VENTYX BIOSCIENCES, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of financial condition and results of
operations should be read together with our condensed consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on
Form 10-Q, as well as our audited consolidated financial statements and the
related notes for the year ended December 31, 2021, which are included in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission
("SEC") on March 23, 2022. In addition to historical financial information, the
following discussion and analysis and other parts of this Quarterly Report on
Form 10-Q contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, based upon current expectations that involve
risks and uncertainties. As a result of many factors, including those factors
set forth in Part II, Item 1A (Risk Factors) of this Quarterly Report on Form
10-Q, our actual results could differ materially from the results described in
or implied by the forward-looking statements contained in the following
discussion and analysis. Please also see the section titled "Special Note
Regarding Forward-Looking Statements."

Insight

We are a clinical-stage biopharmaceutical company developing a pipeline of novel
small molecule product candidates to address a range of inflammatory diseases
with significant unmet need. We leverage the substantial experience of our team
in immunology to identify important new targets and to develop differentiated
therapeutics against these targets. Our clinical product candidates address
therapeutic indications with substantial commercial opportunity for novel small
molecules. Our lead clinical product candidate, VTX958, is a selective
allosteric tyrosine kinase type 2 (TYK2) inhibitor. In August 2022, we announced
positive topline data from a Phase 1 single and multiple ascending dose trial of
VTX958 in healthy volunteers. We expect to initiate Phase 2 trials with VTX958
in the fourth quarter of 2022 for psoriasis, psoriatic arthritis and Crohn's
disease and continue to evaluate additional indications for clinical
development. In addition, we are developing VTX002, a sphingosine 1 phosphate
receptor (S1P1R) modulator in Phase 2 development for ulcerative colitis. We
initiated a Phase 2 trial with VTX002 in the fourth quarter of 2021 in patients
with moderate to severe ulcerative colitis. Our third product candidate,
VTX2735, is a peripheral-targeted NOD-like receptor protein 3 (NLRP3)
inflammasome inhibitor. In June 2022, we announced positive topline data from a
Phase 1 single and multiple ascending dose trial of VTX2735 in healthy
volunteers. We plan to initiate a Phase 2 trial for VTX2735 in
cryopyrin-associated periodic syndrome (CAPS) patients in the fourth quarter of
2022 and continue to evaluate additional indications for clinical development.
In addition to VTX2735, we nominated VTX3232, our lead CNS-penetrant NLRP3
inhibitor, as a clinical development candidate in the fourth quarter of 2021. We
plan to initiate a Phase 1 trial of VTX3232 in healthy volunteers in the first
quarter of 2023.

We were incorporated in November 2018. To date, we have focused primarily on
organizing and staffing our company, business planning, raising capital and
identifying our product candidates and conducting preclinical studies and
clinical trials. We have funded our operations primarily through debt and equity
financings. We do not have any products approved for sale and have not generated
any revenue from product sales.

We have incurred significant operating losses since our inception and expect to
continue to incur significant operating losses for the foreseeable future. Our
net losses were $30.5 million and $12.8 million for the three months ended
September 30, 2022 and 2021, respectively. Our net losses were $73.2 million and
$66.0 million for the nine months ended September 30, 2022 and 2021,
respectively. We had an accumulated deficit of $191.0 million as of September
30, 2022. We expect our expenses and operating losses will increase
substantially as we conduct our ongoing and planned clinical trials, continue
our research and development activities and conduct preclinical studies, and
seek regulatory approvals for our product candidates, as well as hire additional
personnel, protect our intellectual property and incur additional costs
associated with being a public company. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending on a variety
of factors, including the timing and scope of our preclinical studies and
clinical trials and our expenditures on other research and development
activities.

We do not expect to generate any revenue from product sales unless and until we
successfully complete clinical development and obtain regulatory approval for
one or more of our product candidates, which we expect will take a number of
years. If we obtain regulatory approval for any of our product candidates, we
expect to incur significant commercialization expenses related to product sales,
marketing, manufacturing and distribution. Accordingly, until such time as we
can generate substantial product revenues to support our cost structure, if
ever, we expect to finance our cash needs through equity offerings, debt
financings or other capital sources, including potentially collaborations,
licenses and other similar arrangements. However, we may be unable to raise
additional funds or enter into such other arrangements when needed on favorable
terms or at all. Our failure to raise capital or enter into such other
arrangements when needed could have a negative impact on our financial condition
and on our ability to pursue our business plans and strategies. If we are unable
to raise additional capital when needed, we could be forced to delay, limit,
reduce or terminate our product candidate development or future
commercialization efforts or grant rights to develop and market our product
candidates even if we would otherwise prefer to develop and market such product
candidates ourselves.

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Private placement

On September 20, 2022, the Company issued and sold 5,350,000 shares of common
stock through a private placement. The common stock had a purchase price of
$33.00 per share for aggregate gross proceeds of approximately $176.6 million.
The Company received approximately $165.4 million in net proceeds after
deducting fees to the placement agents and offering expenses payable by the
Company.

Initial public offering

On October 25, 2021, we completed an initial public offering (IPO) of our common
stock in which we issued an aggregate of 10,893,554 shares of our common stock
(inclusive of 1,420,898 shares issued pursuant to the underwriters'
over-allotment option) at a price of $16.00 per share. The Company received net
proceeds of approximately $158.8 million, after deducting underwriting discounts
and commissions of $12.2 million and other offering expenses of $3.3 million.

In connection with the closing of the initial public offering, all 12.5 million
outstanding shares of Series A Convertible Preferred Stock (Series A Preferred
Stock), 18.8 million outstanding shares of Series A-1 Convertible Preferred
Stock (Series A-1 Preferred Stock) and 4.0 million shares of Series B
Convertible Preferred Stock (Series B Preferred Stock) converted into an
aggregate of 35.3 million shares of common stock.

Company update regarding conflict in Ukraine

We are currently conducting a Phase 2 trial of VTX002 in patients with
moderate-to-severe UC with enrollment originally projected to include patients
at clinical sites in Russia, Belarus and Ukraine. As a result of the military
conflict in Ukraine, we terminated plans to open clinical trial sites in Russia,
Belarus and Ukraine, which impacted our original clinical trial strategy. Our
operations at additional sites in the region could also be impacted in the
future. Additionally, if our relationships with any of our CROs is terminated,
we may be unable to enter into arrangements with alternative CROs on
commercially reasonable terms, or at all. Our ability to conduct clinical trials
in Russia, Belarus, Ukraine and elsewhere in the region may also become
restricted under applicable sanctions laws. All of the foregoing creates
uncertainty around our ability to project the timing for enrollment of our Phase
2 trial for VTX002 and may lead to increased clinical trial costs as we seek to
open additional clinical sites to offset potential impact to our projected
enrollment in Russia, Belarus and Ukraine, which could materially harm our
business.

We have no way to predict the progress or outcome of the situation, as the
conflict and government reactions are rapidly developing and beyond our control.
Prolonged unrest, military activities, or broad-based sanctions, should they be
implemented, could have a material adverse effect on our operations and business
outlook.

COVID-19

The global COVID-19 pandemic and the related variants continue to rapidly
evolve. The extent of the impact of the COVID-19 pandemic on our business,
operations and clinical development timelines and plans remains uncertain, and
will depend on certain developments, including the duration and spread of the
outbreak and its impact on our operations and those of our CROs, third-party
manufacturers and other third parties with whom we do business, as well as its
potential impact on regulatory authorities and our ability to attract and retain
key scientific and management personnel.

We are conducting business as usual, with necessary or advisable modifications,
and have modified our business practices, including but not limited to,
modifying employee travel and allowing office employees to work remotely. We
will continue to actively monitor the rapidly evolving situation related to
COVID-19. We may take further actions that alter our operations, including those
that may be required by federal, state or local authorities, or that we
determine are in the best interests of our employees and other third parties
with whom we do business.


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Asset purchases

As part of our Series A and Series A-1 Convertible Preferred Share financing, in February 2021we acquired all of the outstanding shares and convertible debt securities of Oppilan Pharma, Ltd. (Oppilan) and Zomagen Biosciences, Ltd. (Zomagen) (asset acquisitions). Certain Oppilan and Zomagen investors are also investors in the Company and are considered related parties. The details of the asset acquisitions are as follows:

Pursuant to the terms of the Share Purchase Agreement (the Oppilan Purchase
Agreement), upon closing, we issued to the shareholders of Oppilan 360,854
shares of our common stock valued at $3.06 per share, 4,049,143 shares of our
Series A-1 Convertible Preferred Stock valued at $3.06 per share and options to
purchase 75,955 shares of our common stock valued at a weighted average fair
value of $1.86 per share in exchange for all of the outstanding equity interests
of Oppilan. Oppilan's lead candidate, VTX002, is a modulator of the S1P1
receptor that has a unique pharmacokinetic and pharmacodynamic profile. A Phase
2 clinical trial of VTX002 for the treatment of moderate-to-severe ulcerative
colitis is currently ongoing.

Pursuant to the terms of the Share Purchase Agreement (the Zomagen Purchase
Agreement), upon closing, we issued to the shareholders of Zomagen 457,944
shares of our common stock valued at $3.06 per share, 2,003,768 shares of our
Series A-1 Convertible Preferred Stock valued at $3.06 per share and options to
purchase 30,483 shares of our common stock valued at a weighted average fair
value of $2.87 per share in exchange for all of the outstanding equity interests
of Zomagen. Zomagen's lead candidate, VTX2735, is a peripheral NLRP3 inhibitor
for which we completed a Phase 1 trial in the second quarter of 2022. We plan to
initiate a Phase 2 clinical trial of VTX2735 in cryopyrin-associated periodic
syndrome ("CAPS") patients in the fourth quarter of 2022 and continue to
evaluate additional indications for clinical development.

The fair value of total cost of the Asset Acquisitions was $14.0 million and
$7.8 million for Oppilan and Zomagen, respectively. The excess of the cost of
acquisition over net assets acquired was $12.8 million and $8.9 million for
Oppilan and Zomagen, respectively. We determined that there is no alternative
future use of the in-process research and development (IPR&D) assets acquired
from either acquisition. In accordance with the accounting for Asset
Acquisitions, the excess of the cost of acquisition over net assets acquired was
expensed as IPR&D at the respective acquisition date. For the year ended
December 31, 2021, we recorded the excess IPR&D costs of $21.7 million in
research and development costs within our unaudited condensed consolidated
statements of operations and comprehensive loss.

Overview of financial operations

Revenue

We have not generated any revenue since our inception and do not expect to
generate any revenue from the sale of products for the foreseeable future. We
may also generate revenues in the future from payments or royalties associated
with potential partnering or collaboration agreements, but have no plans to
enter into such arrangements at this time.

Research and development costs

Research and development expense consists of expenses incurred while performing
research and development activities to discover and develop our product
candidates. Research and development costs include salaries, payroll taxes,
employee benefits, and stock-based compensation charges for those individuals
involved in our ongoing research and development efforts; as well as fees paid
to consultants and third party research organizations, and the costs of
laboratory supplies and development compound materials. Costs incurred in our
research and development efforts are expensed as incurred.


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We typically use our employee, consultant and infrastructure resources across
our research and development programs. We track outsourced development costs by
product candidate or development program, but we do not allocate personnel
costs, other internal costs or external consultant costs to specific product
candidates or development programs. These costs are included in unallocated
research and development expenses. The following table summarizes research and
development expenses by product candidate or development program (in thousands):

                                                   Three Months Ended           Nine Months Ended
                                                     September 30,                September 30,
                                                   2022          2021           2022          2021
VTX958                                          $    8,438     $   3,536     $   18,238     $   8,646
VTX002                                               7,956         3,945         15,690         6,961
VTX2735                                              3,050           776          6,862         1,988
Unallocated research and development expenses        6,024         2,288         16,763        27,062
Total research and development expenses         $   25,468     $  10,545    

$57,553 $44,657



We did not separately categorize costs related to VTX3232 in the table above due
to the early-stage development status of the drug product candidate during the
periods presented.

Substantially all of our research and development expenses to date have been
incurred in connection with the discovery and development of our product
candidates. We expect our research and development expenses to increase
significantly for the foreseeable future as we advance an increased number of
our product candidates through clinical development, including the conduct of
our ongoing and planned clinical trials. The process of conducting clinical
trials necessary to obtain regulatory approval is costly and time consuming. The
successful development of product candidates is highly uncertain and subject to
numerous risks and uncertainties. Accordingly, at this time, we cannot
reasonably estimate the nature, timing or costs required to complete the
remaining development of any product candidates and to obtain regulatory
approval for one or more of these product candidates.

Clinical trial costs can vary significantly over the life of a project due to, but not limited to, the following:

trial costs per patient;

the number of sites included in clinical trials;

the countries in which the clinical trials are conducted;

the length of time required to enroll eligible patients;

the number of patients who participate in clinical trials and the dropout or discontinuation rates of such patients;

the number of doses patients receive;

the cost of comparative agents used in clinical trials;

potential additional safety monitoring or other studies requested by regulatory agencies;

the duration of patient follow-up; and

the efficacy and safety profile of the product candidate.

We do not expect any of our product candidates to be commercially available in the next few years, if ever.

General and administrative expenses

General and administrative expenses are related to finance, human resources,
legal and patent costs and other administrative activities. These expenses
consist primarily of personnel costs, including stock-based compensation
expenses, outside services, legal expenses, management fees and other general
and administrative costs.

We expect that our general and administrative expenses will increase for the
foreseeable future as we expand operations, increase our headcount to support
our continued research and development activities and operate as a public
reporting company (including increased fees for outside consultants, lawyers and
accountants, as well as increased directors' and officers' liability insurance
premiums). We have also incurred, and expect to continue to incur, increased
costs to comply with stock exchange listing and SEC

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requirements, corporate governance, internal controls, investor relations and
disclosure and similar requirements applicable to public companies.
Additionally, if and when we believe that a regulatory approval of a product
candidate appears likely, we expect to incur significant increases in our
general and administrative expenses related to the sales and marketing of any
approved product candidate.

Results of Operations

The presentation of our condensed consolidated financial statements for the
three and nine months ended September 30, 2021, reflect the financial results of
Ventyx Biosciences, Inc., and the financial results of our two acquired
subsidiaries, Oppilan and Zomagen, from the acquisition date to September 30,
2021, on a consolidated basis.

Comparison of the three months ended September 30, 2022 at three months ended
September 30, 2021

The following table summarizes our condensed consolidated results of operations for the three months ended September 30, 2022 and 2021:

                                                    Three Months Ended
                                                      September 30,
                                                   2022           2021           Change
                                                             (in thousands)
Operating expenses:
Research and development (includes related
party amounts of
  $220 and $287, respectively)                  $   25,468     $    10,545     $   14,923
General and administrative                           5,952           2,242          3,710
Total operating expenses                            31,420          12,787         18,633
Loss from operations                               (31,420 )       (12,787 )      (18,633 )
Other income:
Other income                                          (958 )           (13 )         (945 )
Total other income                                    (958 )           (13 )         (945 )
Net loss                                           (30,462 )       (12,774 )      (17,688 )
Unrealized gain on marketable securities                17               6             11
Foreign currency translation                           (38 )            23            (61 )
Comprehensive loss                              $  (30,483 )   $   (12,745 )   $  (17,738 )


Research and development costs

Research and development expenses were $25.4 million and $10.5 million for the
three months ended September 30, 2022 and 2021, respectively. For the three
months ended September 30, 2022 and 2021, most research and development expenses
have been related to the development of VTX958, VTX002 and VTX2735.

The increase of $14.9 million was due to increases in costs associated with the
Phase 1 and Phase 2 trials for VTX958 of approximately $5.2 million, stock-based
compensation expense of approximately $1.4 million, compensation related
expenses of approximately $1.2 million, consultant fees of approximately $0.4
million and expenses from the operations of Oppilan and Zomagen. The increased
expenses from the operations of Oppilan were attributable to an increase in
costs associated with the Phase 2 trial for VTX002 of approximately $4.0
million. The increased expenses from the operations of Zomagen were primarily
attributable to an increase in costs associated with the Phase 1 trial for
VTX2735 and IND enabling studies for VTX3232 of approximately $2.7 million.

General and administrative costs

General and administrative expenses were $5.9 million and $2.2 million for the
three months ended September 30, 2022 and 2021, respectively. The increase of
$3.7 million was primarily due to increased personnel costs, including
stock-based compensation of approximately $1.8 million, professional service
fees of approximately $0.7 million and compensation related expenses of
approximately $0.4 million, insurance costs of approximately $0.5 million and
other general and administrative expenses of approximately $0.3 million,
including dues and subscriptions, office supplies and equipment and facility
related costs.

Other Income

Other income was $1.0 million and $0 for the three months ended September 30,
2022 and 2021, respectively. During the three months ended September 30, 2022,
the other income recognized was associated with interest earned on
available-for-sale marketable securities.

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Comparison of the nine months ended September 30, 2022 nine months ended
September 30, 2021

The following table summarizes our condensed consolidated results of operations for the nine months ended September 30, 2022 and 2021:

                                                    Nine Months Ended
                                                      September 30,
                                                   2022           2021           Change
                                                             (in thousands)
Operating expenses:
Research and development (includes related
party amounts of
  $653 and $839, respectively)                  $   57,553     $    44,657     $   12,896
General and administrative (includes related
party amounts of
  $0 and $116, respectively)                        17,012           4,664         12,348
Total operating expenses                            74,565          49,321         25,244
Loss from operations                               (74,565 )       (49,321 )      (25,244 )
Other (income) expense:
Other (income) expense                              (1,353 )            31         (1,384 )
Interest expense - related party                         -              99            (99 )
Change in fair value of notes and derivative
- related party                                          -          11,051        (11,051 )
Change in fair value of Series A tranche
liability                                                -           5,476         (5,476 )
Total other (income) expense                        (1,353 )        16,657        (18,010 )
Net loss                                           (73,212 )       (65,978 )       (7,234 )
Deemed dividend                                          -          (1,552 )        1,552
Net loss attributable to common shareholders    $  (73,212 )   $   (67,530 )   $   (5,682 )
Net loss                                        $  (73,212 )   $   (65,978 )   $   (7,234 )
Unrealized gain (loss) on marketable
securities                                          (1,204 )             6         (1,210 )
Foreign currency translation                           (50 )            11            (61 )
Comprehensive loss                              $  (74,466 )   $   (65,961 )   $   (8,505 )


Research and development costs

Research and development expenses were $57.6 million and $44.7 million for the
nine months ended September 30, 2022 and 2021, respectively. For the nine months
ended September 30, 2022, most research and development expenses have been
related to the development of VTX958, VTX002 and VTX2735.

For the nine months ended September 30, 2022 as compared to the nine months
ended September 30, 2021, there was a net increase in research and development
expenses of approximately $12.9 million. This increase was comprised of
increases in costs between periods associated with the Phase 1 and Phase 2
trials for VTX958 of approximately $9.6 million, stock-based compensation
expense of approximately $4.0 million, compensation related expenses of
approximately $3.5 million, consulting fees of $0.7 million, drug candidate
discovery costs of approximately $0.5 million and expenses from the operations
of Oppilan and Zomagen. The increased expenses from the operations of Oppilan
were attributable to an increase in costs associated with the Phase 2 trial for
VTX002 of $8.7 million. The increased expenses from the operations of Zomagen
were primarily attributable to an increase in costs associated with the Phase 1
trial for VTX2735 and IND enabling studies for VTX3232 of approximately $6.5
million and drug candidate discovery costs of approximately $1.2 million.

These increases between the nine months ended September 30, 2022 and 2021 were
offset by a $21.8 million non-cash IPR&D expense associated with the
acquisitions of Oppilan and Zomagen (as there was no alternative future use of
the IPR&D assets acquired) which was recognized during the nine months ended
September 30, 2021.

General and administrative costs

General and administrative expenses were $17.0 million and $4.7 million for the
nine months ended September 30, 2022 and 2021, respectively. The increase of
$12.3 million was primarily due to increased personnel costs, including
stock-based compensation of approximately $6.4 million, compensation related
expenses of approximately $1.8 million and professional service fees of
approximately $1.8 million, insurance costs of approximately $1.6 million and
other general and administrative expenses of approximately $0.7 million,
including dues and subscriptions, investor relations costs and facility related
costs.

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Other (income) Expenses

Other income was $1.4 million for the nine months ended September 30, 2022 and
other expense was $16.7 million for the nine months ended September 30, 2021.
During the nine months ended September 30, 2022, the other income recognized was
associated with interest earned on available-for-sale marketable securities of
approximately $1.5 million, slightly offset by franchise tax costs of
approximately $0.2 million.

During the first quarter of 2021, in conjunction with the acquisitions of
Oppilan and Zomagen, the convertible promissory notes (Convertible Notes) and
Simple Agreements for Future Equity (SAFEs or Convertible SAFE Notes) converted
into Series A and Series A-1 Preferred Stock, eliminating the fair value
accounting associated with the Convertible Notes, SAFEs and the associated
derivative liability. During the nine months ended September 30, 2021, the
Company recognized a change in the fair value of the Series A tranche liability
of approximately $5.5 million.

We issued the Convertible Notes in 2019 and 2020 which included a change of
control feature for which we recorded a liability measured at fair value. We
estimated the fair value of our change of control feature using a combination of
probability analysis and Monte Carlo simulation methodology. Until their
conversion into Series A-1 Preferred Stock in February 2021, we adjusted the
carrying value of our change in control feature to its estimated fair value at
each reporting date, with the increases in fair value of the change of control
feature recorded in our condensed consolidated statements of operations and
comprehensive loss.

We issued SAFEs in 2019 and 2020 which we accounted for at fair value. We
estimated the fair value of our SAFEs using a combination of probability
analysis and Monte Carlo simulation methodology. Until their conversion into
Series A-1 Preferred Stock in February 2021, we adjusted the carrying value of
our SAFEs to their estimated fair value at each reporting date, with the
increases in fair value of the SAFEs recorded in our condensed consolidated
statements of operations and comprehensive loss.

On February 26, 2021, we issued 6,283,401 shares of our Series A Preferred Stock
for gross proceeds of $57.3 million at the original issue price of $9.12 per
share. The Series A purchase agreement allowed the original investors to
purchase an additional 6,250,504 shares of Series A Convertible Preferred Shares
(the Additional Shares) on the same terms and conditions as the original
issuance at the original issuance price of $9.12 per share (the Second Closing
or Tranche Liability). In addition, we were obligated to issue 507,133 shares of
common stock to a Series A investor if such investor participated in the second
tranche. We concluded that these rights or obligations of the investors to
participate in the second tranche of the Series A Preferred Stock met the
definition of a freestanding instrument that was required to be recorded as a
liability at fair value (Series A tranche liability). Given the common shares
were linked to the second tranche, they were also considered a component of the
Tranche Liability. On June 10, 2021, the investors purchased an additional
6,250,504 shares of our Series A convertible preferred stock, on the same terms
and conditions as the original issuance for gross proceeds of $57.0 million in a
second closing.

Until the conversion of the Series A tranche liability into Series A Preferred
Stock on June 10, 2021, we adjusted the carrying value of our Series A tranche
liability to its estimated fair value at each reporting date. We estimated the
fair value of the Series A tranche liability using a combination of probability
analysis and Monte Carlo simulation methodology. The increases in fair value of
the Series A tranche liability were recorded as an increase in fair value of our
Series A tranche liability in our condensed consolidated statements of
operations and comprehensive loss.

In the nine months ended September 30, 2021the Company recognized a change in fair value of the change of control feature and SAFEs of approximately $11.1 million and a change in the fair value of the Series A tranche liability of approximately $5.5 million.

Cash and capital resources

Sources of liquidity and capital resources

From inception through September 30, 2022, we have funded our operations
primarily through the issuance of $164.2 million of convertible preferred stock,
net of offering costs, to outside investors and related parties and $10.3
million in aggregate principal amount of convertible notes and SAFEs issued to
related parties. In October 2021, we received net proceeds of approximately
$158.8 million, after deducting underwriting discounts and commissions and
offering expenses payable by us, from the sale of our shares of common stock in
the IPO. Additionally, in September 2022 through the closing of our private
placement, we received net proceeds of approximately $165.4 million after
deducting transaction-related expenses. As of September 30, 2022, we had cash,
cash equivalents and marketable securities of $412.4 million.

We have not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the SECOND.

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Future funding needs

To date, we have generated no revenue and do not expect to generate revenue
unless and until we obtain regulatory approval of and commercialize any of our
product candidates and we do not know when, or if, this will occur. In addition,
we expect our expenses to significantly increase in connection with our ongoing
development activities, particularly as we continue the research, development
and clinical trials of, and seek regulatory approval for, our product
candidates. Moreover, we expect to incur additional costs associated with
operating as a public company. In addition, subject to obtaining regulatory
approval of our product candidates, we expect to incur significant
commercialization expenses for product sales, marketing, manufacturing and
distribution. We anticipate that we will need substantial additional funding in
connection with our continuing operations. We expect that our expenses will
increase substantially if and as we:

continue research and development, including preclinical and clinical development of our existing product candidates;

seek regulatory approval for our product candidates;

seek to discover and develop additional product candidates;

establish a commercialization infrastructure and scale up our manufacturing and
distribution capabilities to commercialize any of our product candidates for
which we may obtain regulatory approval;

seek to comply with regulatory standards and laws;

maintain, operate and develop our intellectual property portfolio;

hire clinical, manufacturing, scientific and other personnel to support our product candidates;

incur expenses related to future development and commercialization efforts;

add staff, financial and management information systems, and personnel; and

incur additional legal, accounting and other expenses in connection with operating as a public company.

Based upon our current operating plan, we expect that our cash, cash equivalents
and marketable securities as of September 30, 2022, will enable us to fund our
operating expenses and capital expenditures requirements into 2025. We have
based this estimate on assumptions that may prove to be wrong, and we may use
our available capital resources sooner than we currently expect.

We enter into contracts in the normal course of business with various
third-party consultants, contract research organizations (CRO) and contract
manufacturing organizations (CMO) for preclinical research, clinical trials and
manufacturing activities. These contracts generally provide for termination upon
notice. Payments due upon cancellation consist of cancellation fees and payments
for services provided or expenses incurred, including non-cancellable
obligations of our service providers, up to the date of cancellation. Actual
expenses associated with these arrangements may be higher or lower than
anticipated due to various factors, including progress of our development
candidates, enrollment in ongoing clinical trials, which may be competitive and
challenging and results from our ongoing and planned clinical trials.

Material short-term liquidity needs of $0.5 million relate to future minimum
lease payments. Material long-term liquidity needs pertaining to our operating
leases is approximately $1.4 million with our last minimum lease payment due in
June 2026. Currently, we have no short-term or long-term purchase commitments.

Our capital expenditures to date have been negligible and we do not expect to incur any significant capital expenditure costs in the short or long term.

The success of the development of any product candidate is highly uncertain. Due to the many risks and uncertainties associated with the development and commercialization of our product candidates, if approved, we are unable to estimate the amounts of increased capital and operating expenses. associated with the completion of the development of our product candidates.

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Our future capital requirements will depend on many factors, including:

the timing and costs involved in preclinical and clinical development and obtaining any regulatory approval for our product candidates;

the costs of manufacturing, distributing and processing our product candidates;

the number and characteristics of any other product candidates we develop or acquire;

the degree and rate of market acceptance of any approved product;

the emergence, approval, availability, perceived benefits, relative cost, relative safety and relative effectiveness of other products or treatments;

expenditures necessary to attract and retain qualified personnel;

the costs associated with being a public company;

costs related to the preparation, filing, prosecution, maintenance, defense and enforcement of intellectual property claims, including litigation costs and the outcome of such litigation;

the timing, receipt and amount of sales or royalties on any approved product; and

any product liability or other legal claims related to our product candidates.

Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity, equity-linked
and debt financings, collaborations, strategic alliances and/or licensing
arrangements. We do not have any committed external source of funds. To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our stockholders will be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of common stockholders. Debt
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
additional funds through collaborations, strategic alliances or licensing
arrangements with pharmaceutical partners, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product
candidates, or grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market our product candidates that we would otherwise prefer to develop and
market ourselves.

Cash flow

We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of September 30, 2022, we had cash, cash equivalents and
marketable securities of $412.4 million.

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

                                     Nine Months Ended
                                       September 30,
                                    2022          2021
                                      (in thousands)
Net cash provided by (used in):
Operating activities              $ (51,507 )   $ (23,963 )
Investing activities              $  65,909     $ (71,275 )
Financing activities              $ 178,127     $ 163,969



Operating Activities

Net cash used in operating activities was $51.5 million for the nine months
ended September 30, 2022 and was primarily due to our net loss of $73.2 million
offset by $11.5 million for noncash items and a net increase of $10.2 million in
operating assets and liabilities. The noncash items included approximately $11.7
million for stock-based compensation expense and approximately $0.3

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million for the amortization of operating right-of-use assets and depreciation
expense, slightly offset by approximately $0.5 million for the net
accretion/amortization of investments in available-for-sale marketable
securities. The $10.2 million change in operating assets and liabilities was
primarily attributable to an increase in accrued expenses and accounts payable
of approximately $11.9 million, offset by an increase in prepaid expenses and
other assets of approximately $1.5 million.

Net cash used in operating activities was $24.0 million for the nine months
ended September 30, 2021 and was primarily due to our net loss of $66.0 million
offset by $39.8 million for noncash items and a net increase in operating assets
and liabilities of approximately $2.3 million. The noncash items included $21.8
million for acquired IPR&D expenses, $16.6 million due to the change in the fair
value of related party notes, the associated derivative, and the Series A
tranche liability and $1.3 million for stock-based compensation expense. The
$2.3 million change in operating assets and liabilities was primarily
attributable to increases in accrued expenses and accounts payable of $5.9
million, offset by an increase in prepaid expenses and other assets of $3.6
million.

Investing activities

Net cash provided by investing activities was $65.9 million for the nine months
ended September 30, 2022 and was related to $208.6 million in proceeds from
maturities of available-for-sale marketable securities, offset by the purchase
of $142.5 million of investments in available-for-sale marketable securities.
Net cash used in investing activities was $71.3 million for the nine months
ended September 30, 2021 related to the purchase of $73.0 million of investments
in available-for-sale marketable securities, partially offset by $1.9 million of
net cash assumed in connection with the acquisitions of Oppilan and Zomagen.

Fundraising activities

Net cash provided by financing activities was $178.1 million for the nine months
ended September 30, 2022 and was attributable to approximately $176.5 million in
net proceeds from the issuance of common stock from the private placement, $1.5
million in proceeds from the exercise of stock options, and $0.1 million in
proceeds from the issuance of common stock under the 2021 Employee Stock
Purchase Plan (ESPP). Net cash provided by financing activities was $164.0
million for the nine months ended September 30, 2021 and was primarily
attributable to $164.2 million in proceeds from the issuance of our Series A and
Series B Preferred Stock net of offering costs and $0.5 million in net proceeds
from the issuance of SAFEs, partially offset by $0.7 million of cash paid for
deferred offering costs.

Significant Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP). The preparation of these condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, and expenses, and the disclosure of contingent
assets and liabilities in our unaudited condensed consolidated financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to prepaid and accrued clinical trial and research and
development costs, available-for-sale marketable securities, the measurement of
operating lease right-of-use assets and operating lease liabilities and the
measurement of the fair value of stock-based awards. We base our estimates on
historical experience, known trends and events, and various other factors that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

During the three and nine months ended September 30, 2022, there have been no
material changes to our critical accounting policies and estimates from those
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in our Annual Report on Form 10-K filed with
the SEC on March 23, 2022.

Other Company Information

Jumpstart Our Business Startups Act (“JOBS Act”)

We are an "emerging growth company," as defined in the JOBS Act, and we may take
advantage of reduced reporting requirements that are otherwise applicable to
public companies. We have elected to take advantage of the extended transition
period for complying with new or revised accounting standards; and as a result
of this election, our financial statements may not be comparable to companies
that comply with public company effective dates. The JOBS Act also exempts us
from having to provide an auditor attestation of internal control over financial
reporting under Sarbanes-Oxley Act Section 404(b).

We will remain an "emerging growth company" until the earliest to occur of (1)
the last day of the fiscal year in which our annual gross revenue is $1.235
billion or more, (2) the last day of 2026, (3) the date that we become a "large
accelerated filer" as defined in

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Rule 12b-2 under the Exchange Act, which would occur if the market value of our
common stock that is held by non-affiliates exceeds $700.0 million as of the
last business day of our most recently completed second fiscal quarter and (4)
the date on which we have issued more than $1.0 billion in non-convertible debt
securities during any three-year period.

We are also a "smaller reporting company" because the market value of our stock
held by non-affiliates plus the aggregate amount of gross proceeds to us as a
result of our initial public offering is less than $700 million as of June 30,
2021, and our annual revenue was less than $100 million during the fiscal year
ended December 31, 2021. We may continue to be a smaller reporting company in
any given year if either (i) the market value of our stock held by
non-affiliates is less than $250 million as of June 30 in the most recently
completed fiscal year or (ii) our annual revenue is less than $100 million
during the most recently completed fiscal year and the market value of our stock
held by non-affiliates is less than $700 million as of June 30 in the most
recently completed fiscal year. If we are a smaller reporting company at the
time we cease to be an emerging growth company, we may continue to rely on
exemptions from certain disclosure requirements that are available to smaller
reporting companies. Specifically, as a smaller reporting company we may choose
to present only the two most recent fiscal years of audited consolidated
financial statements in our Annual Report on Form 10-K.

Recent accounting pronouncements

A description of recent accounting pronouncements that may potentially impact
our financial positions, results of operations or cash flows is disclosed in
Note 2 of our condensed consolidated financial statements included elsewhere in
this Quarterly Report on Form 10-Q.

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