# Spyre Therapeutics, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Spyre Therapeutics, Inc.](/companies/syre.md) (CIK 1636282)
- Form: 10-Q
- Filed: 2023-05-11
- Accepted by EDGAR: May 11, 2023, 07:05 ET
- Period: 2023-03-31
- Accession: 0000950170-23-020825
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1636282/000095017023020825/agle-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1636282/000095017023020825/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $198.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $13.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$18.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$36.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$18.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 94,262,660 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$17.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-03-31 | $35.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $44.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $52.5m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $12.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $18.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $33.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,546 characters.

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report as well as the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on March 2, 2023. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” As used in this report, unless the context suggests otherwise, “we”, “us”, “our”, “the Company” or “Aeglea” refers to Aeglea BioTherapeutics, Inc.*

### Overview

We are a clinical-stage biotechnology company developing human enzyme therapeutics to benefit people with rare metabolic diseases. Our two clinical programs are pegtarviliase for Homocystinuria and pegzilarginase for Arginase 1 Deficiency. Both clinical programs are focused on the underlying key metabolites that drive the clinical manifestations of these devastating rare metabolic diseases. Our current focus is to explore strategic alternatives with the goal of maximizing stockholder value, including possible business combinations and/or a divestiture of our clinical programs.

Pegtarviliase is being investigated for the treatment of Classical Homocystinuria. The drug is an investigational PEGylated, or polyethylene glycol modified, human enzyme engineered to reduce elevated levels of total homocysteine, or tHcy, circulating in the plasma. Homocystinuria is a rare genetic disease characterized by elevated plasma homocysteine levels, which can result in debilitating, often irreversible, neurologic, psychiatric, ocular and skeletal complications, and life-threatening vascular events. There are various etiologies leading to Homocystinuria and Classical Homocystinuria is specifically characterized by a deficiency in the cystathionine β-synthase (CBS) enzyme. Currently available treatments for Classical Homocystinuria are burdensome and have limited effectiveness in reducing tHcy for most patients, resulting in a significant unmet need for patients.

Pegzilarginase is a recombinant human arginase 1 that is engineered to enzymatically degrade the amino acid arginine to reduce elevated levels of arginine in patients with Arginase 1 Deficiency. Arginase 1 Deficiency is a rare, inherited metabolic disorder with progressive, debilitating neurologic manifestations driven by persistently high arginine levels. There are currently no approved therapies that address the underlying driver of the disease, and most patients experience long-term clinical deterioration, including neuromuscular and cognitive decline, with current standard of care.

On April 12, 2023, based on our review of the inconclusive interim results from our Phase 1/2 clinical trial of pegtarviliase for the treatment of Classical Homocystinuria and business considerations, we announced that we have initiated a process to explore strategic alternatives to maximize stockholder value and engaged an independent exclusive financial advisor to support this process. As we pursue strategic alternatives, we established a restructuring plan, which included an approximate 83% reduction in workforce to be completed in the second quarter of 2023. As part of the restructuring, we are in the process of reducing all clinical trial spend while assessing strategic alternatives to maximize stockholder value.

### Our Strategy

We believe there is significant potential to address rare metabolic diseases through human enzyme therapies. Our strategy has been to develop treatments for rare metabolic diseases where we believe there is a causal link between disease development and progression, and levels of key metabolites that drive the clinical manifestations of the diseases. For our two clinical programs, we have engineered and modified enzymes to have specific characteristics needed to address the underlying metabolic drivers of the diseases. For example, pegtarviliase was modified to have specificity for both the monomer and dimer forms of homocysteine and pegzilarginase was modified to have increased arginine-degrading activity. We selected therapeutic candidates for clinical development based on strong biological rationale and robust preclinical evidence to support a potential therapy that can transform patient outcomes.

Pegtarviliase has been studied in a Phase 1/2 clinical trial to assess safety and efficacy in patients with Classical Homocystinuria, also known as Homocystinuria due to cystathionine β-synthase deficiency. In April 2023, we announced interim results from the first three cohorts of the Phase 1/2 clinical trial. These results indicated that additional dose exploration and data from longer duration treatment may be needed to support dialog with regulators on a pivotal trial design. While we believe that additional exploration of pegtarviliase may be warranted, due to business considerations we are not currently enrolling additional cohorts. We estimate that there are approximately 30,000 Classical Homocystinuria patients in global addressable markets, or the 38 countries with a combination of sufficient census data and other commercial elements (e.g., IP protection, access and reimbursement framework), and we estimate about 80% of these patients are unable to control their tHcy levels to targeted clinical thresholds with the currently available treatments. With significantly elevated homocysteine levels, these patients are continuing to experience irreversible progression and remain at risk for catastrophic thromboembolic events resulting in death.

Our other clinical program is pegzilarginase for the treatment of Arginase 1 Deficiency. We reported positive topline data for pegzilarginase for our global pivotal PEACE (Pegzilarginase Effect on Arginase 1 Deficiency Clinical Endpoints) Phase 3 trial in December 2021. Based on the results from PEACE and a previous Phase 1/2 clinical trial, a Marketing Authorization Application, or MAA, was submitted to the European Medicines Agency, or EMA, by Immedica Pharma AB, or Immedica, our commercial partner in Europe and several countries in the Middle East. A potential decision on approval of the MAA is expected in late 2023. We are also continuing to determine potential paths forward regarding the potential resubmission of the pegzilarginase BLA after receiving a Refusal to File, or RTF, letter from the Food and Drug Administration, or FDA. Based on a published genetic prevalence analysis, we estimate that the Arginase 1 Deficiency population is greater than 2,500 patients in the global addressable markets. Because the manifestations of Arginase 1 Deficiency may overlap with other disorders such as hereditary spastic paraplegia, cerebral palsy or epilepsy, the prevalence of Arginase 1 Deficiency may be underestimated.

In addition to our clinical programs, we have leveraged enzyme engineering to create additional pipeline candidates for the treatment of Cystinuria and other undisclosed diseases. These programs represent innovative solutions for diseases that previously were not believed to be addressable with enzyme therapies. For example, Cystinuria is a rare genetic disease characterized by frequent and recurrent kidney stone formation due to increased amounts of cystine in the urine. We engineered and optimized AGLE-325 to reduce plasma cystine and cysteine levels and therefore reduce urine cystine concentrations as an approach to inhibit cystine crystal and kidney stone formation.

We retain worldwide intellectual property rights for pegtarviliase and all other preclinical product candidates. We retain all intellectual property rights for pegzilarginase in the United States and other regions outside of our commercial partnership with Immedica in Europe and several countries in the Middle East.

We have incurred net losses in each year since inception. Our net losses were $18.4 million and $24.4 million for the three months ended March 31, 2023 and 2022, respectively, and have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of March 31, 2023, we had an accumulated deficit of $444.0 million.

We anticipate that our expenses will decrease as we limit activities related to our clinical programs and have decided to voluntarily pause our clinical programs. After considering various alternatives, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of these financial statements.

### Recent Developments

### Corporate

In April 2023, we began exploring strategic alternatives with the goal of maximizing stockholder value. We engaged Wedbush Securities Inc. as an exclusive financial advisor to assist in the process of exploring strategic alternatives, which may include, but are not limited to, an acquisition, merger, reverse merger, other business combination, sales of assets or other strategic transactions. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements will be reached or transactions will be successfully consummated or on attractive terms. We have not set a timetable for completion of this strategic review and do not intend to comment further on the status of this process unless or until our board of directors has approved a definitive course of action, or it is determined that other disclosure is appropriate or required.

Additionally, we have reduced our workforce and will retain approximately 10 employees required to support the evaluation of strategic alternatives and ongoing business activities. We also announced the departures of Michael C. Hanley, MBA, chief business officer, and Linda Neuman, MD, MBA, chief medical officer.

### Our Pipeline of Product Candidates

### Pegtarviliase in Homocystinuria

We have completed three cohorts of a Phase 1/2 clinical trial for the treatment of patients with Classical Homocystinuria to assess the safety and clinical activity of pegtarviliase. The primary objective of the trial is to evaluate the safety and tolerability of pegtarviliase in participants with Classical Homocystinuria. A secondary objective of the trial is to characterize the pharmacokinetics and pharmacodynamics, as measured as the magnitude of change in plasma tHcy, of pegtarviliase after multiple doses following intravenous and subcutaneous administration. In cohorts 1 through 3, we enrolled 13 patients diagnosed with Classical Homocystinuria, aged 12 years or older (18 or older in the U.S.) with plasma homocysteine levels of 50 µM or greater at screening, and with a history of tHcy greater than or equal to 80 µM. Patients were dosed once weekly for four weeks, with three to four patients in each of the dosing cohorts.

In April 2023, we announced interim results from the first three cohorts of the Phase 1/2 clinical trial. Results from the first two cohorts (0.15 mg/kg and 0.45 mg/kg, respectively) showed that treatment with pegtarviliase lowered total homocysteine levels in participants when compared to baseline values. Results from the third cohort (1.35 mg/kg) did not show a consistent reduction in total homocysteine levels compared to baseline. Further analysis of the results indicated that participants in the third cohort developed anti-drug antibodies, which may have impacted the pharmacokinetics and reduced the effect of pegtarviliase in reducing total homocysteine levels. While we have paused clinical development for this program, we believe that the data indicates that exploration of higher doses or dosing of longer duration may be warranted in order to better determine the potential efficacy of pegtarviliase in lowering total homocysteine.

### Percent Change of Total Homocysteine from Baseline After 4 Weeks of Pegtarviliase Treatment

|  |  |  |
| --- | --- | --- |
|  | 3 Days Post Dose (SD) | 7 Days Post Dose (SD) |
| Cohort 1 (n=3, 0.15 mg/kg) | -26.3% (12.3) | -8.0% (7.9) |
| Cohort 2 (n=4, 0.45 mg/kg) | -33.0% (19.0) | -26.8% (4.9) |
| Cohort 3 (n=4, 1.35 mg/kg) | -11.3% (22.1) | +15.0% (57.9)\* |

\*n=3, due to missing data point from one of four evaluable patients. SD = standard deviation

Pegtarviliase was well tolerated with the majority of adverse events being Grade 1 or Grade 2 injection site reactions and hypersensitivity reactions, which were managed with antihistamine and/or steroid treatment. There was one serious adverse event that was assessed as unrelated to treatment. No participants withdrew from the trial or had a dose reduction due to an adverse event. The below table summarizes the current safety results:

| Adverse Events (AE) Any treatment-emergent AE | Participants N=13 13 (100%) |
| --- | ---: |
| AE leading to discontinuation | 0 |
| AE leading to dose reduction | 0 |
| AE of special interest: HSR ISR | 2 (15.3%) 10 (76.9%) |
| Serious AEs Fatal Related | 1 (7.7%) 0 0 |

16

*Regulatory:* We have obtained Orphan Drug Designation from the FDA and EMA for pegtarviliase for the treatment of patients with Homocystinuria. In addition, the FDA granted Fast Track and Rare Pediatric Disease designations for pegtarviliase for the treatment of Homocystinuria. These designations do not necessarily lead to faster development or regulatory review of pegtarviliase, or increase the likelihood that it will receive marketing approval. The Rare Pediatric Disease designation by the FDA provides the potential to receive a Priority Review Voucher if a qualifying BLA for pegtarviliase is approved before October 1, 2026.

In October 2022, we received a letter from the FDA regarding our protocol amendment for the Phase 1/2 clinical trial of pegtarviliase for the treatment of Classical Homocystinuria. The protocol amendment, among other things, allowed the inclusion of adolescent patients at clinical trial sites in the United States. The FDA stated the protocol did not provide adequate justification and evidence to support the prospect of direct clinical benefit for pediatric patients and placed the trial on partial clinical hold for the enrollment of patients less than 18 years of age under this investigational new drug application, or IND, at this time. A local Australian ethics committee, responsible for two clinical trial sites, recently stated that it would like to align with the FDA and place a hold on the enrollment of pediatric participants at those sites. Neither site has pediatric patients currently enrolled and no pediatric patients are pending enrollment at those sites. Both sites can continue to enroll adult patients.

### Pegzilarginase in Arginase 1 Deficiency

We announced topline results from the double-blind placebo-controlled portion of our PEACE Phase 3 trial in December 2021. The trial is believed to be the first-ever investigative therapy that directly addresses the high arginine levels that are believed to be the key drivers of this devastating disease for patients with Arginase 1 Deficiency.

PEACE was a global, randomized, double-blind, placebo-controlled trial designed to assess the effects of treatment with pegzilarginase versus placebo over 24 weeks with a primary endpoint of statistically significant plasma arginine reduction from baseline. The primary endpoint assessed the effectiveness of pegzilarginase in lowering plasma arginine levels. Secondary endpoints included clinical outcome assessments focused primarily on measuring the impact on functional mobility, including the key secondary endpoints consisting of Gross Motor Function Measure Part E, or GMFM-E, and 2 Minute Walk Test, or 2MWT, in addition to safety and pharmacokinetics.

The pivotal trial enrolled 32 patients aged two years and older, who had plasma arginine levels greater than 250 µM and a baseline deficit in at least one clinical response assessment. Patients enrolled in the trial were randomized on a two-to-one basis to receive weekly infusions of pegzilarginase (0.1 mg/kg starting dose), or placebo for the double-blind treatment period. Dose adjustments during this period were allowed in order to optimize plasma arginine control. Patients remained on current disease management for the duration of the PEACE Phase 3 trial. Upon completion of the 24-week treatment period, patients were eligible to participate in a long-term extension study of pegzilarginase, with all 31 patients who completed the double-blind period continuing into the long-term extension study and switching to subcutaneous administration.

In December 2021, we announced the topline results for the PEACE Phase 3 trial. In April 2022 and August 2022, we presented data from our PEACE Phase 3 trial at the Society for Inherited Metabolic Disorders, or SIMD, and at the Society for the Study of Inborn Errors of Metabolism, or SSIEM, respectively. Highlights from the PEACE Phase 3 trial to date are summarized as follows:

- Primary endpoint was achieved with a highly statistically significant 76.7% reduction in mean plasma arginine in pegzilarginase treated patients (p\<0.0001) compared to the placebo arm.
- Normal plasma arginine levels (40-115µM) were achieved in 90.5% of pegzilarginase treated patients compared to no patients in the placebo arm.
- Accompanying improvements in the key secondary mobility assessment endpoint in pegzilarginase treated patients compared to the placebo arm.
- Gross Motor Function Measure Part E (GMFM-E): The least squares mean score improved by 4.2 units for pegzilarginase treated patients and worsened by 0.4 units in the placebo arm (p=0.1087), establishing a positive trend.
- 2-minute walk test (2MWT): The least squares mean distance increased 7.4 meters in pegzilarginase treated patients and 1.9 meters in the placebo arm (p=0.5961).
- Pegzilarginase was well-tolerated and safety data were consistent with results from previous clinical trials. Adverse events were generally mild to moderate in severity. There were no study discontinuations due to adverse events.

*Regulat*ory: In August 2022, we announced that the EMA had validated the MAA, for pegzilarginase for the treatment of Arginase 1 Deficiency that was submitted by Immedica our commercialization partner in Europe and several countries in the Middle East. Review of the MAA is underway, and a decision from the EMA with respect to approval of pegzilarginase may occur in late 2023.

In April 2022, we announced that we submitted a BLA to the FDA in order to provide all the study results for the FDA to review in detail. In June 2022, we announced that we received a RTF letter from the FDA for the BLA for pegzilarginase for the treatment of Arginase 1 Deficiency. In the RTF letter, the FDA requested additional data to support effectiveness, such as evidence showing that plasma arginine and metabolite reduction predicts clinical benefit in patients with ARG1-D or clinical data demonstrating a treatment effect on clinically meaningful outcomes. The FDA also requested additional information relating to Chemistry Manufacturing and Controls, or CMC. There were no issues related to safety raised in the letter. Upon receipt of the RTF letter, we had 30 days in which to request a Type A meeting with the FDA to clarify and respond to items identified in the RTF letter. The Type A meeting with the FDA was held in July 2022.

We have obtained Orphan Drug designation from the FDA and the EMA, as well as Fast Track and Breakthrough Therapy designations from the FDA, for pegzilarginase for the treatment of patients with Arginase 1 Deficiency. In addition, the FDA granted a Rare Pediatric Disease designation for pegzilarginase for the treatment of Arginase 1 Deficiency. These designations do not necessarily lead to faster development or regulatory review of pegzilarginase, or increase the likelihood that it will receive marketing approval. The Rare Pediatric Disease designation by the FDA confirms our eligibility to receive a Rare Pediatric Disease priority review voucher if a qualifying BLA for pegzilarginase is approved before October 1, 2026.

*Licensing:* We licensed to Immedica the rights to the commercialization of pegzilarginase in the European Economic Area, United Kingdom, Switzerland, Andorra, Monaco, San Marino, Vatican City, Turkey, Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman. The license and supply agreement, or Immedica Agreement, we entered into with Immedica includes a non-refundable upfront payment of $21.5 million from Immedica and development services provided to Immedica, up to $3.0 million. Under the terms of the Immedica Agreement, we are eligible to receive additional payments of up to approximately $122.1 million in regulatory and commercial milestone payments, assuming an exchange rate of $1.09 to €1.00. Additionally, we are entitled to receive royalties in the mid-20 percent range on net sales of the product in countries included in the Immedica Agreement. We will continue to be responsible for certain clinical development activities and the manufacturing of pegzilarginase and we retain commercialization rights in the United States and the rest of the world.

For the three months ended March 31, 2023, we recognized revenue of $0.2 million under the Immedica Agreement related to the progress in satisfying our obligations relating to the PEACE Phase 3 trial and BLA package performance. For the three months ended March 31, 2022, we recognized $1.4 million relating to the PEACE Phase 3 trial and BLA package performance.

### AGLE-325 in Cystinuria and other research programs

Cystinuria is a rare genetic disease characterized by frequent and recurrent kidney stone formation requiring multiple procedural interventions, and by an increased risk of chronic kidney disease. Cystinuria occurs due to genetic mutations in amino acid transporters that lead to increased amounts of cystine in the urine. This results in high cystine concentrations in the urine and formation of kidney stones. As such, we engineered and optimized AGLE-325 to reduce plasma cystine and cysteine levels with accompanying reductions in urine cystine concentrations as an approach to inhibit both cystine crystal and kidney stone formation. We presented preclinical data on a precursor molecule to AGLE-325 demonstrating reduced kidney stone formation in a preclinical model of Cystinuria.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets, liabilities and equity and the amount of revenues and expenses, which are not readily apparent from other sources. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ materially from these estimates under different assumptions or conditions.

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. As such, we believe that the assumptions and estimates associated with our most critical accounting policies are those relating to accrued research and development costs and revenue recognition. Our significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements appearing elsewhere in this quarterly report.

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Results of Operations

### Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023, and 2022, together with the changes in those items in dollars and as a percentage:

*(dollars in thousands)*

| Revenue: | Three Months Ended March 31, 2023 | 2022 | Dollar Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Development fee and royalty | $198 | $1,362 | $(1,164) | 85% |
| Total revenue | 198 | 1,362 | (1,164) | 85% |
| Operating expenses: |  |  |  |  |
| Research and development | 13,776 | 16,978 | (3,202) | 19% |
| General and administrative | 5,228 | 8,825 | (3,597) | 41% |
| Total operating expenses | 19,004 | 25,803 | (6,799) | 26% |
| Loss from operations | (18,806) | (24,441) | 5,635 | 23% |
| Interest income | 420 | 35 | 385 | \* |
| Other (expense) income, net | (72) | (30) | (42) | \* |
| Loss before income tax expense | (18,458) | (24,436) | 5,978 | 24% |
| Income tax benefit (expense) | 36 | — | 36 | \* |
| Net loss | $(18,422) | $(24,436) | $6,014 | 25% |

\* Percentage not meaningful

*Development Fee and Royalty Revenue.* For the three months ended March 31, 2023, we recognized $0.2 million of revenue in connection with the Immedica Agreement. The total revenue generated was attributable to the PEACE Phase 3 trial and royalties from an early access program in France. For the three months ended March 31, 2022, we recognized $1.4 million of development fee revenue in connection with the Immedica Agreement, which was attributable to the PEACE Phase 3 trial and BLA package.

*Research and Development Expenses*. Research and development expenses decreased by $3.2 million, or 19%, to $13.8 million for the three months ended March 31, 2023, from $17.0 million for the three months ended March 31, 2022. The change in research and development expenses was primarily due to:

- a $1.6 million decrease in expense associated with the PEACE Phase 3 trial of pegzilarginase for the treatment of patients with Arginase 1 Deficiency;
- a $1.3 million decrease related to BLA submission expenses for Arginase 1 Deficiency; and
- a $0.3 million decrease in expense associated with the pause of the pegzilarginase Phase 1/2 trial.

*General and Administrative Expenses.* General and administrative expenses decreased by $3.6 million, or 41%, to $5.2 million for the three months ended March 31, 2023, from $8.8 million for the three months ended March 31, 2022. The decrease in general and administrative expenses was due to a $1.5 million decrease in compensation and other personnel expenses associated with a decrease in headcount, a $0.9 million decrease related to our Arginase 1 Deficiency commercial expenses, and a $0.9 million decrease in general support activities primarily driven by financing expenditures.

### Liquidity and Capital Resources

### Sources of liquidity

We are a clinical-stage biotechnology company with a limited operating history, and due to our significant research and development expenditures, we have generated operating losses since our inception and have not generated any revenue from the sale of any products. Since our inception and through March 31, 2023, we have funded our operations primarily by raising an aggregate of approximately $506.2 million of gross proceeds from the sale and issuance of convertible preferred and common equity securities, pre-funded warrants, the collection of grant proceeds, and the licensing of our product rights for commercialization of pegzilarginase in Europe and certain countries in the Middle East.

In March 2021, we entered into the Immedica Agreement, pursuant to which Immedica licensed the product rights for commercialization of pegzilarginase in the European Economic Area, United Kingdom, Switzerland, Andorra, Monaco, San Marino, Vatican City, Turkey, Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman. In April 2021, we received an upfront payment of $21.5 million from Immedica. Under the terms of the Immedica Agreement, we are also eligible to receive additional payments of up to approximately $122.1 million in regulatory and commercial milestone payments, assuming an exchange rate of $1.09 to €1.00. Additionally, we are entitled to receive royalties in the mid-20 percent range on the net sales of the product in countries included in the Immedica Agreement. In July 2021, the Immedica Agreement was modified to include additional development services, up to $3.0 million, to support the PEACE Phase 3 trial and BLA package performance obligation.

In July 2020, we filed and the SEC declared effective a shelf registration statement on Form S-3, or the 2020 Registration Statement, for the potential offering, issuance and sale by us of up to $400.0 million of our common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock and debt securities, subscription rights to purchase common stock and units consisting of all or some of these securities.

In May 2022, we sold 10,752,688 shares of common stock and pre-funded warrants to purchase up to 17,372,312 shares of common stock in a registered direct offering, or the 2022 RDO, for gross proceeds of $45.0 million, resulting in net proceeds of $42.9 million after deducting placement agent fees and offering costs. The shares of common stock and pre-funded warrants sold in the 2022 RDO were offered pursuant to the 2020 Registration Statement.

Also in May 2022, we entered into a sales agreement, or the 2022 Sales Agreement, with JonesTrading Institutional Services LLC, as sales agent, to issue and sell shares of our common stock for an aggregate offering price of $60.0 million under an at-the-market offering program with JonesTrading Institutional Services LLC. As of the date of the filing of this report, $60.0 million of our common stock remained available for sale pursuant to the 2022 Sales Agreement. Any sales of common stock to be sold under the 2022 Sales Agreement will be made pursuant to the 2020 Registration Statement.

Since we are a clinical-stage biotechnology company, we have incurred significant operating losses since our inception and anticipate we will continue to incur operating losses related to our future restructured operations. Our current primary use of cash is to fund business operations while we evaluate strategic alternatives.

### Future funding requirements and operational plan

Our operational plan for the near future is to identify, assess and execute a strategic transaction to maximize stockholder value. As such, we have reduced or eliminated our research and development expenditures and general and administrative expenditures on nonclinical studies, clinical trials, manufacturing, and commercial development. We intend to maintain a level of general and administrative expenses to support our business as we explore our options for strategic alternatives. We expect our principal expenditures during this time period to include expenses for the following:

- funding business development-related activities, including any strategic alternatives; and
- funding working capital, including general operating expenses.

Due to our significant research and development expenditures, we have generated substantial losses in each period since inception. We have an accumulated deficit of $444.0 million as of March 31, 2023. We anticipate that we will continue to incur operating losses related to our future restructured operations. We currently have no debt, credit facility or additional committed capital.

On April 8, 2023 the Board of Directors approved a restructuring of the Company’s workforce pursuant to which the Company’s workforce will be reduced by approximately 83% of the Company’s existing headcount, retaining approximately 10 employees. On April 12, 2023, the Company announced interim results from its ongoing Phase 1/2 clinical trial of pegtarviliase for the treatment of classical homocystinuria. Following a review of the interim results and business considerations, the Company is exploring strategic alternatives with the goal of maximizing stockholder value, including possible business combinations and/or a divestiture of the Company’s clinical programs. The Company will continue to pay existing obligations and payroll for critical personnel while exploring strategic alternatives. We estimate that we have sufficient cash and cash equivalents, marketable securities, and restricted cash for us to identify, assess and execute a strategic transaction. There can be no assurance that this strategic review will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms.

After considering various alternatives, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of these financial statements. The Company plans to address this condition through the exploration of strategic alternatives, including possible business combinations and/or a divestiture of the Company's clinical programs.

### Cash flows

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

| Net cash, cash equivalents, and restricted cash (used in) provided by: | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(17,634) | $(26,263) |
| Investing activities | 17,750 | 25,759 |
| Financing activities | 10 | 12 |
| Effect of exchange rate on cash, cash equivalents, and restricted cash | 11 | (23) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $137 | $(515) |

#### Cash used in operating activities

Cash used in operating activities for the three months ended March 31, 2023, was $17.6 million and reflected a net loss of $18.4 million. Our net loss was offset in part by non-cash expenses of $1.7 million for stock-based compensation, and $0.6 million for depreciation and amortization. The net change in operating assets and liabilities of $1.4 million was primarily related to a $3.2 million decrease in accrued and other liabilities and $0.2 million decrease in operating lease liabilities, offset by a $1.4 million increase in accounts payable and a $0.6 million increase in prepaid and other current assets.

Cash used in operating activities for the three months ended March 31, 2022 was $26.3 million and reflected a net loss of $24.4 million. Our net loss was offset in part by a non-cash expense of $2.1 million for stock-based compensation, and $0.5 million for depreciation and amortization. The net change in operating assets and liabilities of $4.4 million was primarily related to a $2.8 million decrease in accrued compensation costs and a $0.8 million decrease in deferred revenue.

#### Cash provided by investing activities

Cash provided by investing activities for the three months ended March 31, 2023 was $17.8 million from maturities and sales of marketable securities.

Cash provided by investing activities for the three months ended March 31, 2022, was $25.8 million and consisted of $29.3 million in maturities and sales of marketable securities, offset by $3.5 million in purchases of marketable securities.

#### Cash provided by financing activities

Cash provided by financing activities for the three months ended March 31, 2023, was $0.1 million, which primarily consisted of the sale of common stock under our 2016 Employee Stock Purchase Plan.

Cash provided by financing activities for the three months ended March 31, 2022, was $12 thousand, which consisted of $0.2 million in the sale of common stock under our 2016 Employee Stock Purchase Plan, offset by $0.2 million in principal payments made on our finance lease obligations.

### Contractual Obligations and Other Commitments

In April 2019, the Company entered into a lease agreement for its corporate headquarters and laboratory space located in Austin, TX. Future minimum lease commitments under this lease through April 2028 are $5.8 million. See Note 7, “Leases,” included in our Annual Report on Form 10-K for the year ended December 31, 2022, for additional information.

We have entered into agreements in the normal course of business with contract research organizations for clinical trials and contract manufacturing organizations, and with vendors for nonclinical research studies and other services and products for operating purposes. These contractual obligations are cancelable at any time by us, generally upon 30 to 60 days’ prior written notice to the vendor.

### Recently Adopted Accounting Pronouncements

None.

## Market risk

As filed, 1,920 characters.

We are exposed to market risks in the ordinary course of our business. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. However, we believe that our exposure to interest rate risk is not significant as the majority of our investments are short-term in duration and due to the low risk profile of our investments, a 10% change in interest rates would not have a material effect on the total market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.

As of March 31, 2023, we held $39.8 million in cash and cash equivalents, marketable securities, and restricted cash, all of which was denominated in U.S. dollar assets, and consisting primarily of investments in money market funds, commercial paper, and corporate bonds.

We are also exposed to market risk related to changes in foreign currency exchange rates, as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. For the three months ended March 31, 2023, a majority of our expenditures were denominated in U.S. dollars. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

## Controls and procedures

As filed, 2,054 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of March 31, 2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 48,169 characters.

*Investing in our common stock involves a high degree of risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.*

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, except for the following:

### Risks Related to Strategic Alternative Process and Potential Strategic Transaction

***We may not be successful in identifying, assessing and executing any strategic business combination or other transaction, and any strategic transaction that we may consummate in the future could have negative consequences. If a strategic transaction is not consummated, our board of directors may decide to pursue a dissolution and liquidation. In the event of such liquidation or other wind-down event, holders of our securities will likely suffer a total loss of their investment.***

In addition to our efforts, if any, to pursue clinical development of our product candidates, we also continue to evaluate all potential strategic options for the Company, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction. However, there can be no assurance that we will be able to successfully consummate any particular strategic transaction. No decision has been made with respect to any transaction, and there can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction, or that any strategic alternative identified, evaluated and consummated will provide the anticipated benefits or otherwise preserve or enhance stockholder value.

The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and we expect to incur significant costs related to this continued evaluation, such as legal and accounting fees and expenses and other related charges. We may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in our business.

There can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results. In addition, there can be no assurance that our current strategic direction, or the board’s evaluation of strategic alternatives, will result in any initiatives, agreements, transactions or plans that will enhance stockholder value. If we are unable to consummate a strategic transaction, our board of directors may decide to pursue a dissolution and liquidation. In the event of such liquidation or other wind-down event, holders of our securities will likely suffer a total loss of their investment.

### We may not realize any additional value in a strategic transaction.

Potential counterparties in a strategic transaction involving us may place minimal or no value on our assets. Further,

the development and any potential commercialization of our product candidates will require substantial additional cash. Consequently, any potential counterparty in a strategic transaction involving our company may choose not to spend additional resources and continue development of our product candidates and may attribute little or no value, in such a transaction, to those product candidates.

***If we are successful in completing a strategic transaction, we may be exposed to other operational and financial risks.***

Although there can be no assurance that a strategic transaction will result from the process we have undertaken or will undertake to identify and evaluate strategic alternatives, the negotiation and consummation of any such transaction will require significant time on the part of our management, and the diversion of management’s attention may disrupt our business.

The negotiation and consummation of any such transaction may also require more time or greater cash resources than we anticipate and expose us to other operational and financial risks, including:

- increased near-term and long-term expenditures;
- exposure to unknown liabilities;
- higher than expected acquisition or integration costs;
- incurrence of substantial debt or dilutive issuances of equity securities to fund future operations;
- write-downs of assets or goodwill or incurrence of non-recurring, impairment or other charges;
- increased amortization expenses;
- difficulty and cost in combining the operations and personnel of any acquired business with our operations

and personnel;

- impairment of relationships with key suppliers or customers of any acquired business due to changes in

management and ownership;

- inability to retain key employees of our company or any acquired business; and
- possibility of future litigation.

Any of the following risks could have a material adverse effect on our business, financial condition and prospects.

***We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring activities and our ability to consummate a strategic transaction depends on our ability to retain our employees required to consummate such transaction.***

On April 12, 2023, we announced a restructuring plan of our operations to narrow our near‐term business focus and reduce our workforce by approximately 83%. We believe these changes were needed to streamline our organization and reallocate our resources to better align with our current strategic goals, including our current focus on pursuing strategic alternatives. However, these expense reduction measures have and may continue to yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond our intended reductions in workforce, a reduction in morale among our remaining employees, and the risk that we may not achieve the anticipated benefits, all of which may have an adverse effect on our results of operations or financial condition.

In connection with the restructuring, two executive officers departed the Company, Michael Hanley, the Company’s Chief Business Officer, and Linda Neuman, the Company’s Chief Medical Officer on April 14, 2023. Our ability to successfully complete a strategic transaction depends in large part on our ability to retain certain of our remaining personnel. If we are unable to successfully retain our remaining personnel, we are at risk of a disruption to our exploration and consummation of a strategic transaction as well as business operations.

***We may become involved in securities litigation that could divert management’s attention and harm our business, and insurance coverage may not be sufficient to cover all costs and damages.***

In the past, securities litigation has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials. We may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders receive in any such transaction.

### Risks Related to Our Financial Position and Need for Additional Capital

***We have expressed substantial doubt about our ability to continue as a going concern.***

We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. After considering various alternatives, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of this filing on Form 10-Q.

In view of these matters, our ability to continue as a going concern is dependent upon our ability to raise additional capital through outside sources. We have commenced a process to explore strategic alternatives, however, there can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements will be reached or transactions will be successfully consummated or on attractive terms. If we are unable to consummate a strategic transaction, we may seek to obtain funding through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including collaborations with other companies or other strategic transactions. The failure to obtain sufficient financing or strategic transactions could adversely affect our ability to achieve our business objectives and continue as a going concern.

***We have no source of product revenue and we have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.***

We have a limited operating history and no approved products. Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of any of our product candidates, including pegtarviliase and pegzilarginase, for any of our target indications and to obtain necessary regulatory approvals. To date, we have recognized revenue from a license and supply agreement and a fully utilized government grant and have not generated any product revenue. Even if we receive regulatory approval for any of our product candidates, we do not know when these product candidates will generate revenue for us, if at all.

In addition, since inception, we have incurred significant operating losses. For the three months ended March 31, 2023, we reported a net loss of $18.4 million. For the years ended December 31, 2022 and 2021, we reported a net loss of $83.8 million and $65.8 million, respectively. As of March 31, 2023, we had an accumulated deficit of $444.0 million. After considering various alternatives, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We have commenced a process to explore strategic alternatives, however, there can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements will be reached or transactions will be successfully consummated or on attractive terms. If we are unable to consummate a strategic transaction, we may seek to fund our operations through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including collaborations with other companies or other strategic transactions. In the past, we have financed our operations primarily through private placements of our preferred stock, the initial public offering of our common stock, follow-on public offerings of our common stock and pre-funded warrants, collection of a research grant, and the licensing of our product rights for commercialization of pegzilarginase in Europe and several countries in the Middle East. We have devoted substantially all of our efforts to research and development. Other than our work pursuing clinical development of pegtarviliase for the treatment of Homocystinuria and pegzilarginase for the treatment of Arginase 1 Deficiency, we have not initiated clinical development of our other product candidates and none of our product candidates are ready for commercialization.

We are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability because of the numerous risks and uncertainties associated with product development. In addition, our expenses could increase significantly beyond expectations if we are required by the FDA, EMA, MHRA, or other relevant regulatory authorities, or collectively the Health Authorities, to modify protocols of our clinical trials or perform studies in addition to those that we currently anticipate. Even if pegzilarginase, or any of our other product candidates, is approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of any product candidate.

To become and remain profitable, we must develop and eventually commercialize a product candidate or product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing nonclinical testing, initiating and completing clinical trials of one or more of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those product candidates for which we obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. We previously reported that we received a Refuse to File letter, or RTF Letter, from the FDA regarding our BLA submission for pegzilarginase for the treatment of Arginase 1 Deficiency. In the RTF Letter, the FDA requested additional data to support effectiveness and additional information relating to Chemistry Manufacturing and Controls. We are continuing to engage with FDA to identify a potential path to BLA resubmission. We also previously reported that we received a letter from the FDA regarding a protocol amendment for our Phase 1/2 clinical trial of pegtarviliase for the treatment of Classical Homocystinuria in which the FDA stated the protocol did not provide adequate justification and evidence to support the prospect of direct clinical benefit for pediatric patients and placed the trial on partial clinical hold for the enrollment of patients less than 18 years of age. A local Australian ethics committee, responsible for two clinical trial sites, subsequently stated that it would like to align with the FDA and place a hold on the enrollment of pediatric participants at those sites. In April

2023, we announced that the interim results of our Phase 1/2 trial of pegtarviliase for the treatment of Classical Homocystinuria showed the development of anti-drug antibodies in the third cohort. We are in the nonclinical development stages for our remaining product candidates. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain or expand our research and development efforts, expand our business or continue our operations.

***We will need substantial additional funding. If we are unable to raise capital when needed, our business will be adversely affected.***

We expect our expenses to increase in parallel with our ongoing activities, particularly as we explore strategic transactions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding to support our continuing operations. If we are unable to raise capital when needed for any reason, including but not limited to inflation, increasing interest rates, volatile market conditions and global events, or on acceptable terms, our business would be adversely impacted.

Even if successful in raising new capital, we could be limited in the amount of capital we raise due to investor demand restrictions placed on the amount of capital we raise or other reasons. For example, as of the filing of this Quarterly Report, we are subject to the limitations set forth in Instruction I.B.6 of Form S-3 (the "baby shelf restrictions") or other reasons.

### Risks Related to Our Product Development and Regulatory Approval

***We depend heavily on the success of our most advanced product candidates, pegtarviliase and pegzilarginase. Existing and future clinical trials of our product candidates, including pegtarviliase and pegzilarginase, may not be successful.***

We have invested a significant portion of our efforts and financial resources in the nonclinical and clinical development and testing of pegzilarginase for the treatment of patients with Arginase 1 Deficiency and in certain oncology trials and pegtarviliase for the treatment of Homocystinuria. Our ability to generate product revenues, if ever, has depended heavily on the successful development and commercialization of pegtarviliase and pegzilarginase. The success of pegtarviliase, pegzilarginase, and our other product candidates has depended on many factors, including the following:

- receiving required regulatory approvals for the development and commercialization of our product candidates as monotherapy or in combination with other products;
- establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
- obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates and their components;
- enforcing and defending intellectual property rights and claims;
- achieving desirable therapeutic properties for our product candidates’ intended indications;
- launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with third parties;
- acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
- effectively competing with other therapies; and
- maintaining an acceptable safety profile of our product candidates through clinical trials and following regulatory approval.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. We have experienced challenges in advancing our product candidates through clinical trials and seeking regulatory approval. In June 2022, we reported that we received a RTF Letter from the FDA regarding our BLA submission for pegzilarginase. In the RTF Letter, the FDA requested additional data to support effectiveness and additional information relating to Chemistry Manufacturing and Controls. Although we have engaged in subsequent discussions with the FDA concerning pegzilarginase, we have not been successful in coming to an agreement concerning our BLA resubmission. Furthermore, in April 2023, based on the review of the inconclusive interim results from its Phase 1/2 clinical trial of pegtarviliase for the treatment of Classical Homocystinuria and business considerations, the Company announced that it had initiated a process to explore strategic alternatives to maximize stockholder value. Since the announcement of our plan to explore strategic alternatives in April 2023, we have decided to voluntarily pause our clinical programs.

***Clinical drug development involves a lengthy and expensive process with an uncertain outcome. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of any of our product candidates.***

As announced on April 12, 2023, the interim results of our Phase 1/2 trial of pegtarviliase for the treatment of Classical Homocystinuria showed the development of anti-drug antibodies in the third cohort. We may be unable to find, through a strategic transaction or otherwise, a third-party entity willing to continue development of pegtarviliase. The risk of failure for all of our product candidates is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we or successor sponsors must complete nonclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans for the respective target indications. Clinical testing is expensive, difficult to design and implement, can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.

The results of nonclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials that will likely differ in design and size from early-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. For example, while we have observed a reduction in blood arginine and arginine metabolite levels due to administration of pegzilarginase in patients with Arginase 1 Deficiency, and a reduction in blood arginine levels due to pegzilarginase in patients with advanced solid tumors, these data may not necessarily be predictive of the final results of all patients treated with pegzilarginase, and may also not be predictive of pegzilarginase’s ability to reduce arginine or arginine metabolite levels for these patients over a longer term nor predictive of positive clinical outcomes. In addition, while we intend to announce interim data from our clinical trials from time to time, such reports may be based on unaudited data provided by our clinical trial investigators. An audit or subsequent review of this data may change the conclusions drawn from this unaudited data provided by our clinical trial investigators indicating less promising results than we anticipate. In addition, our observations of clinical improvements, through clinician and assessor feedback or assessment tools in the Phase 1/2 clinical trial, the Phase 2 open-label study, the PEACE Phase 3 clinical trial and its open-label extension of pegzilarginase in patients with Arginase 1 Deficiency after cumulative doses, may not be representative of our observations with subsequently dosed patients out to a similar or longer duration of cumulative dosing.

It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval.

We may experience delays in our clinical trials and we do not know whether planned clinical trials will begin or enroll subjects on time, whether enrolled subjects will complete trials on time or at all, whether such trials will need to be redesigned or whether they will be able to be completed on schedule, if at all. There can be no assurance that the Health Authorities will allow us to begin clinical trials or that they will not put any of the trials for any of our product candidates that enter or have entered clinical development on clinical hold in the future. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Clinical trials may be delayed, suspended or prematurely terminated because costs are greater than we anticipate or for a variety of reasons, such as:

- delay or failure in reaching agreement with the Health Authorities on a trial design that we are able to execute;
- delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
- delays in reaching, or failure to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with planned trial sites;
- modifications to our clinical trial protocols due to regulatory requirements or decisions made by regulatory authorities;
- geographic complexities of managing the design and completion of clinical trials across different Health Authorities in the United States, Canada, Europe, Australia, and other jurisdictions where we currently or may in the future conduct clinical trials;
- reports of safety issues, side effects or dose-limiting toxicities, or any additional or more severe safety issues in addition to those observed to date;
- inability, delay, or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in other clinical programs;
- delay or failure in recruiting and enrolling suitable subjects to participate in one or more clinical trials;
- delay or failure in having subjects complete a trial or return for post-treatment follow-up. For instance, one patient withdrew from the Phase 1/2 clinical trial of pegtarviliase for Classical Homocystinuria and two patients previously dosed in our Phase 1/2 clinical trial of pegzilarginase for the treatment of Arginase 1 Deficiency withdrew from the trial due to personal reasons;
- clinical sites and investigators deviating from the trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;
- a clinical hold for any of our clinical trials, including for pegtarviliase or pegzilarginase, where a clinical hold in a trial in one indication could result in a clinical hold for clinical trials in other indications;
- failure of the Company, third party manufacturers, or sites participating in our clinical trials to pass regulatory inspections under applicable standards, including Good Clinical Practice and Good Manufacturing Practice;
- clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct more clinical trials than we anticipate or abandon product development programs;
- the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or insufficient or participants may drop out of these clinical trials at a higher rate than we anticipate;
- we may experience delays or difficulties in the enrollment of patients, including the identification of patients with Classical Homocystinuria or Arginase 1 Deficiency;
- our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
- we may have difficulty partnering with experienced CROs that can run our clinical trials effectively, adhere to the trial protocols and follow policies and procedures;
- regulators may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks or privacy concerns;
- the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; or
- there may be changes in governmental regulations or administrative actions.

If we are required to modify our ongoing clinical trial protocols, conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully initiate or complete clinical trials of our product candidates or other testing, if the results of these trials or tests do not demonstrate sufficient clinical benefit or if our product candidates do not have an acceptable safety profile, we may:

- be delayed in obtaining marketing approval for our product candidates;
- not obtain marketing approval at all;
- cease development of our product candidates;
- obtain approval for indications or patient populations that are not as broad as intended or desired;
- obtain approval with labeling that includes significant use or distribution restrictions or safety warnings that would reduce the potential market for our product candidates or inhibit our ability to successfully commercialize our product candidates;
- be subject to additional post-marketing restrictions, requirements, and/or testing requirements; or
- have the product removed from the market after obtaining marketing approval.

For example, in June 2017, we delayed enrollment of pediatric patients in our Phase 1/2 clinical trial of pegzilarginase for the treatment of Arginase 1 Deficiency due to a difference in opinion with the FDA on data required to support inclusion of pediatric patients. Although we reached an agreement with the FDA in November 2017 and began dosing pediatric patients, the FDA may require additional information or studies to be conducted, or impose conditions that could further delay or restrict our other planned clinical activities in the future. Similarly, in October 2022, we received a letter from the FDA regarding a protocol amendment for our Phase 1/2 clinical rial of pegtarviliase in which the FDA stated the protocol did not provide adequate justification and evidence to support the prospect of direct clinical benefit for pediatric patients and placed the trial on partial clinical hold for the enrollment of patients less an 18 years of age. A local Australian ethics committee, responsible for two clinical trial sites, recently stated that it would like to align with the FDA and place a hold on the enrollment of pediatric participants at those sites. We began our global pivotal PEACE Phase 3 clinical trial in which we are studying plasma arginine reduction from baseline over 24 weeks as our primary endpoint. However, evidence of stabilization or improvement of clinical signs and symptoms of Arginase 1 Deficiency, such as our secondary endpoints, consisting of clinical outcome assessments focused primarily on mobility, as well as clinician and caregiver global impressions of effectiveness, may be required in addition to the primary endpoint to support approval. Certain of our clinical outcome secondary endpoints are being measured using motor assessments that have not been previously validated for Arginase 1 Deficiency, including the gross motor function classification system. Such motor assessments have only been validated in ambulatory children with cerebral palsy. We believe these motor functional assessments are translatable to Arginase 1 Deficiency patients given the similarities in symptoms of children with cerebral palsy and the Arginase 1 Deficiency populations, however the FDA or other Health Authorities may disagree. For example, on June 2, 2022, we reported that we received a RTF Letter from the FDA regarding our BLA submission for pegzilarginase. In the RTF Letter, the FDA requested additional data to support effectiveness and additional information relating to Chemistry Manufacturing and Controls.

Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may materially harm our business and results of operations.

### Risks Related to Our Reliance on Third Parties

***We may not be successful in finding strategic partners for continuing development or commercialization of certain of our product candidates.***

We may seek to develop strategic partnerships for developing certain of our product candidates, due to capital costs required to develop the product candidates or manufacturing constraints. We also have entered into and may enter into future partnership agreements to commercialize pegzilarginase outside the United States, including through our licensing agreement with Immedica. We may not be successful in our efforts to establish such a strategic partnership or other alternative arrangements for our product candidates because our research and development pipeline may be insufficient, our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. In addition, we may be restricted under existing collaboration or license and development agreements from entering into future agreements with potential strategic partners. We cannot be certain that, following a strategic transaction or license, we will achieve an economic benefit that justifies such a transaction.

If we are unable to reach agreements with suitable strategic partners on a timely basis, on acceptable terms or at all, we may have to curtail the development of a product candidate, reduce or delay its development program, delay its potential commercialization, reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund development or commercialization activities on our own, or our existing or future partners are not able to adequately fund their development or commercialization activities pursuant to our arrangements, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates and our business, financial condition, results of operations and prospects may be materially and adversely affected.

### Risks Related to Government Regulation

***Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.***

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

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA, among other things, also expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program and imposed a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year. These reductions went into effect in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2023. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. On January 20, 2017, federal agencies with authorities and responsibilities under the ACA were directed to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. More recently, the Tax Cuts and Jobs Act was signed into law, which eliminated certain requirements of the ACA, including the individual mandate. On June 17, 2021, the United States Supreme Court held that plaintiffs do not have standing to challenge the constitutionality of the individual mandate. It is unclear whether there will be additional challenges to the ACA. Additionally, on January 28, 2021, the President of the United States issued an executive order that initiated a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is uncertain how other such litigation or the healthcare measures of the United States administration will impact the ACA and our business.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. For example, on September 9, 2021, the Biden administration published a wide-ranging list of policy proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. These initiatives recently culminated in the enactment of the Inflation Reduction Act, or IRA, in August 2022, which will, among other things, allow the U.S. Department of Health and Human Services, or HHS, to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although this will only apply to high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics). The negotiated prices, will first become effective in 2026, and will be capped at a statutory ceiling price. The IRA will also, beginning in October 2023, penalize drug manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges. Further, in response to the Biden administration’s October 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the CMS Innovation Center which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any health reform measures in the future. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

### Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business

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

We are a clinical-stage biotechnology company with a limited operating history, and, as of March 31, 2023, had 61 employees. On April 12, 2023, we announced a restructuring plan of our operations to narrow our near‐term business focus and reduce our workforce by approximately 83%. In connection with the restructuring, two executive officers departed the Company, Michael Hanley, the Company’s Chief Business Officer, and Linda Neuman, the Company’s Chief Medical Officer on April 14, 2023. We have been highly dependent on the research and development, clinical and business development expertise of our executive officers, as well as the other principal members of our management, scientific and clinical team. Any of our management team members may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.

Retaining qualified personnel will also be critical to our success, including with respect to any strategic transaction that we may pursue. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, facilitate regulatory approval of and commercialize product candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

In addition, we rely on consultants and advisors, including scientific and clinical advisors such as our scientific advisory board, to assist us in formulating our discovery and nonclinical and clinical development and commercialization strategy. Our consultants and advisors, including members of our scientific advisory board, may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

### Risks Related to Our Common Stock

***The price of our common stock has been and may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.***

Our stock price is volatile. The stock market in general and the market for smaller biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:

- the success or failure of our ability to identify, assess and execute a strategic transaction or realize any value from our existing assets and the timing thereof;
- the success or failure of competitive products or technologies;
- results of clinical trials of our product candidates or those of our competitors;
- regulatory or legal developments in the United States and other countries;
- developments or disputes concerning patent applications, issued patents or other proprietary rights;
- the recruitment or departure of key personnel;
- the level of expenses related to any of our product candidates or clinical development programs;
- the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
- actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
- operating results that fail to meet expectations of securities analysts that cover our company;
- variations in our financial results or those of companies that are perceived to be similar to us;
- changes in the structure of healthcare payment systems;
- market conditions in the pharmaceutical and biotechnology sectors;
- general economic and market conditions, including rising interest rates and inflation, as well as the possibility of a recession or further economic downturn, and the economic impact of the war in Ukraine and its potential suppler chain impacts and the ongoing COVID-19 pandemic;
- recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures and any negative consequences that may result therefrom; and
- the other factors described in this “Risk Factors” section.

***We will not receive a significant amount, or potentially any, additional funds upon the exercise of our pre-funded warrants; however, any exercise would increase the number of shares eligible for future resale in the public market and result in substantial dilution to our stockholders.***

As of March 31, 2023, we have issued pre-funded warrants to purchase a total of 34,982,640 shares of our common stock, of which 6,091,062 have been exercised and 28,891,578 are currently outstanding. Each pre-funded warrant is exercisable for $0.0001 per share of common stock underlying such pre-funded warrant, which may be paid by way of a cashless exercise, meaning that the holder may not pay a cash purchase price upon exercise, but instead would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the pre-funded warrant. Accordingly, we will not receive a significant amount, or potentially any, additional funds upon the exercise of the pre-funded warrants. To the extent such pre-funded warrants are exercised, additional shares of common stock will be issued for nominal or no additional consideration, which will result in substantial dilution to the then existing holders of our common stock and will increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of the common stock, causing our stock price to decline.

Filed May 11, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-020825. Last ingested by Listed: Nov 3, 2026, 18:46 ET. No prices; not investment advice.