diagnostic tests that are currently readily available in endemic countries, and the estimated resource burdens, including substantial costs, associated with the further clinical development of an antiviral for each of the treatment and prophylaxis of dengue.

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Financial Resources

We believe we are well capitalized to advance our current programs. We had $578.1 million in cash, cash equivalents and marketable securities at December 31, 2023. Based on our current plans, we anticipate these financial resources will allow us to advance our current and planned clinical programs to and through key inflection points and to fund our activities through 2026. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect.

Roche License Agreement

In October 2020, with Roche, we entered into the Roche License Agreement in connection with the global development, manufacture and commercialization of bemnifosbuvir, products containing bemnifosbuvir or AT-511, the free base of bemnifosbuvir, and related companion diagnostics. During the term of the Roche License Agreement, Roche and we jointly developed bemnifosbuvir for COVID-19 on a worldwide-basis and equally shared the costs associated with such development activities.

The Roche License Agreement terminated on February 10, 2022, and, accordingly, our obligations to share costs with Roche also ended. As a result of the termination of the Roche License Agreement, we regained worldwide exclusive rights from Roche to research, develop, manufacture and commercialize bemnifosbuvir, products containing bemnifosbuvir and related companion diagnostics in all fields of use.

Merck License Agreement

In December 2021, we entered into the Merck License Agreement for the development, manufacture and commercialization of ruzasvir. Ruzasvir is an investigational NS5A inhibitor we are developing in combination with bemnifosbuvir for the treatment of HCV.

Pursuant to the terms of the Merck License Agreement, we obtained from Merck an exclusive (subject to certain reserved rights to conduct internal research), sublicensable, and worldwide license under certain Merck patents and know-how to research, develop, manufacture, have manufactured, use, import, export, sell, offer for sale, and otherwise commercialize a Product for all therapeutic or prophylactic uses in humans.

In addition to a non-refundable upfront payment that we made in February 2022, we will be required to pay Merck milestone payments upon our achievement of certain development, regulatory and sales-based milestones. Additionally, we will pay Merck tiered royalties based on annual net sales of Products ranging from high single digits to mid-teens percentages. Our royalty payment obligations will continue until the later of (i) the expiration of the last to expire valid claim of a licensed Merck patent claiming such Product and (ii) a period of years after the first commercial sale of such Product in such country. We may terminate the Merck License Agreement for convenience upon prior written notice. The first potential milestone, in the amount of $5.0 million, would be payable upon the commencement of a Phase 3 clinical trial.

Financial Operations Overview

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $578.1 million. Net cash used in operating activities was $85.4 million for the year ended December 31, 2023.

We expect that our net cash used in operating activities will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we may incur additional costs as we continue to operate as a public company. We believe that our available cash and cash equivalents will be sufficient to fund our planned operations through 2026. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect.

We do not have any products approved for sale and have not generated any product revenue since inception. We do not anticipate generating any revenue from product sales for the foreseeable future. Our

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

We plan to continue to use third-party service providers, including CROs to carry out our preclinical and clinical development, and CMOs to manufacture and supply the materials used during the development of our product candidates. Additionally, we expect to rely on CMOs for the manufacture of commercial supply of any product candidate we may successfully develop.

As we continue to advance our programs, we expect to incur significantly higher expenses over the next several years. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

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continue Phase 3 clinical development of bemnifosbuvir as a monotherapy for the treatment of COVID-19;

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continue the clinical development of the combination of bemnifosbuvir and ruzasvir for the treatment of HCV which is expected to include later stage Phase 3 development if the Phase 2 clinical trial we are currently conducting is successful;

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continue discovery and IND-enabling activities in anticipation of nominating a protease inhibitor product candidate for the treatment of COVID-19;

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initiate clinical development of a protease inhibitor for the treatment of COVID-19;

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manufacture increasing quantities of bemnifosbuvir drug substance and drug product in anticipation of potential commercialization;

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seek market approval and prepare for potential commercialization of product candidates we may successfully develop;

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acquire or in-license clinical stage drug candidates, form strategic alliances or establish collaborations with third parties;

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maintain, expand, protect and enforce our intellectual property portfolio;

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hire additional research, development and administrative personnel; and

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establish commercialization capabilities if we are successful in developing our product candidates.

Components of Results of Operations

Revenue

We do not have any products approved for sale and we have not generated any revenue in the periods presented.

If our development efforts for our product candidates are successful and result in commercialization, we may generate revenue in the future from product sales. Additionally, we may generate revenue from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Research and Development Expenses

Substantially all of our research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses include external costs consisting of fees paid to third parties, including CROs and CMOs, to conduct certain research and development activities on our behalf and consulting costs, as well as internal costs consisting of payroll

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and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities attributable to our research and development personnel. We expense both internal and external research and development expenses as they are incurred. In circumstances where amounts have been paid in advance or in excess of costs incurred, we record a prepaid expense, which is expensed as services are performed or goods are delivered.

A significant portion of our research and development costs have been external costs, which we track by therapeutic area. We have not historically tracked our internal research and development expenses by therapeutic area as they are deployed across multiple programs.

As discussed in Note 3 to our consolidated financial statements, during the term of the Roche License Agreement which terminated in February 2022, we and Roche shared certain manufacturing and clinical development costs on a 50/50 basis. Billings to us by Roche for our percentage share of such expenses were recorded in research and development expenses. During the year ended December 31, 2023, we recorded a net reduction to research and development expenses of $18.6 million related to credits received from Roche. During the year ended December 31, 2022, we recorded a net reduction to research and development expenses of $6.9 million related to credits received from Roche. These credits were the result, following the termination of the Roche License Agreement, of changes and adjustments by Roche in estimated amounts of expenses reported by Roche during the period in which we and Roche shared costs associated with the development of bemnifosbuvir.

The following table summarizes our external research and development expenses by indication and internal research and development expenses:

We are focusing substantially all of our resources on the development of our product candidates, particularly bemnifosbuvir for the treatment of COVID-19 and the combination of bemnifosbuvir and ruzasvir for the treatment of HCV. We expect our research and development expenses to continue to increase substantially for at least the next few years, as we seek to complete our current clinical programs which in the case of HCV, is expected to include a Phase 3 clinical trial if our Phase 2 clinical trial is successful, pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates. Predicting the timing or cost to complete our clinical programs, validate our commercial manufacturing and supply processes and manufacture of product at commercial scale is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or the time to complete planned clinical trials is extended due to delays in enrollment or otherwise, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict with any certainty when our product candidates, if ever, will receive regulatory approval with any certainty, if ever.

General and Administrative Expenses

General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation,

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information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses may increase, including in connection with any future expansion of our organization for potential commercialization of our product candidates, as a result of increased personnel costs, expanded infrastructure, increased consulting, legal and accounting services costs associated with complying with Nasdaq and SEC requirements and increased investor relations costs.

Interest Income and Other, Net

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

Income Taxes

Income taxes consists primarily of federal and state current income taxes.

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

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

Research and Development Expenses

Research and development expenses increased by $32.3 million from $81.9 million for the year ended December 31, 2022 to $114.2 million for the year ended December 31, 2023. The increase was primarily driven by higher external spend related to our Phase 3 COVID-19 SUNRISE-3 clinical trial and our Phase 2 clinical trial of the combination of bemnifosbuvir and ruzasvir for the treatment of HCV offset by a larger reduction related to credits received from Roche. We also had an increase of $4.4 million in internal costs primarily due to an increase of $2.8 million in personnel-related expenses, including salaries and bonuses, benefits and increased stock-based compensation expense of $0.8 million for our research and product development employees and $1.6 million in consulting and other research and development expenses.

General and Administrative Expenses

General and administrative expenses increased by $1.2 million from $48.7 million for the year ended December 31, 2022 to $49.9 million for the year ended December 31, 2023. The increase in general and administrative expenses reflected an increase of $2.4 million in personnel-related expenses, including salaries, benefits and increased stock-based compensation expense of $1.9 million; partially offset by a decrease in professional fees and other expenses of $1.3 million.

Interest Income and Other, Net

Interest income and other, net, increased by $18.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to investing in higher yield marketable securities and higher interest rates for the entire year.

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Income Taxes

We recorded an income tax expense of $1.0 million for the year ended December 31, 2023 as compared to a net income tax benefit of $3.6 million for the year ended December 31, 2022. The net income tax benefit recorded for the year ended December 31, 2022 was primarily the result of changes in estimates between our original provision for 2021 income taxes and the actual amounts reflected in the income tax returns as filed.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $578.1 million. We believe that our available cash, cash equivalents and marketable securities will be sufficient to fund our planned operations through 2026. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect.

We entered into an open market sales agreement ("Sales Agreement") with Jefferies LLC ("Jefferies"), in 2021 pursuant to which we may from time to time offer and sell shares of our common stock for an aggregate offering price of up to $200.0 million, through or to Jefferies, acting as sales agent or principal. We have agreed to pay Jefferies a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Jefferies with customary indemnification and contribution rights. As of December 31, 2023, no shares have been issued under the Sales Agreement. The shares will be offered and sold under the Company's shelf registration statement on Form S-3 and related prospectus filed with the SEC on November 24, 2021, as amended.

Future Funding Requirements

To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when, or if, this will occur. We expect to continue to incur increased expenditures for the foreseeable future, and we expect our expenses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional general and administrative costs as we continue to operate as a public company and expand our organization to support more advanced clinical development of our product candidates and the initiation of activities in preparation for potential commercialization of our product candidates.

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

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the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;

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the number and scope of clinical programs we decide to pursue;

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the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;

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the scope and costs of development and commercial manufacturing activities;

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the cost and timing associated with commercializing our product candidates, if they receive marketing approval;

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the extent to which we acquire or in-license other product candidates and technologies;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our ability to establish and maintain collaborations on favorable terms, if at all;

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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following regulatory approval;

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our implementation of operational, financial and management systems; and

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the costs associated with being a public company.

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

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

Market volatility, inflation, interest rate fluctuations and concerns associated with the evolution of COVID-19, macroeconomic trends and geopolitical events, including civil or political unrest and terrorism, may have a significant impact on the availability of funding sources and the terms on which any funding may be available.

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

Summary Statement of Cash Flows

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

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2023 was $85.4 million. Cash used in operating activities was primarily due to a net loss of $136.0 million, accretion of premium and discounts on marketable securities of $15.4 million, an increase in prepaid expenses and other assets of

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$1.9 million, partially offset by and a decrease in accounts payable and accrued expenses of $14.4 million and stock-based compensation of $49.4 million.

Net cash used in operating activities for the year ended December 31, 2022 was $121.0 million. Cash used in operating activities was primarily due to a net loss of $115.9 million, accretion of premium and discounts on marketable securities of $5.5 million, an increase in prepaid expenses and other assets of $7.7 million, partially offset by a decrease in accounts payable and accrued expenses of $39.6 million and stock-based compensation of $46.7 million.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $40.3 million and consisted of purchases of marketable securities of $562.4 million offset by sales and maturities of marketable securities of $602.7 million.

Net cash used in investing activities for the year ended December 31, 2022 was $455.4 million and consisted of purchases of fixed assets of $1.9 million and purchases of marketable securities of $545.4 million offset by sales and maturities of marketable securities of $91.9 million.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $0.3 million and consisted of proceeds from the issuance of common stock under our Employee Stock Purchase Plan.

Net cash provided by financing activities for the year ended December 31, 2022 was $0.4 million and consisted of proceeds from the exercise of stock options and proceeds from the issuance of common stock under our Employee Stock Purchase Plan.

Contractual Obligations and Commitments

We lease our office space in Boston, Massachusetts under a non-cancelable operating sublease . The term of the sublease commenced on January 1, 2022 and will expire on December 31, 2026.

The following table summarizes our contractual obligations as of December 31, 2023:

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

In December 2021, we entered into a license agreement with Merck for the development, manufacture and commercialization of ruzasvir. Ruzasvir is the NS5A inhibitor we are developing in combination with bemnifosbuvir for the treatment of HCV.

Pursuant to the terms of the Merck License Agreement, we obtained from Merck an exclusive (subject to certain reserved rights to conduct internal research), sublicensable, and worldwide license under certain Merck patents and know-how to research, develop, manufacture, have manufactured, use, import, export, sell, offer for sale, and otherwise commercialize ruzasvir, or products containing ruzasvir for all therapeutic or prophylactic uses in humans.

In consideration for the rights we acquired under the Merck License Agreement, we paid Merck a non-refundable upfront payment in the amount of $25 million. We are obligated to pay Merck milestone payments of $135 million in the aggregate upon its achievement of certain development and regulatory milestones and up to $300 million in the aggregate upon its achievement of certain sales-based

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milestones. Additionally, we will pay Merck tiered royalties based on annual net sales of Products ranging from high single digits to mid-teens percentages. Our royalty payment obligations will continue until the later of (i) the expiration of the last to expire valid claim of a licensed Merck patent claiming such Product and (ii) a period of years after the first commercial sale of such Product in such country. We may terminate the Merck License Agreement for convenience upon prior written notice. The first potential milestone would be payable upon the commencement of a Phase 3 clinical trial in the amount of $5.0 million. The table above does not include the potential milestones or royalties that we may be obligated to pay under the Merck License Agreement.

The table above also does not include potential milestone and success fees that we may be required to pay under agreements we have entered into with certain consultants. We have an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5.0 million. This success payment is contingent upon the occurrence of future events and the timing and likelihood of such payment is neither probable nor estimable.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with US generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of the financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, accrued research and development expenses and stock based compensation.

Accrued Research and Development

We have entered into various agreements with CMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Stock-Based Compensation

We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and stock awards. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. In determining fair value of the stock options granted, we use the Black–Scholes model, which requires the input of subjective assumptions. These assumptions include: estimating the fair market value of the common stock, estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term (expected volatility), risk-free interest rate and expected dividends. See Note 11 to our

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audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during the years ended December 31, 2023 and 2022, respectively.

Cash and Cash Equivalents

We consider all highly-liquid investments with an original maturity, or a remaining maturity at the time of purchase, of three months or less to be cash equivalents. Our cash equivalents include money market funds and commercial paper, which are highly liquid and have strong credit ratings. These investments are subject to minimal credit and market risks. Cash and cash equivalents are stated at cost, which approximates market value.

Marketable Securities

Our investment strategy is focused on capital preservation. We invest in instruments that meet the credit quality standards outlined in our investment policy. Marketable securities consist of investments with maturities greater than three months. Marketable securities include US treasury obligations, US agency obligations, corporate debt and commercial paper. We classify all of our marketable securities as available-for-sale. Accordingly, these investments are recorded at fair value. Unrealized gains and losses are recorded as a component of other comprehensive income within stockholders’ equity. Amortization and accretion of discounts and premiums are recorded as interest income.

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability between market participants at measurement dates. ASC 820, Fair Value Measurement, establishes a three-level valuation hierarchy for instruments measured at fair value. The hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Concentration of Credit Risk and Off-balance Sheet Risk

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the US government. We do not believe that we are subject to any significant concentrations of credit risk from these financial instruments. We have no financial instruments with off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

Indemnification Agreements

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

We have also agreed to indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all

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pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not specified in the agreements; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

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