10-Q/A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-39273

 

Lyra Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-1700838

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

480 Arsenal Way

Watertown, MA

02472

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 393-4600

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

LYRA

 

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232. 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 1, 2022, the registrant had 31,826,357 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


EXPLANATORY NOTE

Lyra Therapeutics, Inc. (the "Company" or "we," "our" or "us") is filing this Amendment No. 1 on Form 10-Q/A ("Form 10-Q/A") to its Quarterly Report on Form 10-Q, originally filed with the U.S. Securities and Exchange Commission ("SEC”) on August 9, 2022 (the "Original Form 10-Q"), to amend and restate our unaudited condensed consolidated interim financial statements as of and for the three and six months ended June 30, 2022 and certain financial information in Management’s Discussion and Analysis of Financial Condition and Results of Operations. We are also providing an update in our disclosures in Part I, Item 4, "Controls and Procedures,” of this Form 10-Q/A regarding a material weakness in internal control over financial reporting.

Background and Effect of Restatement

On October 26, 2022, the Company, after discussion with its independent registered public accounting firm and the Audit Committee of the Board of Directors (the “Audit Committee”), concluded that an error was made in the application of revenue recognition for the $5.0 million development milestone achieved in February 2022 under the License and Collaboration Agreement (the “LianBio License Agreement”) with LianBio Inflammatory Limited, which was entered into on May 31, 2021. In connection with the original accounting for the LianBio License Agreement, the Company determined there were two distinct performance obligations: (1) the license to develop and commercialize LYR-210, manufacturing activities related to the clinical supply of LYR-210, and the non-exclusive license to manufacture LYR-210 and obligation to transfer manufacturing technology in the case of a supply failure, and (2) the Company’s performance of the development activities related to the global Phase 3 clinical trial. The correction of this error resulted in a restatement of the Company’s unaudited condensed consolidated interim financial statements and financial data covering the three months ended March 31, 2022 and the three and six months ended June 30, 2022 (the "Restated Periods”).

The restatement reflects the correction of the immediate recognition as revenue of the $5.0 million development milestone in the Restated Periods by properly allocating the amount to the two performance obligations and recognizing the allocated amounts in accordance with the revenue recognition model previously developed for each performance obligation. The impact of this misstatement does not impact any other accounts in the Company’s condensed consolidated statement of operations accounts, including its income tax accounts since the Company has not recognized any income tax benefit for its operating losses. The Company has appropriately adjusted certain balance sheet accounts. The correction did not impact the cash position previously disclosed.

Certain balances and accounts in this Form 10-Q/A have been corrected to reflect the appropriate revenue recognition for the LianBio License Agreement. See "Restatement and Significant Accounting Policies" in Note 2 to the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Form 10-Q/A, for more information regarding the impact of correcting this error on the Company's unaudited condensed interim financial statements.

The Audit Committee concluded that the previously issued unaudited condensed consolidated interim financial statements and financial data covering the Restated Periods contained in the Company’s Original Form 10-Q required restatement and should no longer be relied upon. See the Company’s Current Report on Form 8-K filed with the SEC on October 26, 2022 for additional details.

Internal Control Over Financial Reporting Considerations

In connection with such restatement, the Company’s management has determined that there were deficiencies in its internal control over financial reporting that constituted a material weakness at June 30, 2022. For a discussion of management’s consideration of its disclosure controls and procedures and the material weakness in its internal control over financial reporting, see Part I, Item 4, "Controls and Procedures,” included in this Form 10-Q/A.

Items Amended in this Form 10-Q/A

For the convenience of the reader, this Form 10-Q/A amends and restates the Original Form 10-Q in its entirety, except for Exhibits 4.2 through 10.3, which are incorporated by reference from the Original Form 10-Q. The following items included in the Original Form 10-Q are amended by this Form 10-Q/A:

Part I, Item 1 - Financial Statements
Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4 - Controls and Procedures
Part II, Item 1A - Risk Factors
Part II, Item 6 - Exhibits

 


This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, nor modifies or updates the information contained therein other than as required to correct the error and record the adjustment described above to correct the allocation of previously identified constrained amounts of the transaction price to the two performance obligations related to the LianBio License Agreement. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings with the SEC subsequent to the filing of the Original Form 10-Q, as well as Exhibits 4.2 through 10.3, which are incorporated by reference from the Original Form 10-Q.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, currently dated certifications by the Company’s Principal Executive Officer and Principal Financial Officer are included in Part II, Item 6. “Exhibits” and attached as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-Q/A.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q/A contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q/A are forward-looking statements, including but not limited to statements regarding:

our plans to develop and commercialize our product candidates;
the timing of our ongoing or planned clinical trials for LYR-210, LYR-220, and any future product candidates;
the timing of and our ability to obtain and maintain regulatory approvals for LYR-210, LYR-220, and any future product candidates;
the clinical utility of our product candidates;
our commercialization, marketing, and manufacturing capabilities and strategy;
our expectations about the willingness of healthcare professionals to use LYR-210, LYR-220, and any future product candidates;
our expectations regarding the development and commercialization of LYR-210 pursuant to the terms of the LianBio License Agreement (as defined below);
our intellectual property position;
our competitive position and developments and projections relating to our competitors or our industry;
our ability to identify, recruit, and retain key personnel;
the impact of laws and regulations;
risks associated with the evolving COVID-19 pandemic, which may adversely impact our business and clinical trials;
our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or the JOBS Act;
our plans to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives;
our estimates and statements regarding our future revenue, future results of operations, and financial position;
our remediation of a material weakness;
our business strategy;

 


our research and development costs; and
the plans and objectives of management for future operations.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report on Form 10-Q/A are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q/A and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report on Form 10-Q/A entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q/A. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. You should read this Quarterly Report on Form 10-Q/A and the documents that we reference in this Quarterly Report on Form 10-Q/A completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.

Unless the context requires otherwise, we use the terms “Lyra,” “the Company,” “we,” “us,” “our” and similar designations in this Quarterly Report on Form 10-Q/A to refer to Lyra Therapeutics, Inc. and its wholly owned subsidiary, Lyra Therapeutics Securities Corporation.

 


Summary Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q/A. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

we identified a material weakness in our internal control over financial reporting that resulted in a restatement of our unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2022 and as of and for the three and six months ended June 30, 2022. This material weakness, if not remediated, could adversely affect our business, our stock price and our ability to report our results of operations and financial condition accurately and in a timely manner;
we have a limited operating history and a history of escalating operating losses, which may make it difficult to evaluate the prospects for our future viability;
we have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future. We may never achieve profitability;
we will need significant additional funding in order to complete development of and obtain regulatory approval for our product candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our product development programs or commercialization efforts;
our business is highly dependent on the success of our most advanced product candidate, LYR-210, which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales. If LYR-210 does not receive regulatory approval or is not successfully commercialized, or is significantly delayed in doing so, our business will be harmed;
managing our obligations under our license and other strategic agreements may divert management time and attention, causing delays or disruptions to our business;
our operating activities may be restricted by certain covenants in our license and strategic agreements, which could limit our development and commercial opportunities;
failure to obtain marketing approval in international jurisdictions would prevent our products from being marketed in such jurisdictions;
we have entered into a collaboration, and may enter into collaborations, that place the development and commercialization of our product candidates outside our control, require us to relinquish important rights or may otherwise be on terms unfavorable to us, and if our collaborations are not successful, our product candidates may not reach their full market potential;
clinical trials required for our product candidates are expensive and time-consuming, their outcome is uncertain, and if our clinical trials do not meet safety or efficacy endpoints in these evaluations, or if we experience significant delays in these trials, our ability to commercialize our product candidates and our financial position will be impaired;
developments by competitors may render our products or technologies obsolete or non-competitive or may reduce the size of our markets;
the successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue;
even if either LYR-210 or LYR-220 receives marketing approval, it may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success;
we will rely on third parties for the manufacture of materials for our research programs, pre-clinical studies and clinical trials and we do not have long-term contracts with any of these parties. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates, or any therapies that we may

 


develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts;
we rely on third parties to conduct our pre-clinical studies and clinical trials. Any failure by a third party to conduct the clinical trials according to GCPs and in a timely manner may delay or prevent our ability to seek or obtain regulatory approval for or commercialize our product candidates;
if we are unable to obtain, maintain, or adequately protect our intellectual property rights, we may not be able to compete effectively in our markets;
if we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers, or other significant personnel, or experience increases in our compensation costs, our business may materially suffer; and
the global pandemic caused by COVID-19 has disrupted and may continue to adversely impact our business and operations, including our clinical trials.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Condensed Consolidated Financial Statements (unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 3.

Defaults Upon Senior Securities

88

Item 4.

Mine Safety Disclosures

88

Item 5.

Other Information

88

Item 6.

Exhibits

89

Signatures

90

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

LYRA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

Restated
(Note 2)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

120,669

 

 

$

45,747

 

Restricted cash

 

 

329

 

 

 

 

Prepaid expenses and other current assets

 

 

1,383

 

 

 

2,171

 

Total current assets

 

 

122,381

 

 

 

47,918

 

Property and equipment, net

 

 

4,009

 

 

 

4,503

 

Operating lease right-of-use assets

 

 

860

 

 

 

1,355

 

Restricted cash

 

 

1,089

 

 

 

329

 

Other assets

 

 

1,696

 

 

 

762

 

Total assets

 

$

130,035

 

 

$

54,867

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,670

 

 

$

3,125

 

Accrued expenses and other current liabilities

 

 

5,465

 

 

 

4,258

 

Operating lease liabilities

 

 

926

 

 

 

1,074

 

Deferred revenue

 

 

2,546

 

 

 

9,789

 

Total current liabilities

 

 

10,607

 

 

 

18,246

 

Operating lease liabilities, net of current portion

 

 

3

 

 

 

379

 

Deferred revenue, net of current portion

 

 

13,176

 

 

 

1,926

 

Total liabilities

 

 

23,786

 

 

 

20,551

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2022
   and December 31, 2021;
no shares issued and outstanding at June 30, 2022 and
   December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at
   June 30, 2022 and December 31, 2021;
31,826,357 and 13,007,178 shares issued
   and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

32

 

 

 

13

 

Additional paid-in capital

 

 

325,891

 

 

 

227,700

 

Accumulated deficit

 

 

(219,674

)

 

 

(193,397

)

Total stockholders’ equity

 

 

106,249

 

 

 

34,316

 

Total liabilities and stockholders’ equity

 

$

130,035

 

 

$

54,867

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

Restated
(Note 2)

 

 

 

 

 

Restated
(Note 2)

 

 

 

 

Collaboration revenue

 

$

525

 

 

$

 

 

$

993

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,793

 

 

 

7,505

 

 

 

19,298

 

 

 

12,275

 

General and administrative

 

 

4,132

 

 

 

3,560

 

 

 

8,020

 

 

 

6,621

 

Total operating expenses

 

 

14,925

 

 

 

11,065

 

 

 

27,318

 

 

 

18,896

 

Loss from operations

 

 

(14,400

)

 

 

(11,065

)

 

 

(26,325

)

 

 

(18,896

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

34

 

 

 

26

 

 

 

48

 

 

 

55

 

Total other income

 

 

34

 

 

 

26

 

 

 

48

 

 

 

55

 

Net loss

 

$

(14,366

)

 

$

(11,039

)

 

$

(26,277

)

 

$

(18,841

)

Comprehensive loss

 

$

(14,366

)

 

$

(11,039

)

 

$

(26,277

)

 

$

(18,841

)

Net loss per share attributable to common stockholders—basic and
   diluted

 

$

(0.42

)

 

$

(0.85

)

 

$

(1.12

)

 

$

(1.45

)

Weighted-average common shares outstanding—basic and diluted

 

 

33,946,428

 

 

 

12,991,837

 

 

 

23,535,442

 

 

 

12,968,820

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

12,932,377

 

 

$

13

 

 

$

224,363

 

 

$

(149,884

)

 

$

74,492

 

Exercise of common stock options

 

 

30,391

 

 

 

 

 

 

262

 

 

 

 

 

 

262

 

Stock-based compensation

 

 

 

 

 

 

 

 

599

 

 

 

 

 

 

599

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,802

)

 

 

(7,802

)

Balance at March 31, 2021

 

 

12,962,768

 

 

 

13

 

 

 

225,224

 

 

 

(157,686

)

 

 

67,551

 

Exercise of common stock options

 

 

38,337

 

 

 

 

 

 

331

 

 

 

 

 

 

331

 

Stock-based compensation

 

 

 

 

 

 

 

 

656

 

 

 

 

 

 

656

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,039

)

 

 

(11,039

)

Balance at June 30, 2021

 

 

13,001,105

 

 

$

13

 

 

$

226,211

 

 

$

(168,725

)

 

$

57,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

13,007,178

 

 

$

13

 

 

$

227,700

 

 

$

(193,397

)

 

$

34,316

 

Exercise of common stock options

 

 

2,718

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

844

 

 

 

 

 

 

844

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,911

)

 

 

(11,911

)

Balance at March 31, 2022

 

 

13,009,896

 

 

 

13

 

 

 

228,552

 

 

 

(205,308

)

 

 

23,257

 

Issuance of common stock and pre-funded
  warrants, net of issuance costs of $
4,244

 

 

18,815,159

 

 

 

19

 

 

 

96,232

 

 

 

 

 

 

96,251

 

Issuance of common stock upon RSU
  vesting

 

 

1,302

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,107

 

 

 

 

 

 

1,107

 

Net loss (restated)

 

 

 

 

 

 

 

 

 

 

 

(14,366

)

 

 

(14,366

)

Balance at June 30, 2022 (Restated) (Note 2)

 

 

31,826,357

 

 

$

32

 

 

$

325,891

 

 

$

(219,674

)

 

$

106,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

 

Restated
(Note 2)

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(26,277

)

 

$

(18,841

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

1,951

 

 

 

1,255

 

Depreciation expense

 

 

566

 

 

 

373

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

788

 

 

 

297

 

Operating lease right-of-use assets

 

 

495

 

 

 

467

 

Other assets

 

 

(949

)

 

 

 

Accounts payable

 

 

(1,639

)

 

 

743

 

Accrued expenses and other current liabilities

 

 

1,207

 

 

 

(22

)

Operating lease liabilities

 

 

(524

)

 

 

(481

)

Deferred revenue

 

 

4,007

 

 

 

12,000

 

Net cash used in operating activities

 

 

(20,375

)

 

 

(4,209

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(107

)

 

 

(1,785

)

Net cash used in investing activities

 

 

(107

)

 

 

(1,785

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from sale of common stock and pre-funded warrants

 

 

100,495

 

 

 

 

Payment of deferred offering expenses

 

 

(4,010

)

 

 

(146

)

Proceeds from exercise of stock options

 

 

8

 

 

 

593

 

Net cash provided by financing activities

 

 

96,493

 

 

 

447

 

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

 

 

76,011

 

 

 

(5,547

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

46,076

 

 

 

74,922

 

Cash, cash equivalents and restricted cash, end of period

 

$

122,087

 

 

$

69,375

 

Supplemental disclosure of non-cash financing and investing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

6

 

 

$

363

 

Deferred offering costs included in accounts payable and accrued expense

 

$

236

 

 

$

97

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


LYRA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements — Continued

(unaudited)

 

LYRA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Basis of Presentation

Lyra Therapeutics, Inc. (the “Company”) is a clinical-stage therapeutics company focused on the development and commercialization of novel integrated drug and delivery solutions for the localized treatment of patients with ear, nose and throat (“ENT”) diseases. The Company’s proprietary technology platform, XTreo, is designed to precisely and consistently deliver medicines directly to the affected tissue for sustained periods with a single administration. The Company’s initial product candidates, LYR-210 and LYR-220, are bioresorbable polymeric matrices designed to be administered in a brief, non-invasive, in-office procedure and intended to deliver up to six months of continuous drug therapy to the sinonasal passages for the treatment of chronic rhinosinusitis (“CRS”). The Company was incorporated as a Delaware corporation on November 21, 2005 and is located in Watertown, Massachusetts.

The Company is subject to risks common to companies in the therapeutics and pharmaceutical industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, reliance on third party manufacturers, ability to transition from pilot-scale manufacturing to large-scale production of products and the need to obtain adequate additional financing to fund the development of its product candidates.

From inception through June 30, 2022, the Company has raised an aggregate of $350.4 million to fund its operations, of which $162.1 million were gross proceeds from sales of its redeemable convertible preferred stock, $96.3 million were net proceeds from its April 2022 Financing (as defined below) (see Note 6); $57.3 million were net proceeds from its initial public offering, $16.8 million were gross proceeds from government contracts and $17.0 million were gross proceeds from its license and collaboration agreement. The Company has incurred recurring net losses since inception and had net losses of approximately $26.3 million and $18.8 million for the six months ended June 30, 2022 and 2021, respectively. In addition, the Company has an accumulated deficit of approximately $219.7 million at June 30, 2022. The Company expects to continue to generate operating losses for the foreseeable future. At June 30, 2022, the Company had approximately $120.7 million of cash and cash equivalents.

The Company believes that its cash and cash equivalents as of June 30, 2022 will be sufficient to fund the Company’s operating plan for a period of at least one year from the issuance date of the condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to obtain funding as and when needed would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding when needed, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

6


LYRA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements — Continued

(unaudited)

 

COVID-19 Pandemic and CARES Act

The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including by causing disruptions in the supply of the Company’s product candidates and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the Food and Drug Administration and other health authorities, which could result in delays of reviews and approvals, including with respect to the Company’s product candidates. In light of developments relating to the COVID-19 pandemic, the Company discontinued enrollment at 67 patients in its Phase 2 LANTERN clinical trial and did not enroll patients in the United States. Additionally, while the economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, including the length of time needed to vaccinate a significant segment of the global population and effectiveness of the vaccines with respect to the new variants of the virus. The Company does not yet know the full extent of potential delays or impacts on its business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company deferred the employer side social security payments of which 50% were due on December 31, 2021 and the remainder on December 31, 2022. The CARES Act also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law in order to provide further stimulus and support to those affected by the COVID-19 pandemic. The Company did not obtain funding from such loans. The Company does not believe the CARES Act or the Consolidated Appropriations Act, 2021 will have a material impact on its financial condition, results of operations, or liquidity.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022 and the results of its operations and its cash flows for the three and six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2022.

2. Restatement and Summary of Significant Accounting Policies

Restatement

The Company has restated its previously reported unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2022 to correct an error related to revenue that was incorrectly recognized. For the three and six months ended June 30, 2022, correcting this error increased the Company’s net loss by $0.1 million and $4.8 million, respectively.

As discussed in Note 9, the Company entered into the LianBio License Agreement and received an upfront payment of $12.0 million and is eligible to receive up to $135.0 million in future payments based upon the achievement of specified development, regulatory and commercialization milestones. In the three months ended March 31, 2022, the Company achieved a development

7


LYRA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements — Continued

(unaudited)

 

milestone of $5.0 million for dosing the first patient in its global Phase 3 clinical trial. At the time the milestone was achieved, the Company recognized the entire $5.0 million as revenue in the three months ended March 31, 2022.

In connection with the third quarter 2022 financial statement close process, the Company determined that the $5.0 million development milestone should have been allocated to the performance obligations previously identified in the LianBio License Agreement and the allocated amounts should have been recognized under the revenue recognition model previously developed for each performance obligation.

The error in the recognition of the milestone amount was a result of the Company misapplying the provisions of ASC Topic 606, Revenue from Contracts with Customers, in accounting for the achievement of the milestone.

As a result of the restatement, the Company has made adjustments to present the corrected amount of collaboration revenue as a reduction to revenue previously recognized in the accompanying condensed consolidated statements of operations and comprehensive loss and as an increase in deferred revenue in the accompanying June 30, 2022 condensed consolidated balance sheet.

Set forth below are the adjustments to the Company’s previously issued unaudited statements of operations and comprehensive loss and unaudited balance sheet for the periods affected by the restatement. The restatement adjustments did not affect the net cash used in operating activities in the Company’s statements of cash flows.

(in thousands, except per share data)

 

Three Months Ended June 30, 2022

 

 

Six Months Ended June 30, 2022

 

Statement of Operations and Comprehensive Loss

 

As Reported

 

 

Adjustment

 

 

As Restated

 

 

As Reported

 

 

Adjustment

 

 

As Restated

 

Collaboration revenue

 

$

407

 

 

$

118

 

 

$

525

 

 

$

5,774

 

 

$

(4,781

)

 

$

993

 

Loss from operations

 

$

(14,518

)

 

$

118

 

 

$

(14,400

)

 

$

(21,544

)

 

$

(4,781

)

 

$

(26,325

)

Net loss

 

$

(14,484

)

 

$

118

 

 

$

(14,366

)

 

$

(21,496

)

 

$

(4,781

)

 

$

(26,277

)

Net loss per share attributable to common
  stockholders—basic and diluted

 

$

(0.43

)

 

$

0.01

 

 

$

(0.42

)

 

$

(0.91