SEC Filing - Lyra Therapeutics, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(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, 2024


☐	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.

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, 2024, the registrant had 65,456,735 shares of common stock, $0.001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including but not limited, to statements regarding:

•

our restructuring initiatives and our ability to continue as a going concern;

•

our estimates and statements regarding our future revenue, future results of operations, and financial position;

•

the sufficiency of our cash and cash equivalents to fund our operations;

•

plans to develop, manufacture, and commercialize LYR-210;

•

the timing of our ongoing or planned clinical trials for LYR-210, and any future product candidates;

•

the timing of and our ability to obtain and maintain regulatory approvals for LYR-210, and any future product candidates;

•

the clinical utility of LYR-210;

•

our commercialization, marketing, and manufacturing capabilities and strategy;

•

our expectations about the willingness of healthcare professionals to use LYR-210, 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;

•

the impact of laws and regulations;

•

risks associated with the COVID-19 pandemic ("COVID-19") and related macroeconomic factors, 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 business strategy;

•

our projected research and development costs; and

•

the plans and objectives of management for future operations.

These statements are neither promises nor guarantees, but 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 or expressions. The forward-looking statements in this Quarterly Report on Form 10-Q 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 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 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. 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 and the documents that we reference in this Quarterly Report on Form 10-Q 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. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.

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 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. 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:

•

any potential financial or strategic option we pursue in order to maximize shareholder value may not result in the identification of a suitable transaction, or if one is identified and pursued, may not be completed on attractive terms, or at all;

•

we are attempting to sublease or assign our three leaseholds, which represent significant operating costs, and there can be no assurance that we will accomplish this effort on favorable terms, or at all, which would adversely affect our business, results of operations and financial condition;

•

we have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future;

•

our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern;

•

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. The failure of our ENLIGHTEN 1 Phase 3 trial to meet its primary endpoint has made it more difficult for the Company to raise capital. 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, and/or discontinue operations;

•

following the failure of our ENLIGHTEN 1 Phase 3 trial evaluating LYR-210 for the treatment of chronic rhinosinusitis (CRS) to meet its primary endpoint, which was announced in May 2024, there is significant uncertainty about the Company’s ability to complete development of LYR-210 and our ability to obtain regulatory approval for LYR-210 is at least significantly delayed and may not be possible;

•

our common stock may be delisted from The Nasdaq Global Market if we cannot regain compliance with Nasdaq’s continued listing requirements, which could harm our business, the trading price of our common stock, our ability to raise additional capital and the liquidity of the market for our common stock;

•

in connection with a cost reduction initiative following the failure of our ENLIGHTEN 1 Phase 3 trial to meet its primary endpoint, we implemented a reduction in force impacting approximately 87 employees, which was effected during May and June 2024, and this loss of key personnel significantly and adversely affects our ability to manufacture our product candidates, among other activities;

•

we are no longer engaged in the manufacturing of our product candidates in-house;

•

our business is highly dependent on the success of our most advanced product candidate, LYR-210, which requires on-going clinical testing before we can seek regulatory approval and potentially launch our product. 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;

•

clinical trials required for our lead product candidate and any future 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;

•

any failure by a third party to conduct our pre-clinical or clinical trials according to good clinical practices and in a timely manner may delay or prevent our ability to seek or obtain regulatory approval for or commercialize our product candidates;

•

even if LYR-210 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 are party to a collaboration, and may enter into other 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;

•

managing our obligations under our license and other strategic agreements may divert management time and our limited resources, 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;

•

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;

•

if we are unable to obtain, maintain, or adequately protect our intellectual property rights, we may not be able to compete effectively in our market;

•

the impact of international terrorism, political unrest and wars on our business; and

•

the impact of other events such as the COVID-19 pandemic may 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 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	32
Item 4.	Controls and Procedures	32
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	83
Item 3.	Defaults Upon Senior Securities	83
Item 4.	Mine Safety Disclosures	83
Item 5.	Other Information	83
Item 6.	Exhibits	84
Signatures		85

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LYRA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)


	June 30,			December 31,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	31,905		$	22,353
Short-term investments		35,593			80,400
Prepaid expenses and other current assets		1,937			2,068
Total current assets		69,435			104,821
Property and equipment, net		1,665			2,043
Operating lease right-of-use assets		21,490			33,233
Restricted cash		1,992			1,392
Other assets		—			1,111
Total assets	$	94,582		$	142,600
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,971		$	3,131
Restructuring liability		3,127			—
Accrued expenses and other current liabilities		6,095			9,374
Operating lease liabilities		4,269			5,434
Deferred revenue		814			1,658
Total current liabilities		19,276			19,597
Operating lease liabilities, net of current portion		32,479			21,447
Deferred revenue, net of current portion		11,850			12,136
Total liabilities		63,605			53,180
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2024 and December 31, 2023; no shares issued and outstanding at June 30, 2024 and December 31, 2023		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2024 and December 31, 2023; 65,455,735 and 57,214,550 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		65			57
Additional paid-in capital		412,854			400,685
Accumulated other comprehensive income (loss), net of tax		(4	)		33
Accumulated deficit		(381,938	)		(311,355	)
Total stockholders’ equity		30,977			89,420
Total liabilities and stockholders’ equity	$	94,582		$	142,600

See accompanying notes to unaudited condensed consolidated financial statements.

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,
	2024			2023			2024			2023
Collaboration revenue	$	598		$	458		$	1,130		$	868

Operating expenses:
Research and development		13,264			10,799			31,502			23,395
General and administrative		5,139			4,570			10,957			9,697
Impairment of property and equipment		1,883			1,592			1,883			1,592
Impairment of right-of-use assets		22,836			—			22,836			—
Restructuring and other related charges		6,450			—			6,450			—
Total operating expenses		49,572			16,961			73,628			34,684
Loss from operations		(48,974	)		(16,503	)		(72,498	)		(33,816	)
Other income:
Interest income		855			897			1,941			1,969
Total other income		855			897			1,941			1,969
Loss before income tax expense		(48,119	)		(15,606	)		(70,557	)		(31,847	)
Income tax expense		(12	)		(12	)		(26	)		(26	)
Net loss		(48,131	)		(15,618	)		(70,583	)		(31,873	)
Other comprehensive loss:
Unrealized holding loss on short-term investments, net of tax		(29	)		(15	)		(37	)		(37	)
Comprehensive loss	$	(48,160	)	$	(15,633	)	$	(70,620	)	$	(31,910	)
Net loss per share attributable to common stockholders— basic and diluted	$	(0.74	)	$	(0.36	)	$	(1.09	)	$	(0.79	)
Weighted-average common shares outstanding— basic and diluted		65,459,678			43,676,387			64,739,520			40,273,472

See accompanying notes to unaudited condensed consolidated financial statements.

LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)



	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss, net of tax			Deficit			Equity
Balance at December 31, 2022		31,827,659	$	32	$	329,387	$	10		$	(248,675	)	$	80,754
Exercise of common stock options		2,115		—		4		—			—			4
Issuance of common stock upon RSU vesting		7,041		—		—		—			—			—
Unrealized loss on available-for-sale securities		—		—		—		(22	)		—			(22	)
Stock-based compensation		—		—		1,610		—			—			1,610
Net loss		—		—		—		—			(16,255	)		(16,255	)
Balance at March 31, 2023		31,836,815	$	32	$	331,001	$	(12	)	$	(264,930	)	$	66,091
Issuance of common stock and pre-funded warrants, net of issuance costs of $3,332		17,652,962	$	18	$	46,650		—			—		$	46,668
Exercise of common stock options		55,262		—		97		—			—			97
Unrealized loss on available-for-sale securities		—		—		—		(15	)		—			(15	)
Stock-based compensation		—		—		1,354		—			—			1,354
Net loss		—		—		—		—			(15,618	)		(15,618	)
Balance at June 30, 2023		49,545,039	$	50	$	379,102	$	(27	)	$	(280,548	)	$	98,577


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
			Amount		Capital		Loss, net of tax			Deficit			Equity
Balance at December 31, 2023		57,214,550	$	57	$	400,685	$	33		$	(311,355	)	$	89,420
Exercise of common stock options		918		—		3		—			—			3
Shares issued under ATM, net of issuance costs of $150		1,041,666		1		4,849		—			—			4,850
Exercise of pre-funded warrants		1,255,500		1		1		—			—			2
Exercise of common stock warrants		1,424,272		2		3,806		—			—			3,808
Issuance of common stock upon RSU vesting		27,869		—		—		—			—			—
Unrealized loss on available-for-sale securities		—		—		—		(8	)		—			(8	)
Stock-based compensation		—		—		1,881		—			—			1,881
Net loss		—		—		—		—			(22,452	)		(22,452	)
Balance at March 31, 2024		60,964,775	$	61	$	411,225	$	25		$	(333,807	)	$	77,504
Exercise of pre-funded warrants		4,490,876	$	4	$	4		—			—		$	8
Exercise of common stock options		84		—		—		—			—			—
Unrealized loss on available-for-sale securities		—		—		—		(29	)		—			(29	)
Stock-based compensation		—		—		1,625		—			—			1,625
Net loss		—		—		—		—			(48,131	)		(48,131	)
Balance at June 30, 2024		65,455,735	$	65	$	412,854	$	(4	)	$	(381,938	)	$	30,977

See accompanying notes to unaudited condensed consolidated financial statements.

LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(70,583	)	$	(31,873	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,286			2,964
Depreciation expense		281			261
Impairment of property and equipment		1,883			1,592
Write-off of deferred financing costs		140			—
Impairment of right-of-use assets		22,836			—
Net amortization of premium on short-term investments		(1,608	)		(1,352	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		131			1,135
Operating lease right-of-use assets		227			803
Other assets		1,111			(2,527	)
Accounts payable		1,818			3,189
Accrued expenses and other current liabilities		(2,502	)		(2,928	)
Restructuring Liability		3,127			—
Operating lease liabilities		(1,453	)		(528	)
Deferred revenue		(1,130	)		(868	)
Net cash used in operating activities		(42,436	)		(30,132	)
Cash flows from investing activities:
Purchases of property and equipment		(2,345	)		(116	)
Purchases of short-term investments		(35,141	)		(29,930	)
Maturity of short-term investments		81,519			34,800
Net cash provided by investing activities		44,033			4,754
Cash flows from financing activities:
Proceeds from sale of common stock, purchase warrants and pre-funded warrants, net of issuance costs		8,819			50,000
Payment of deferred offering costs		(267	)		(2,912	)
Proceeds from exercise of stock options		3			101
Net cash provided by financing activities		8,555			47,189
Net increase in cash, cash equivalents and restricted cash		10,152			21,811
Cash, cash equivalents and restricted cash, beginning of period		23,745			33,942
Cash, cash equivalents and restricted cash, end of period	$	33,897		$	55,753

Supplemental disclosure of non-cash financing and investing activities:
Property and equipment purchases included in accounts payable	$	64		$	54
Other assets included in accounts payable and other current liabilities	$	—		$	505
Right of Use Asset in Exchange for Lease Liability	$	13,667		$	—
Prepaid expenses for right-of-use asset included in operating lease liabilities	$	440		$	—
Deferred offering costs included in accounts payable and accrued expenses	$	23		$	420

See accompanying notes to unaudited condensed consolidated financial statements.

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization, Restructuring, Going Concern and Basis of Presentation

Lyra Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company focused on the development and commercialization of therapies for the localized treatment of patients with chronic rhinosinusitis, or CRS. The Company’s proprietary technology is designed to consistently deliver medicines directly to the affected tissue for sustained periods with a single administration. The Company’s product candidates, LYR-210 and LYR-220, are bioabsorbable nasal implants designed to be administered in a simple, in-office procedure and intended to deliver six months of continuous anti-inflammatory drug therapy to the sinonasal passages for the treatment of CRS. The Company was incorporated as a Delaware corporation on November 21, 2005 and is located in Watertown, Massachusetts. On July 16, 2018, the Company formerly changed its name from 480 Biomedical, Inc. to Lyra Therapeutics, Inc.

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.

Restructuring

On May 16, 2024, the Company reported that topline results from the Company’s Phase 3 ENLIGHTEN 1 trial evaluating LYR-210, a bioabsorbable sinonasal implant (7500µg mometasone furoate), as a six-month treatment of chronic rhinosinusitis (CRS). ENLIGHTEN 1 did not meet its primary endpoint of demonstrating statistically significant improvement compared to sham control in the composite score of the three cardinal symptoms (3CS) of CRS (nasal obstruction, nasal discharge, facial pain/pressure) at 24 weeks. ENLIGHTEN 1 is one of two Phase 3 clinical trials evaluating LYR-210. ENLIGHTEN 2, the second pivotal Phase 3 trial of LYR-210 in CRS, is ongoing, with enrollment expected to be completed in the second half of 2024 and topline results expected in the first half of 2025.

In connection with the ENLIGHTEN 1 trial failing to meet its primary endpoint, on May 16, 2024, the Board of Directors of the Company (the “Board of Directors”) approved a reduction in the Company’s workforce impacting 87 employees, which occurred during May and June 2024. In connection with the reduction in force, the Company stopped manufacturing and commercialization efforts for LYR-210, as well as development efforts for LYR-220 in an effort to reduce operating expenses. Furthermore, the Company is currently in the process of marketing all three of its leased properties for sub-leasing arrangements.

The Company has recorded a restructuring charge in the amount of $6.5 million primarily related to severance and retention costs as further discussed in Note 4. The Company has also recorded an impairment charge for the write-down of property and equipment of $1.9 million and right-of-use assets in the amount of $22.8 million as further discussed in Notes 5 and 6.

Going Concern

The failure of the Company’s Phase 3 ENLIGHTEN 1 trial to meet its primary endpoint, which resulted in the Company’s restructuring during the second quarter of 2024, provides significant uncertainty regarding the Company’s ability to meet its business plans and conduct its future operations. The Company has incurred recurring net operating losses every year since inception and has an accumulated deficit of approximately $381.9 million at June 30, 2024. The Company expects to continue to generate operating losses for the foreseeable future. At June 30, 2024, the Company had approximately $31.9 million of cash and cash equivalents and $35.6 million of short-term investments. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these condensed consolidated financial statements are issued.

From inception through June 30, 2024, the Company has raised an aggregate of $424.8 million to fund its operations, of which $162.1 million were gross proceeds from sales of redeemable convertible preferred stock, $96.3 million were net proceeds from the April 2022 financing, $46.5 million were net proceeds from the May 2023 Financing (as defined below), $57.3 million were net proceeds from the Company’s initial public offering, $23.9 million were net proceeds related to the Company’s Controlled Equity Offering Agreement (the “Original Sales Agreement”) dated September 1, 2023, $16.8 million were gross proceeds from government contracts, $17.0 million were gross proceeds from the LianBio License Agreement, and $3.8 million were gross proceeds from the exercise of common stock warrants.

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) assuming the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company is currently considering various operational and strategic options in light of the failure of the ENLIGHTEN 1 trial to meet its primary endpoint, including additional clinical trials, the sale of assets, or a strategic business combination. The Board of Directors has not decided on a specific plan other than to reduce operating expenses in order to manage its cash position. The Company is attempting to sublease all of its leased locations, and, may also seek to negotiate an early termination of its leases with its landlords. The Company may be unable to sublease its locations on favorable terms or at all. In addition, the Company may not be able to obtain an early termination of its leases with its landlords on favorable terms or at all.

The Company will continue to evaluate its headcount of employees and may further reduce its workforce, which will result in additional severance and retention costs, which may impact the Company’s ability to meet objectives. If the Company decides to pursue any form of growth strategy in the future, it will need additional financing to support its continuing operations. Until the Company can generate significant revenue from product sales, if ever, it plans 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.

Basis of Presentation

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on March 22, 2024. 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”). In management’s opinion, these unaudited condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial statements for the periods presented.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2024. Since the date of those financial statements, there have been no changes to its significant accounting policies except as noted below.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the three and six months ended June 30, 2024, other comprehensive loss consisted of unrealized losses, net of taxes from its short-term investments.

Restricted Cash

The Company had restricted cash of approximately $2.0 million as of June 30, 2024 and approximately $1.4 million as of December 31, 2023. These balances were held as of June 30, 2024 at one of the Company’s financial institutions to secure the Company’s letters of credit for its facility leases.

The Company’s statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash equivalents, and

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows:


	June 30,		December 31,
	2024		2023
Cash and cash equivalents	$	31,905	$	22,353
Restricted cash		1,992		1,392
Total	$	33,897	$	23,745

Net Loss per Share

The Company has reported losses since inception and has computed basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has included pre-funded warrants in its computation of basic net loss per share based on the nominal exercise price.

The Company applies the two-class method to calculate its basic and diluted net loss per share, as the Company has issued shares that meet the definition of participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. The Company’s participating securities contractually entitle the holders of such shares to participate in dividends, but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. Additionally, in periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive (in common stock equivalent shares):


	Three and Six Months Ended June 30,
	2024		2023
Stock options		7,045,833		5,871,813
Common stock warrants		8,606,303		10,030,575
Restricted stock units		867,472		243,703
Total		16,519,608		16,146,091

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Effective January 1, 2024, the Company, as required, adopted ASU No. 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”) Improvements to Reportable Segment Disclosure for its annual financial statements and notes thereto for the year ending December 31, 2024 to be included in its 2024 Annual Report on Form 10-K. The Company is not required to adopt the standard for interim periods until the first quarter of 2025.

This standard requires disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker, “CODM”, and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss and the title and position of the entity's CODM.

The Company will include the required disclosure information in the notes to the financial statements for the year ending December 31, 2024 included in its 2024 Annual Report on Form 10-K and is required to apply ASU No. 2023-07 on a retrospective basis. The adoption of ASU No. 2023-07 will include expanded disclosure for its 2024 financial statements, but the Company does not expect that there will be a material impact to the financial statements and related disclosures.

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to provide enhancements to annual income tax disclosures. In particular, the standard will require more detailed information in the income tax rate reconciliation, as well as the disclosure of income taxes paid disaggregated by jurisdiction, among other enhancements. The standard is effective for years beginning after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the impact of the standard on the presentation of its consolidated financial statements and footnotes.

Effective January 1, 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity’s current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:


			Fair Value Measurements at Reporting Date Using
	June 30,		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	2024
Assets:
Cash equivalents
Money market funds	$	8,624	$	8,624
Total cash equivalents	$	8,624	$	8,624	$	—	$	—
Short-term investments:
U.S. treasury bills		35,593				35,593
Total Short-term investments	$	35,593	$	—	$	35,593	$	—


			Fair Value Measurements at Reporting Date Using
	December 31,		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	2023
Assets:

Money market funds	$	11,167	$	11,167	$	—	$	—
U.S. treasury bills		8,980		—		8,980		—
Total cash equivalents	$	20,147	$	11,167	$	8,980	$	—
Short-term investments:
U.S. treasury bills		76,918		—		76,918		—
U.S. Government Agency and foreign national bank securities		3,482		—		3,482		—
Total Short-term investments	$	80,400	$	—	$	80,400	$	—

As of June 30, 2024, the Company’s cash equivalents were invested in money market funds, which were valued based on Level 1 inputs. As of June 30, 2024, the Company's short-term investments consisted of U.S. treasury bills which were valued based on Level 2 inputs. As of December 31, 2023, the Company’s cash equivalents were invested in money market funds and U.S. treasury bills, which were valued based on Level 1 and Level 2 inputs, respectively. As of December 31, 2023, the Company's short-term investments consisted of U.S. treasury bills which were valued based on Level 2 inputs and U.S. Government Agency Securities and foreign national bank securities, which were valued based on Level 2 inputs. In determining the fair value of its investments at each

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data for Level 2 investments. All available-for-sale securities have contractual maturities of less than one year. The Company did not have any financial assets or liabilities during any of the periods presented in the accompanying consolidated financial statements that required Level 3 inputs.

The carrying values of the Company’s accounts payable, accrued expenses and deferred revenue approximate their fair values due to the short-term nature of these liabilities and as such these are considered Level 1 in the fair value hierarchy.

4. Restructuring and Other Related Charges

In connection with the ENLIGHTEN 1 trial failing to meet its primary endpoint, on May 16, 2024, the Board of Directors approved a reduction in the Company’s workforce, impacting 87 employees, which occurred during May and June 2024. The Company incurred costs related to employee termination benefits and other costs associated with the restructuring mainly during the second quarter of 2024, with the remainder of the costs to be incurred through May 1, 2025. These amounts are recorded as restructuring and other related charges within our consolidated statements of operations and comprehensive loss as they are incurred. For the three and six months ended June 30, 2024, restructuring and other related charges were $6.5 million, which consisted of $4.7 million of severance costs, $0.8 million of accrued retention costs, and $1.0 million of other costs.

Restructuring liability activities during the three and six months ended June 30, 2024:


	January 1,							June 30,
	2024		Accruals		Cash Payments			2024
2024 Restructuring Plan
Severance Costs	$	—	$	4,706,249	$	(2,783,091	)	$	1,923,158
Retention Costs		—		823,821		—			823,821
Other Costs		—		920,399		(540,225	)		380,174
Total	$	—	$	6,450,469	$	(3,323,316	)	$	3,127,153

5. Property and Equipment and Related Impairment

Property and equipment consist of the following (in thousands) as of June 30, 2024 and December 31, 2023:


	June 30,			December 31,
	2024			2023
Property and equipment:
Laboratory equipment	$	4,169		$	2,736
Computer software and equipment		160			105
Office furniture and fixtures		934			662
Leasehold improvements		485			461
Total	$	5,748		$	3,964
Less: Accumulated depreciation		(2,200	)		(1,921	)
Less: Impairment		(1,883	)		—
Property and equipment, net	$	1,665		$	2,043

During the second quarter of 2024 and as a result of the Company’s Phase 3 ENLIGHTEN 1 trial failing to meet its primary endpoint, the Company performed a recoverability test for its property and equipment. The Company concluded that the undiscounted cash flows associated with its property and equipment was less than the carrying value of the property and equipment. The Company compared the fair value of the property and equipment to the carrying value and recorded an impairment charge in the amount of $1.9 million which is included as an impairment of property and equipment in the accompanying consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2024. The Company determined fair market value of the equipment based on a third-party appraisal of the equipment through use of publicly available used equipment quotes. The equipment was valued as of May 15, 2024.

6. Impairment of Right-of-Use Assets

LYRA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

In connection with the Company’s Phase 3 ENLIGHTEN 1 trial failing to meet its primary endpoint, in May 2024, the Company engaged a commercial real estate broker to market the Company’s three leased properties for sublease arrangements. As of the June 30, 2024 financial statements, the Company has not sublet any of its leased properties. Based upon these impairment indicators, the Company has performed a recoverability test over its right-of-use asset and concluded the right-of-use assets are impaired. As a result, the Company has recorded an impairment charge in the amount of $22.8 million, which is included as an impairment of right-of-use asset in the accompanying consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2024. The right-of-use asset was valued as of May 15, 2024.

The Company has engaged a valuation specialist to perform a fair value determination of the right-of-use assets using a discounted cash flow methodology, which included the following range of assumptions:


Discount Rate	9.5-10.5%
Term (years)	2.96-9.13
Expected Sublease Rent Increases		3.0	%

7. Preferred and Common Stock

The Company has 10,000,000 shares of undesignated preferred stock, par value $0.001 per share. There were no shares issued or outstanding as of June 30, 2024 or June 30, 2023.

The holders of common stock are entitled to one vote for each share held. Common stockholders are not entitled to receive dividends, unless declared by the Board of Directors.

The Company currently has an effective shelf registration statement on Form S-3 (No. 333-278163) filed with the SEC on March 22, 2024 (“Form S-3”), under which it may offer from time to time in one or more offerings any combination of common and preferred stock, debt securities, warrants and units of up to $300.0 million in the aggregate.

September 2023 Financing

On September 1, 2023, the Company entered into a Controlled Equity Offering Sales Agreement (the "Original Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor") pursuant to which the Company may offer and sell, from time to time through Cantor, shares of the Company's common stock for aggregate gross proceeds of up to $50.0 million. The offering and sale of up to $50.0 million of the common shares has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the Company's Registration Statement on Form S-3 (File No. 333-256020) (the "Registration Statement"), which was originally filed with the SEC on May 11, 2021, and declared effective by the SEC on May 20, 2021, the base prospectus contained within the Registration Statement, and a prospectus supplement relating to the shares that was filed with the SEC on September 1, 2023.

Pursuant to the Original Sales Agreement, Cantor may sell the shares in sales deemed to be "at the market offerings" as defined in Rule 415(a)(4) promulgated under the Securities Act. The Company has no obligation to sell any of the shares under the Original Sales Agreement and may at any time suspend or terminate the offering of the shares pursuant to the Original Sales Agreement upon notice to Cantor and subject to other conditions. Cantor will act as sales agent and will use commercially reasonable efforts to sell on the Company's behalf all of the shares requested to be sold by the Company, on mutually agreed terms between Cantor and the Company.

The Original Sales Agreement contains customary representations, warranties and agreements by the Company, and indemnification obligations of the Company and Cantor and other obligations of the parties. Under the terms of the Original Sales Agreement, the Company has agreed to pay Cantor a commission equal to 3.0% of the aggregate gross proceeds from any shares sold through it pursuant to the Original Sales Agreement. In addition, the Company has agreed to reimburse certain expenses incurred by Cantor in connection with the Original Sales Agreement.