ACGN Aceragen, Inc. - 10-K

Item 1A.

Risk Factors.

Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information included or incorporated by reference in this Form 10-K before purchasing our common stock . Our business, financial condition and results of operations could be materially and adversely affected by any of these and currently unknown risks or uncertainties. In that case, the market price of our common stock could decline, and you may lose all or part of your investment in our securities.

Summary of Principal Risk Factors

We will need to raise additional capital, and if we are unable to do so, we will not be able to continue as a going concern.

Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect our operations and liquidity.

We expect that we will continue to incur net losses in the foreseeable future.

Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.

We may not be able to comply with Nasdaq’s continued listing standards.

Our recent organizational changes, including the Aceragen Acquisition, and any acquisitions or business development opportunities we pursue may not be successful.

As a small biopharmaceutical-focused company with limited resources, we may be unable to attract and retain qualified personnel.

We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could compromise our ability to pursue our growth strategy and grow our business.

We are depending heavily on the development, regulatory approval, and commercialization of product candidates. If we are unable to successfully develop and commercialize product candidates, or experience significant delays in doing so, our business may be materially harmed.

If our clinical trials are unsuccessful, delayed or terminated, we may not be able to develop and commercialize our product candidates.

The technologies on which we rely are unproven and may not result in any approved and marketable products.

We face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than us.

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates.

We may not be able to obtain or maintain anticipated periods of regulatory exclusivity for our product candidates.

A breakthrough therapy, fast track, or other expedited designation for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that those product candidates will receive marketing approval.

We have only limited experience in regulatory affairs and our product candidates are based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.

We are subject to extensive and costly governmental regulation, the violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.

We depend on information technology, infrastructure, and data to conduct our business. Any significant disruption, or cyber-attacks, could have a material adverse effect on our business.

Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business.

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Our existing collaborations, clinical funding arrangements, and any collaborations or arrangements we enter into in the future may not be successful.

If we are unable to establish additional collaborative alliances, our business may be materially harmed.

We are subject to substantial customer concentration. If we fail to retain our revenues from the U.S. Government consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.

If we are unable to obtain and maintain patent protection for our discoveries, the value of our technology and any product candidates could be adversely affected.

We do not own or license patents or patent applications that claim the active pharmaceutical ingredient in our ACG-701 and ACG-801 product candidates.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Our rights to develop and commercialize ACG-801 and future product candidates may be subject to terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future license agreements, we could lose important intellectual property rights and the ability to continue to develop and commercialize products.

We may not be successful in obtaining all rights necessary to develop and commercialize our current or future product candidates.

We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages, require us to stop our development and commercialization efforts or result in our patents being invalidated, interpreted narrowly or limited.

Our intellectual property may be infringed by a third party.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

We rely on government funding for certain aspects of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.

Even if the compounds we may develop are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.

Because we have limited manufacturing experience, and no manufacturing facilities or infrastructure, we are dependent on third-party manufacturers to manufacture product candidates for us.

We have no experience selling, marketing or distributing potential products and no internal capability to do so.

If third parties on whom we rely for clinical and preclinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business may suffer.

We face a risk of product liability claims and may not be able to obtain insurance.

Provisions in our restated certificate of incorporation (“Charter”) and second amended and restated bylaws (“Bylaws”) may prevent a change in control that stockholders may consider desirable.

Six stockholders beneficially own approximately 69% of our outstanding common stock. If these significant stockholders choose to act together, they could exert substantial influence over our business, and the interests of these stockholders may conflict with those of other stockholders.

The issuance or sale of shares of our common stock could depress the trading price of our common stock.

Because we do not intend to pay dividends on our common stock, investor returns will be limited to any increase in the value of our stock.

Our Series X Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of Series X Preferred Stock holders differing from those of the holders of common stock.

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Risks Relating to Our Financial Position and Need for Additional Capital

Despite recent cost-saving measures, we will need to raise additional capital, and if we are unable to do so, we will not be able to continue as a going concern.

As of December 31, 2022, we had $12.0 million in cash and cash equivalents. We believe based on our current operating plan, our existing cash and cash equivalents will enable us to fund our operations into May 2023. Accordingly, we need to raise additional capital to continue to fund our operations and service our obligations in the future. If we are unable to raise additional capital when needed, we will not be able to continue as a going concern. We do not currently have any products approved for sale and do not generate any revenue from product sales. Accordingly, we expect to rely primarily on equity and/or debt financings and our clinical funding arrangements (e.g., contract with Department of Defense’s DTRA) to fund our continued operations.

We are seeking and expect to continue to seek additional funding through financings of equity and/or debt securities, strategic research and development collaborations, clinical funding arrangements, or the sale or license of technology assets. We may also engage in strategic alternative conversations of mergers, acquisition, or sale of the company or assets. We believe the key factors that will affect our ability to obtain funding are: (i) the results of our clinical development activities in our product candidates we develop on the timelines anticipated; (ii) the time and expense required to submit a marketing application for our product candidates; (iii) the cost, timing, and outcome of regulatory reviews; (iv) the receptivity of the capital markets to financings by biotechnology companies generally and companies with product candidates and technologies similar to ours specifically; (v) receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter into; and (vi) ability to enter into additional collaborations and the success of such collaborations.

Financing may not be available to us when we need it, or on favorable or acceptable terms, or at all. We could be required to seek funds through collaborative alliances or through other means that may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise pursue on our own. In addition, if we raise additional funds by issuing equity securities, our existing stockholders may experience dilution, or an equity financing that involves existing stockholders may cause a concentration of ownership. 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, and are likely to include rights that are senior to the holders of our common stock. Any additional debt or equity financing may contain terms which are not favorable to us or to our stockholders, such as liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 16 to the consolidated financial statements appearing elsewhere in this Form 10-K, additional equity financings may also result in cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net operating loss and tax credit carryforwards that we may utilize in any one year. If we are unable to obtain adequate funding on a timely basis or at all, we will be required to terminate, modify or delay clinical trials of our product candidates, or relinquish rights to portions of our technology, product candidates and/or products.

In addition, we recently undertook staff furloughs and salary reductions for certain of our employees, and we may undertake other cost-saving initiatives in the future. The actions we announced on April 13, 2023, as well as future restructuring or cost-saving initiatives, may not achieve our goal of preserving capital or raising additional capital.

If we are unable to raise additional capital when required or on acceptable terms, or we are unsuccessful in our cost-saving measures, we may be required to:

significantly delay, scale back, or discontinue the development or commercialization of our product candidates;

seek strategic alliances, or amend existing alliances, for research and development programs at an earlier stage than otherwise would be desirable or that we otherwise would have sought to develop independently, or on terms that are less favorable than might otherwise be available in the future;

dispose of technology assets, or relinquish or license on unfavorable terms, our rights to technologies or any of our product candidates that we otherwise would seek to develop or commercialize ourselves;

pursue the sale of our company to a third party at a price that may result in a loss on investment for our stockholders; or

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file for bankruptcy or cease operations altogether.

Any of these events could have a material adverse effect on our business, operating results, and prospects.

Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our current financial condition, operations and liquidity.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, one of our banking partners, Silicon Valley Bank, (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the Federal Deposit Insurance Corporation (“FDIC”), as receiver. As more fully described in Note 19, “Subsequent Events,” as of March 10, 2023, we had approximately 56% of our cash and cash equivalent balances in segregated custodial accounts held by a third-party custodian for which SVB was our agent and/or SVB Asset Management, an affiliate of SVB, was the advisor at the time SVB was closed.

On March 12, 2023, the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at SVB would have access to their funds, even those funds in excess of the standard FDIC insurance limits, under a systemic risk exception. As of March 13, 2023, we had access to our cash and cash equivalents at SVB; however, there is uncertainty in the markets regarding the stability of regional banks and the safety of deposits in excess of the FDIC insured deposit limits. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions in a timely fashion or at all. Furthermore, we may be impacted by other disruptions to the U.S. banking system caused by the recent developments involving SVB, including potential delays in our ability to transfer funds, make payments, or receive funds whether held with SVB or other banks.

We expect that we will continue to incur net losses in the foreseeable future.

During the year ended December 31, 2022, we incurred a net loss of $23.4 million, as compared to net income of $98.1 million for the year ended December 31, 2021. As of December 31, 2022, we had an accumulated deficit of $758.8 million and a cash and cash equivalents balance of $12.0 million. We expect to incur substantial operating losses in future periods and will require additional capital as we seek to advance any future product candidates through development to commercialization. We do not expect to generate product revenue, sales-based milestones or royalties until we successfully complete development of and obtain marketing approval for our product candidates, either alone or in collaboration with third parties, which may not occur or may take a number of years. To commercialize any future product candidates, we need to complete clinical development and comply with comprehensive regulatory requirements. We are subject to numerous risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.

Even if we succeed in receiving marketing approval for and commercializing any product candidate, we will continue to incur substantial research and development and other expenditures to develop and market additional potential indications or products. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.

We historically have experienced significant volatility in our stock price. Since December 31, 2022, our common stock has traded as high as 12.07 and as low as 2.14 per share. The realization of any of the risks described in these risk factors or other unforeseen risks could have an adverse effect on the market price of our common stock. The trading price of our common stock is likely to continue to be highly volatile and could be subject to declines in response to numerous factors, including disappointing results in a clinical program, as was the case following the announcement of topline results for ILLUMINATE-301. Other risk factors include results from clinical trials; FDA

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regulatory actions; announcements by us or our competitors of acquisitions, regulatory approvals, clinical milestones, new products, significant contracts, commercial relationships, or capital commitments; additions or departures of key personnel; commencement of, or our involvement in, litigation; and any major change in our Board of Directors or management.

From time to time, we estimate the timing of the potential accomplishment of clinical and other development goals or milestones. These estimated milestones may include the commencement or completion of clinical trials. Also, from time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All estimated milestones are based on numerous assumptions. These milestones may change and the actual timing of meeting these milestones may vary dramatically from our estimates, in some cases for reasons beyond our control. If we do not meet these estimated milestones, or the anticipated timing thereof, as publicly announced, our stock price may decline.

We may not be able to comply with Nasdaq’s continued listing standards.

Our Common Stock trades on The Nasdaq Capital Market (“Nasdaq”) under the symbol “ACGN.” We cannot assure you that our securities will continue to be listed on Nasdaq.

As previously reported, on November 26, 2021, we received a deficiency letter (the “First Nasdaq Letter”) from the Nasdaq Listing Qualifications Department (the “Staff”), notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires us to maintain a minimum bid price of at least $1 per share for continued listing (the “Minimum Bid Requirement”). Our failure to comply with the Minimum Bid Requirement was based on the Common Stock per share price being below the $1.00 threshold for a period of 30 consecutive business days. Pursuant to the First Nasdaq Letter, we had 180 calendar days from November 26, 2021 to regain compliance with the Minimum Bid Requirement.

Also as previously reported, on May 26, 2022, we received a second notice (the “Second Nasdaq Letter”) from the Staff indicating that, while we had not regained compliance with the Minimum Bid Requirement, the Staff had determined that we were eligible for an additional 180-day period, or until November 21, 2022, to regain compliance with the Minimum Bid Requirement.

On November 22, 2022, the Company was notified by the Staff that, based upon the Company’s continued non-compliance with the Minimum Bid Requirement, the Company’s securities were subject to delisting unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”).

The Company timely requested a hearing before the Panel, which request stayed any further delisting action by the Staff at least pending the conclusion of the Company’s hearing before the Panel and the expiration of any extension period that may be granted by the Panel to the Company following the hearing. The Company had its Panel hearing on January 5, 2023. On January 10, 2023, the Company received a letter on behalf of the Panel granting an extension until January 20, 2023, for the Company to regain compliance with the continued listing standards.

Following the successful completion of the Company’s 1-to-17 reverse stock split, on January 25, 2023, the Company received a written notice from the Panel that the Company satisfied all initial listing requirements of Nasdaq, as required by the Panel.

While we regained compliance and are currently in compliance with Nasdaq continued listing requirements, there is no guarantee that we will be able to perpetually satisfy Nasdaq’s continued listing requirements to maintain our listing on Nasdaq for any periods of time. Our failure to continue to meet these requirements may result in our securities being delisted from Nasdaq.

As of December 31, 2022, we had an accumulated deficit of $758.8 million and total stockholders’ equity of $11.8 million. We expect to incur substantial operating losses in future periods and will require additional capital as we seek to advance any future product candidates through development to commercialization. Additionally, since December 31, 2022, our common stock has traded as low as 2.14 per share. If we fail to comply with Nasdaq rules and requirements, including, without limitation, with (i) the Minimum Bid Requirement, or (ii) Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2.5 million in stockholders’ equity (the “Minimum Equity Requirement”), our stock may be delisted. In addition, even if we demonstrate compliance

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with the Minimum Bid Requirement and Minimum Equity Requirement, we will have to continue to meet other objective and subjective listing requirements to continue to be listed on Nasdaq. Delisting from Nasdaq could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq listing, stockholders may have a difficult time getting a quote for the sale or purchase of our common stock, the sale or purchase of our common stock would likely be made more difficult, and the trading volume and liquidity of our common stock could decline. Delisting from Nasdaq could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB Market, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. In the event our common stock is delisted from Nasdaq, we may not be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.

Risks Relating to Our Business, Strategy, and Industry

Our recent organizational changes, including the Aceragen Acquisition, and any acquisitions or business development opportunities we pursue may not be successful.

As part of our business strategy, we review and intend to continue to review acquisition opportunities that we believe would be advantageous or complementary to the development of our business. During the third quarter of 2022, we acquired Legacy Aceragen, and we may acquire additional businesses, assets, or technologies in the future. If we make any acquisitions, we could take any or all of the following actions, any one of which could adversely affect our business, financial condition, results of operations or share price:

use a significant portion of our available cash, if any;

require a significant devotion of management’s time and resources in the pursuit or consummation of any acquisition;

incur debt, which may not be available to us on favorable terms and may adversely affect our liquidity;

issue equity or equity-based securities that would dilute existing stockholders’ ownership percentage;

assume contingent and other liabilities; and

take charges in connection with such acquisitions.

For example, prior to the Aceragen Acquisition, Legacy Aceragen was obligated to pay an aggregate amount of $8.0 million to certain former stockholders of Arrevus, Inc. (the “Former Stockholders”). As a result of this obligation and subsequent to the Aceragen Acquisition, on January 31, 2023 the Company issued 12% convertible unsecured promissory notes to certain of the Former Stockholders in an aggregate amount of approximately $5.9 million, which convertible notes bear annual interest at 12%. Under the terms of the convertible notes, at the holder’s election, any or all of the then outstanding principal and accrued interest may be converted into shares of Company’s common stock. The terms of the convertible notes provide the Former Stockholders with customary registration rights covering the common stock issued following any conversion of the convertible notes.

Acquisitions also entail numerous other risks, including, without limitation: difficulties in assimilating acquired operations, products, technologies and personnel; unanticipated costs; diversion of management’s attention from existing operations; risks of entering markets in which we have limited or no prior experience; risk relating to obtaining regulatory approvals; unanticipated costs or liabilities; and potential loss of key employees from either our existing business or the acquired organization. Acquisitions may result in accounting charges for restructuring and other expenses, amortization of purchased technology and intangible assets and stock-based compensation expense, any of which could materially and adversely affect our operating results. We may not be able to realize the anticipated synergies, innovation, operational efficiencies, benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our failure to do so could harm our business, operating results, and potentially our share price.

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As a small biopharmaceutical-focused company with limited resources, we may be unable to attract and retain qualified personnel.

As of March 31, 2023, we had 26 full-time employees. We are a small company and any future growth will require hiring additional qualified personnel. Also, because of the specialized scientific nature of our business, we face intense competition for qualified employees and consultants from biopharmaceutical companies, research organizations and academic institutions. Failure to attract and retain qualified personnel would materially harm our ability to compete effectively and grow our business.

We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could compromise our ability to pursue our growth strategy and grow our business.

Our success depends largely upon the continued services of our executive officers and other key employees. We do not maintain “key person” insurance for our executive officers. From time to time there may be changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business. For example, in 2022, in connection with the Aceragen Acquisition, Vincent Milano resigned as Chief Executive Officer of the Company. Mr. Milano was replaced by John Taylor, the Chief Executive Officer of Legacy Aceragen. All of our employees’ employment is at-will, including the employment of our Chief Executive Officer and our Chief Financial Officer, which means that any of these employees could leave our employment at any time. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.

We are depending heavily on the development, r egulatory approval, and commercialization of product candidates. If we are unable to successfully develop and commercialize product candidates, or experience significant delays in doing so, our business may be materially harmed.

We have made and intend to continue to make a significant investment of our time and financial resources in the development and commercialization of our product candidates.   Our ability to generate product revenues will depend heavily on our ability to successfully develop, obtain regulatory approval for, and commercialize our product candidates. If we fail to obtain regulatory approval and successfully commercialize our product candidates, our business would be materially and adversely impacted. Even if our product candidates receive regulatory approval, we will incur significant expenses to support its commercialization and launch, which investment may never be realized if sales are insufficient.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the U.S. Enrollment may be particularly difficult for our product candidates that are intended for rare and orphan diseases.

In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Our inability to enroll a sufficient number of patients for our clinical trials could also require us to abandon one or more clinical trials altogether. Enrollment delays may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If our clinical trials are unsuccessful, delayed or terminated, we may not be able to develop and commercialize our product candidates.

We have not yet been able to commence our ADVANCE study for ACG-801 due to an FDA clinical hold. While we expect to be able to resolve the clinical hold and commence the ADVANCE study in the second half of 2023, there is no guarantee that FDA will agree and will permit us to begin the study. Additionally, there is a risk that we may experience additional clinical holds and will not be able to obtain timely or any approval for our product candidates, and we may need to carry out additional clinical trials, non-clinical studies, CMC assessments, and /or remediation. Clinical trials are lengthy, complex, and expensive processes with uncertain results. We may not be able to

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complete any clinical trial of an investigational product within any specified time period or at all. Moreover, clinical trials may not show our investigational products to have an acceptable safety and efficacy profile. The FDA, IRBs, Drug Safety Monitoring Boards, or other equivalent foreign regulatory agencies may not allow us to complete these trials or commence and complete any other clinical trials.

Numerous unforeseen events may occur during, or as a result of, preclinical testing, nonclinical testing or the clinical trial process that could delay or inhibit the ability to receive regulatory approval or to commercialize products. For example, setbacks in clinical trials may result in enhanced scrutiny by regulators or IRBs of clinical trials of our product candidates. Regulators or IRBs may also prohibit the commencement or continuation of clinical trials, data monitoring committees may recommend that studies be modified or discontinued, regulatory authorities may require additional nonclinical studies as a precondition to commencing clinical trials or imposing restrictions on the design or scope of clinical trials that could slow enrollment of trials, increase the costs of trials or limit the significance of the results of trials. Such setbacks could also adversely impact the desire of investigators to enroll patients in, and the desire of patients to enroll in, clinical trials of our product candidates.

Other events that could delay or inhibit conduct of our clinical trials, or prevent receipt of product approval, include: (i) nonclinical or clinical data may not be readily interpreted, which may lead to delays and/or misinterpretation; (ii) our nonclinical tests, including toxicology studies, or clinical trials may produce negative or inconclusive results; (iii) we might have to suspend or terminate our clinical trials if the participating subjects experience serious adverse events or undesirable side effects or are exposed to unacceptable health risks; (iv) regulators or IRBs may hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, issues identified through inspections of manufacturing or clinical trial operations or clinical trial sites; (v) we, along with our collaborators and subcontractors, may not employ, in any capacity, persons who have been debarred under by FDA or similar foreign regulatory authorities; (vi) we or our contract manufacturers may be unable to manufacture sufficient quantities of our product candidates for use in clinical trials meeting the applicable quality standards or regulatory authorities may disagree with our manufacturing and control methods; (vii) the cost of our clinical trials may be greater than we currently anticipate making continuation and/or completion improbable; (viii) our investigators and contract research organizations may not follow the applicable regulatory requirements requiring that studies be terminated or repeated; (ix) FDA and regulatory authorities may not agree with the design or analysis of the results from our clinical studies; (x) there may be changes in approval requirements that may necessitate that we conduct additional development work; and (ix) our product candidates may not cause the desired effects or may cause undesirable side effects or our product candidates may have other unexpected characteristics. These risks may be increased for product candidates intended for the treatment of diseases or conditions where there may be limited clinical experience; where there may not be validated or established measures to show improvement of a subject’s condition; where we are using new, unvalidated, or unestablished, endpoints, tests or methodologies; or where the product candidates are new or novel.

In conducting clinical trials, we cannot be certain that any planned clinical trial will begin on time, if at all. Delays in commencing clinical trials of potential products could increase our product candidate development costs, delay any potential revenues, reduce the potential length of patent exclusivity and reduce the probability that a potential product will receive regulatory approval. Significant clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidates.

The technologies on which we rely are unproven and may not result in any approved and marketable products.

Our technologies or therapeutic approaches are relatively new and unproven. Further, the chemical and pharmacological properties of our product candidates may not be fully recognized in preclinical studies and small-scale clinical trials, and such compounds may interact with human biological systems in unforeseen, ineffective or harmful ways that we have not yet identified. Pre-clinical trials and early-stage clinical trials may not be indicative of results that may be obtained in later stage trials. As a result of these factors, we may never succeed in obtaining regulatory approval to market any product.

We face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than us.

The development and commercialization of new products is highly competitive. There are many other companies, public and private, actively engaged in discovery, development, and commercializing products and technologies that may compete with our product candidates and rare disease program. Some potentially competitive products have been in development or commercialized for years. Many of the marketed products have been accepted by the

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medical community, patients, and third-party payors. Our ability to compete may be affected by the previous adoption of such products by the medical community, patients, and third-party payors.

We recognize that other companies, including large pharmaceutical companies, may be developing or have plans to develop products and technologies that may compete with ours. Many of our competitors have substantially greater financial, technical, and human resources than we have and/or may have significantly greater experience than we have in undertaking preclinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other regulatory approvals of products for use in health care and manufacturing, and marketing and selling approved products. We anticipate that the competition with our product candidates and technologies will be based on a number of factors including product efficacy, safety, availability, reimbursement, insurance coverage, and price. The timing of market introduction of our product candidates and competitive products will also affect competition among products. We expect the relative speed with which we can develop products, complete the clinical trials and approval processes, and supply commercial quantities of the products to the market to be important competitive factors.

Information regarding our competitors is discussed in further detail in the section entitled “Business” of this Form 10-K.

Our business could be adversely affected by the effects of health epidemics, such as the ongoing COVID-19 global pandemic, including disruptions to our clinical trials or the delay of regulatory approvals.

Our business may be adversely affected by the effects of health epidemics, including the ongoing worldwide COVID-19 pandemic. The COVID-19 pandemic has caused significant volatility and uncertainty globally. This has resulted in an economic downturn and may disrupt our business and delay our clinical trials and regulatory approvals. This may also result in an interruption or issues with respect to the manufacture and supply of our product candidates. The COVID-19 pandemic may also require that changes be made to any clinical trials or product manufacturing that may ultimately have an adverse impact.

The COVID-19 pandemic continues to evolve. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials, which could prevent or delay us from obtaining approval for our product candidates, or on our employee resources.

Risks Relating to Regulatory Approval and Marketing and Other Compliance Matters

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates.

We are not permitted to market our product candidates in the U.S. or in other countries until we, or any future collaborators, receive marketing approval from the FDA or marketing approval from applicable regulatory authorities outside of the U.S. The approval process is lengthy, often taking a number of years, is uncertain, and is expensive. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities is also required. Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any collaborators we may have to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.

Our failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad which subjects us to additional business risks that could adversely affect our operations.

We, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements in foreign jurisdictions. The approval procedure varies among countries and can involve additional studies. The time required to obtain approval may differ substantially from that required to obtain FDA approval. In addition, in many countries outside of the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We, and any future collaborators,

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may not obtain approvals from regulatory authorities outside of the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in foreign jurisdictions, and approval by one regulatory authority outside of the U.S. does not ensure approval by regulatory authorities in other jurisdictions or by the FDA.

Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.

We, and any future collaborators, must comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing approval. Such promotional communications are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we, and any future collaborators, will not be able to promote any products we develop for indications or uses for which they are not approved.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to Good Manufacturing Practices (“cGMPs”), which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our future collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA, and other regulatory authorities to monitor and ensure compliance with cGMPs.

Accordingly, assuming we, or our future collaborators, receive marketing approval for one or more of our product candidates, we, and our future collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

If we, and our future collaborators, are not able to comply with post-approval regulatory requirements, we, and our future collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or our future collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

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

Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future could be subject to post-approval restrictions or withdrawal from the market and we, and our future collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.

Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy, which could include requirements for a restricted distribution system.

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the DOJ, closely regulate and

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monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed, and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label promotion.

In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after product approval, may yield various results, including: (i) litigation involving patients taking our product; (ii) restrictions on such products, manufacturers or manufacturing processes; (iii) restrictions on the labeling or marketing of a product; (iv) restrictions on product distribution or use; (v) requirements to conduct post-marketing studies or clinical trials; (vi) warning letters or untitled letters, as well as other enforcement and adverse actions; (vii) withdrawal of the products from the market; (viii) refusal to approve pending applications or supplements to approved applications that we submit; (ix) recall of products; (x) fines, restitution or disgorgement of profits or revenues; (xi) suspension or withdrawal of marketing approvals; (xii) damage to relationships with any potential collaborators; (xiii) unfavorable press coverage and damage to our reputation; (xiv) refusal to permit the import or export of products; (xv) product seizure; or (xvi) injunctions or the imposition of civil or criminal penalties.

We may not be able to obtain or maintain anticipated periods of regulatory exclusivity for our product candidates.

We currently anticipate that our product candidates may be eligible for certain periods of regulatory exclusivity. By example, the FDA has granted us orphan drug designation for ACG-701 (sodium fusidate) for the treatment of CF PEx patients and for ACG-801 (recombinant human acid ceramidase) for the treatment of Farber disease. Additionally, ACG-801 was granted orphan drug designation by the EMA for Farber disease. We also have received QIDP designation for ACG-701 for the treatment of CF PEx and we anticipate that, depending on the product candidate, we may be eligible for certain periods of exclusivity under the Hatch Waxman Act and the Biologic Price Competition and Innovation Act. There can be no assurance that we will obtain any anticipated periods of regulatory exclusivity or that we will be able to maintain the designations that are necessary for such exclusivities. We also may not be able to obtain additional necessary designations in the future. Moreover, even if we initially receive periods of regulatory exclusivity following product approval, such exclusivities may be lost or overcome under certain circumstances, and the scope of such exclusivities may not provide sufficient protection from competition.

A breakthrough therapy, fast track, or other expedited designation for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that those product candidates will receive marketing approval.

The FDA has granted us Fast Track designation for ACG-701 (sodium fusidate) for the treatment of CF PEx patients and for ACG-801 (recombinant human acid ceramidase) for the treatment of Farber disease.

We may also seek a breakthrough therapy, fast track, or other designation for appropriate product candidates. Designations such as these are within the discretion of the FDA, or other comparable regulatory authorities. The receipt of a designation for a product candidate may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify under one of FDA’s designation programs, the FDA may later decide that the products no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We have only limited experience in regulatory affairs and our product candidates are based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.

We have never obtained regulatory approval for, or commercialized, a product. It is possible that the FDA may refuse to accept any or all of our planned marketing applications for substantive review or may conclude, after review of our data, that our applications are insufficient to obtain regulatory approval of any of our product candidates. The FDA may also require that we conduct additional clinical or manufacturing validation studies, which may be costly and time-consuming, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any marketing application that we

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submit may be significantly delayed, possibly for years, or may require us to expend more resources than we have available or can secure.

A variety of factors, including inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel, accept payments of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result of these and other factors. In addition, government funding of government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new therapeutic candidates to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times. If a prolonged government shutdown occurs, or if global health concerns (such as those relating to the COVID-19 pandemic) continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

We are subject to extensive and costly governmental regulation, the violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.

Our product candidates are subject, and any future commercial products will be subject to costly, extensive and rigorous domestic and foreign government regulation, as discussed under the caption “Government Regulation” within Item 1 of this Form 10-K. These requirements are continually evolving, which will require us to adapt our practices and processes, which we may not be able to do.

In addition, our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. These include, but are not limited to, the following: the Anti-Kickback Statute; the Foreign Corrupt Practices Act; the False Claims Act; privacy laws such as HIPAA; transparency requirements; and analogous state and foreign laws. Additionally, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require manufacturers to report information related to drug pricing and to certain payments and other transfers of value to physicians, other healthcare providers, and healthcare entities, or marketing expenditures.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, suspension and debarment from procurement and non-procurement transactions, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs.

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We depend on information technology, infrastructure, and data to conduct our business. Any significant disruption, or cyber-attacks, could have a material adverse effect on our business.

We are dependent upon information technology, infrastructure, and data. Computer systems, including ours and those of our suppliers, partners, and service providers, contain sensitive confidential information or intellectual property, and are vulnerable to service interruption or destruction, cyber-attacks (both malicious and random) and other natural or man-made incidents or disasters, which may be prolonged or go undetected. Such events are increasing in their frequency, sophistication, and intensity, and have become increasingly difficult to detect. A significant interruption of our information technology could adversely affect our ability to manage and keep our operations running efficiently and effectively. An incident that results in a wider or sustained disruption to our business or products could have a material adverse effect on our business, financial condition and results of operations.

Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, or other business partners may be exposed to unauthorized persons or to the public. There can be no assurance that our efforts, or the efforts of our partners and vendors, will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business, or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks, and other related breaches.

Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business, financial condition, and results of operations.

Climate change, environmental, social and governance (“ESG”) and sustainability are a growing global movement. These matters have garnered continuous political and social attention leading to the introduction of national, regional, and local legislation, regulatory requirements, reporting obligations, and policy changes. Further, there is a growing societal demand to limit greenhouse gas emissions and support global initiatives. Compliance with these international agreements and measures may necessitate operational changes, impose taxes or require purchases of emission credits, leading to significant capital expenditures. Furthermore, future legislative, regulatory, or policy changes may emerge that require additional modifications to reduce greenhouse gas emissions from our operations, which may result in substantial capital expenditures.

The growing focus on climate change, ESG, and sustainability has led to government investigations and litigation, both public and private, which may result in increased costs or adverse effects on our business or financial results. Furthermore, entities that offer investors information regarding corporate governance and similar issues have developed rating systems for assessing companies on their ESG approach. Some investors use these ratings to inform their investment and voting decisions. If we receive unfavorable ESG ratings, it may lead to a rise in negative investor sentiment towards us, which could harm our securities’ price and our ability to access capital at reasonable costs.

Any or all of these ESG and sustainability initiatives may result in significant operational changes and expenditures, cause us reputational harm, and could materially adversely affect our business, financial condition, and results of operations.

Risks Relating to Collaborators

Our existing collaborations, clinical funding arrangements, and any collaborations or arrangements we enter into in the future may not be successful.

Our current collaboration and clinical funding agreements, as more fully described within Item 1 of this Form 10-K, or any collaborations we may enter into in the future, may not be successful. The success of our collaborative alliances, if any, will depend heavily on the efforts and activities of our collaborators. Our existing collaborations and any potential future collaborations have risks, including the following: (i) our collaborators may control the development (and timing thereof) of the product candidates being developed with our technologies and compounds; (ii) our collaborators may control the public release of information regarding the developments; (iii) disputes may arise in the future with respect to the ownership of or right to use technology and intellectual property

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developed with our collaborators; (iv) disagreements with our collaborators could delay or terminate the development of our products, or result in litigation or arbitration; (v) we may have difficulty enforcing the contracts if any of our collaborators fail to perform; (vi) our collaborators may terminate their collaborations with us, which could make it difficult for us to attract new collaborators or adversely affect the perception of us in the business or financial communities; (vii) our collaboration agreements are likely to be for fixed terms and subject to termination by our collaborators in the event of a material breach or lack of scientific progress by us; (viii) our collaborators may challenge our intellectual property rights or utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; (ix) our collaborators may not comply with all applicable regulatory requirements; (x) our collaborators may under fund or not commit sufficient resources to the testing or development of our product candidates; and (xi) our collaborators may develop alternative products either on their own or in collaboration with others, or encounter conflicts of interest or changes in business strategy or other business issues. Additionally, our collaborators will face the same development risks that we do and may not be successful in their efforts. Given these risks, it is possible that any collaborative alliance into which we enter may not be successful.

If we are unable to establish additional collaborative alliances, our business may be materially harmed.

Collaborators provide the necessary resources and product development experience to advance our compounds in their programs. We have entered into and expect to continue to seek to enter into collaborative alliances with pharmaceutical companies. Upfront payments and milestone payments received from collaborations help to provide us with the financial resources for our internal research and development programs. We believe additional resources will be required to advance compounds. If we do not reach agreements with additional collaborators in the future or if the terms of such a collaborative alliance on are not favorable to us, we may not be able to obtain the expertise and resources necessary to achieve our business objectives, our ability to advance our compounds will be jeopardized and we may fail to meet our business objectives. Moreover, collaborations are complex and time consuming to negotiate, document, and implement. We may not be successful in our efforts to establish and implement collaborations on a timely basis.

We are subject to substantial customer concentration. If we fail to retain our revenues from the U.S. Government consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.

We are subject to substantial customer concentration risk. The U.S. Government accounted for all of the Company’s revenues for the year ended December 31, 2022. These revenues are from collaboration and license agreements and a contract with the U.S. Government. If these agreements are terminated or fees and funding are reduced under these agreements, our business could be adversely affected.

Risks Relating to Intellectual Property

If we are unable to obtain and maintain patent protection for our discoveries, the value of our technology and any product candidates could be adversely affected.

Our commercial success and ability to develop and commercialize products depends in significant part on our ability to: (i) obtain and maintain valid and enforceable patents and other intellectual property rights in the U.S. and other countries with respect to our technology and product candidates; (ii) obtain licenses to the proprietary rights of others on commercially reasonable terms; (iii) operate without infringing upon the proprietary rights of others; (iv) prevent others from infringing on our proprietary rights; and (v) protect our trade secrets. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the U.S. and abroad related to our novel technologies and product candidates that are important to our business.

If the scope of the patent protection we or our licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that

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mature into issued patents will include, claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive advantage. In addition, to the extent that we license intellectual property in the future, we cannot provide assurances that those licenses will remain in force. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

Our patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of our product candidates but that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business.

Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing the scope of claims allowable in the pharmaceutical and biotechnology fields have emerged in the United States. The scope of patent protection in jurisdictions outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdictions in which we seek patent protection may diminish our ability to protect our inventions and maintain and enforce our intellectual property rights; and, more generally, may affect the value of our intellectual property, including the narrowing of the scope of our patents and any that we may license.

The patent prosecution process is complex, expensive, time-consuming and inconsistent across jurisdictions. We may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner or at all. In addition, we may not pursue or obtain patent protection in all relevant markets. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to obtain appropriate, or any, patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, including for example, our employees, external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose our confidential or proprietary information before a patent application is filed, thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimed in our patents or pending patent applications.

The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Pending patent applications cannot be enforced against third parties unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that our patent applications or any patent applications that we may license in the future will result in patents being issued. Further, the scope of the invention claimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even if patent applications we currently own or that we may license in the future issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether our technology or any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third parties may be able to evade our patent rights by developing new products that are similar to our product candidates, biosimilars of our product candidates, or alternative technologies or products in a non-infringing manner.

The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future, become

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subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the U.S. Patent and Trademark Office, or USPTO, or other foreign patent office. An unfavorable determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or limit or extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.

In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned and in-licensed patents and patent applications may in the future be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need the cooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and such cooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

We do not own or license patents or patent applications that claim the active pharmaceutical ingredient in our ACG-701 and ACG-801 product candidates.

The active pharmaceutical ingredient in ACG-701, sodium fusidate, is an old compound that was published in the 1960s, has been approved for therapeutic use in jurisdictions outside the United States and is included in ex-US cystic fibrosis treatment guidelines. We do not own or license patents that claim sodium fusidate or its acid form, fusidic acid, as a composition of matter. We do own patents in the United States and in other jurisdictions that claim certain methods of treatment using ACG-701, and we seek additional patent claims on certain compositions. There can be no assurances that our granted patents will, or that any of our pending patent applications that grant as patents will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make generic pharmaceuticals, may develop products that are the same as or similar to ACG-701 for the same or similar uses as us, and that our patents will not effectively prevent them from commercializing their products.

The active pharmaceutical ingredient in ACG-801 is a recombinant form of acid ceramidase. Human acid ceramidase is a naturally occurring protein and patentability of such proteins is limited under current patent law. We do not own or license patents that claim recombinant human acid ceramidase as a composition of matter. We own patents in the United States and in other jurisdictions that claim certain compositions of and methods of treatment using acid ceramidase, and we seek additional patent claims on certain compositions. There can be no assurances that our granted patents will, or that any of our pending patent applications that grant as patents will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make biosimilar pharmaceuticals, may develop products that are similar to ACG-801 for the same or similar uses as us, and that our patents will not effectively prevent them from commercializing their products.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Our rights to develop and commercialize ACG-801 are subject to the terms and conditions of our license agreement with Icahn School of Medicine at Mount Sinai, and our rights to develop and commercialize future product candidates may be subject to terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future intellectual property license agreements or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business and lose the ability to continue to develop and commercialize the related product .

We are and expect to continue to be reliant upon third-party licensors for certain patent and other intellectual property rights that are important or necessary to the development of our technology and product candidates. In particular, ACG-801 is dependent on our Amended and Restated License Agreement with Icahn School of Medicine at Mount Sinai (“Mt. Sinai License”). Pursuant to the Mt. Sinai License we are the exclusive licensee of patent

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rights and know-how of Mt. Sinai. The Mt. Sinai License imposes, and we expect that any future license agreement will impose, specified diligence, milestone payment, royalty, commercialization, development and other obligations on us and require us to meet development timelines, or to exercise diligent or commercially reasonable efforts to develop and commercialize licensed products, in order to maintain the licenses.

Furthermore, Mt. Sinai has, and future licensors may have, the right to terminate the license if we materially breach the agreement and fail to cure such breach within a specified period or in the event we undergo certain bankruptcy events. In spite of our best efforts, our current or any future licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements. If the Mt. Sinai License is terminated, and we lose our intellectual property rights under the Mt. Sinai License, this may result in complete termination of our development and commercialization activities with respect to ACG-801. If the Mt. Sinai License is terminated, or if the underlying intellectual property fails to provide the intended exclusivity, our competitors or other third parties could have the freedom to seek regulatory approval of, and to market, products and technologies identical or competitive to ours and we may be required to cease our development and commercialization of certain of our product candidates and technology. In addition, we may seek to obtain additional licenses from Mr. Sinai or a future licensor and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties, including our competitors, to receive licenses to a portion of the intellectual property that is subject to our existing licenses and to compete with any product candidates we may develop and our technology. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

the scope of rights granted under the license agreement and other interpretation-related issues;

our or our licensors’ ability to obtain, maintain and defend intellectual property and to enforce intellectual property rights against third parties;

the extent to which our technology, product candidates and processes infringe, misappropriate or otherwise violate the intellectual property of the licensor that is not subject to the license agreement;

the sublicensing of patent and other intellectual property rights under our license agreements;

our diligence, development, regulatory, commercialization, financial or other obligations under the license agreement and what activities satisfy those diligence obligations;

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our current or future licensors and us and our partners; and

the priority of invention of patented technology.

In addition, our license agreement with Mt. Sinai is, and future license agreements are likely to be, complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our diligence, development, regulatory, commercialization, financial or other obligations under the relevant agreement. In addition, if disputes over intellectual property that we have licensed or any other dispute related to our license agreements prevent or impair our ability to maintain our current license agreements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates and technology. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

License agreements we may enter into in the future may be non-exclusive. Accordingly, third parties may also obtain non-exclusive licenses from such licensors with respect to the intellectual property licensed to us under such license agreements. Accordingly, these license agreements may not provide us with exclusive rights to use such licensed patent and other intellectual property rights, or may not provide us with exclusive rights to use such patent and other intellectual property rights in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and any product candidates we may develop in the future.

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Moreover, some of our in-licensed patent and other intellectual property rights may in the future be subject to third party interests such as co-ownership. If we are unable to obtain an exclusive license to such third-party co-owners’ interest, in such patent and other intellectual property rights, such third-party co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. We or our licensors may need the cooperation of any such co-owners of our licensed patent and other intellectual property rights in order to enforce them against third parties, and such cooperation may not be provided to us or our licensors.

Additionally, under the terms of the Mt. Sinai License we do not control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications that we exclusively license. Although we have a right to have our comments considered in connection with patent prosecution and maintenance, we cannot be certain that Mt. Sinai will prepare, file, prosecute and maintain the licensed patents and patent applications in a manner that is consistent with the best interests of with our business. If Mt. Sinai fails to prosecute or maintain or loses rights to any licensed patents or applications, the rights we have licensed may be reduced or eliminated, which could adversely affect our ability to develop and commercialize ACG-801. If we enter into additional licenses in the future with Mt. Sinai or other licensors we may not control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications that we license from such licensors. It is possible that our licensors’ filing, prosecution and maintenance of the licensed patents and patent applications, enforcement of patents against infringers or defense of such patents against challenges of validity or claims of enforceability may be less vigorous than if we had conducted them ourselves, and accordingly, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced and defended in a manner consistent with the best interests of our business. If our licensors fail to file, prosecute, maintain, enforce and defend such patents and patent applications, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our technology and any product candidates we may develop that are the subject of such licensed rights could be adversely affected and we may not be able to prevent competitors or other third parties from making, using and selling competing products.

Furthermore, our owned and in-licensed patent rights may be subject to a reservation of rights by the licensor and or one or more third parties. For example, the research resulting in certain of our in-licensed patent rights and technology was funded in part by the U.S. government. Consequently, the U.S. government may have certain rights in to such patents. Certain patents that we exclusively license from Mt. Sinai are the results of research that was funded in part by the U.S. government and certain of our development activities for ACG-701 are funded in part by the U.S. government. When new technologies are developed with government funding, in order to secure ownership of patent rights related to the technologies, the recipient of such funding is required to comply with certain government regulations, including timely disclosing the inventions claimed in such patent rights to the U.S. government and timely electing title to such inventions. A failure to meet these obligations may lead to a loss of rights or the unenforceability of relevant patents or patent applications. In addition, the U.S. government may have certain rights in such patent rights, including a non-exclusive license authorizing the U.S. government to use the invention or to have others use the invention on its behalf. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The U.S. government’s rights may also permit it to disclose the funded inventions and technology, which may include our confidential information, to third parties and to exercise march-in rights to use or allow third parties to use the technology that was developed using U.S. government funding. The U.S. government may exercise its march-in rights if it determines that action is necessary because we or our licensors failed to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such U.S. government-funded inventions may be subject to certain requirements to manufacture any product candidates we may develop embodying such inventions in the United States. Any of the foregoing could harm our business, financial condition, results of operations and prospects significantly.

We may not be successful in obtaining all rights necessary to develop and commercialize our current or future product candidates

We currently have exclusively licensed certain intellectual property from Mt. Sinai that is relevant for ACG-801. Our current and future product candidates may require the use of additional intellectual property rights held by third parties, and our ability to develop and commercialize such product candidates will depend, in part, on our ability to acquire, in-license or use any relevant intellectual property rights. We may be unable to secure such licenses or

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otherwise acquire or in-license intellectual property rights from third parties that we identify as necessary for any product candidates we may develop and our technology on commercially reasonable terms, or at all. Even if we are able to in-license any such necessary intellectual property, it could be on non-exclusive terms, thereby giving our competitors and other third parties access to the same intellectual property licensed to us, and the applicable licensors could require us to make substantial licensing and royalty payments. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.

We sometimes collaborate with non-profit and academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to third parties, potentially blocking our ability to pursue our research program and develop and commercialize our product candidates.

Third parties may own or control patents or patent applications and require us to seek licenses, which could increase our development and commercialization costs, or prevent us from developing or marketing products.

Although we have issued patents and pending patent applications in the U.S. and other countries, we may not have rights under certain third-party patents or patent applications related to our compounds under development and product candidates. Third parties may own or control these patents and patent applications in the U.S. and abroad. In addition, there may be other patents and patent applications related to our current or future product candidates of which we are not aware. Therefore, in some cases, in order to develop, manufacture, sell or import some of our product candidates, we or our collaborators may choose to seek, or be required to seek, licenses under third-party patents issued in the U.S. and abroad or under third-party patents that might issue from U.S. and foreign patent applications. In such an event, we would be required to pay license fees or royalties or both to the licensor. If licenses are not available to us on acceptable terms, we or our collaborators may not be able to develop, manufacture, sell, or import these products, or may be delayed in doing so. Either of these results could have a material adverse effect on our business.

We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages, require us to stop our development and commercialization efforts or result in our patents being invalidated, interpreted narrowly or limited.

Competitors may infringe our patents or the patents of our licensors. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the biotechnology industry. We may become a party to various types of patent litigation or other proceedings regarding intellectual property rights from time to time even under circumstances where we are not practicing and do not intend to practice any of the intellectual property involved in the proceedings. In addition to litigation, we may become involved in patent office proceedings, including oppositions, reexaminations, supplemental examinations and inter partes reviews involving our patents or the patents of third parties. We may initiate such proceedings or have such proceedings brought against us. An adverse determination in any such proceeding, or in litigation, could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. An adverse determination in a proceeding involving a patent in our portfolio could result in the loss of protection or a narrowing in the scope of protection provided by that patent.

Even if resolved in our favor, litigation or other proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our scientific, technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could

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substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. If any patent litigation or other proceeding is resolved against us, we or our collaborators may be enjoined from developing, manufacturing, selling, or importing our products without a license from the other party and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms or at all. In a patent office proceeding, such as an opposition, reexamination, or inter partes review, our patents may be narrowed or invalidated. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Our intellectual property may be infringed by a third party.

Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where a third party may infringe one or more of our issued patents or trademarks. To counter infringement, we may be required to file infringement claims, which can be expensive and time-consuming. Moreover, there is no assurance that we would be successful in proving that a third party is infringing one or more of our issued patents or trademarks. Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us, alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly and/or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question, any of which may adversely affect our business. Even if we are successful in proving in a court of law that a third party is infringing one or more of our issued patents or trademarks there can be no assurance that we would be successful in halting their infringing activities.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, contractors and other parties who have access to such technology and processes. However, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breach or violate the terms of any of these agreements, we may not have adequate remedies for any such breach or violation. As a result, we could lose our trade secrets and third parties could use our trade secrets to compete with any product candidates we may develop and our technology. Additionally, we cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems; however, such systems and security measures may be breached, and we may not have adequate remedies for any breach.

In addition, our trade secrets may otherwise become known or be independently discovered by competitors or other third parties. Competitors or third parties could purchase any product candidates we may develop or our technology and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our intellectual property rights or develop their own competitive technologies that fall outside the scope of our intellectual property rights. If any of our trade

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secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate such trade secrets, from using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Changes in patent laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries could increase uncertainties and costs of prosecuting patent applications and the enforcement or defense of patents, and may diminish the value of our patents or narrow the scope of our patent protection. For example, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. However, the America Invents Act and its implementation and any future changes to the patent law could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business, financial condition, results of operations, and prospects. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce existing patents and patents we may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates and any future product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws and practices of some foreign countries, particularly those relating to pharmaceuticals, do not protect intellectual property rights to the same extent as federal and state laws in the U.S. For example, novel formulations and methods of medical treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including EU countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of our patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from our intellectual property.

We may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions into or within the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own

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products, and may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us in these jurisdictions.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

Patent terms may not adequately protect our competitive position on our product candidates.

Depending upon the timing, duration and specifics of development, testing and regulatory approval of our product candidates, such as ACG-701 and ACG-801, patents protecting such candidates might expire before or shortly after such candidate is commercialized. We plan to seek extension of patent terms in the United States and in other countries, if available, if we have patents that are eligible for term extension when a product candidate is approved. In the United States the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permit the term of a patent to be extended up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, which is limited to the approved indication, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review phase, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products and commercialize those products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. We rely on our service providers or our licensors to pay these fees. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We rely on reputable law firms or our licensors for compliance with patent agency requirements. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.

We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Some of our employees were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in

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defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

We rely on government funding for certain aspects of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S. based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.

In August 2021, we entered into a contract with Department of Defense’s Defense Threat Reduction Agency (DTRA contract) for the completion of pre-clinical and clinical development activities for ACG-701 for the treatment of melioidosis. We may generate intellectual property rights through the use of this or other U.S. government funding and are therefore subject to certain federal regulations. Also, the research that lead to certain patents and technology that we exclusively license from Mt. Sinai used U.S. government funding. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act), and implementing regulations. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we to disclose the invention to the government and fail to file an application to register the intellectual property in the specified manner and within specified time limits. These time limits have recently been changed by regulation, and may change in the future. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the U.S. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.

The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The factors that may limit any potential competitive advantage provided by our intellectual property rights include:

others may be able to make compounds or formulations that are similar to our product candidates but that are not covered by the claims of the patents that we own or control;

we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all;

we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or control;

we might not have been the first to file patent applications covering certain of our inventions;

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

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it is possible that our pending patent applications will not lead to issued patents;

issued patents that we own or control may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;

our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

we may not be able to maintain the confidentiality of our trade secrets or other proprietary information;

others may independently develop similar or alternative technologies without infringing our intellectual property rights;

we may not develop additional proprietary technologies that are patentable; and

the patents of others may have an adverse effect on our business.

Risks Relating to Product Manufacturing, Marketing and Sales, and Reliance on Third Parties

Even if the compounds we may develop are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.

Even if the compounds were successful in clinical development and receive regulatory approvals, it may never reach or remain on the market, be successfully developed into commercial products or gain market acceptance among physicians, patients, healthcare payors or the medical community for a number of reasons including: (i) it may be found ineffective or cause harmful side effects; (ii) it may be difficult to manufacture on a scale necessary for commercialization; (iii) it may experience excessive product loss due to contamination, equipment failure, inadequate transportation or storage, improper installation or operation of equipment, vendor or operator error, natural disasters or other catastrophic events, inconsistency in yields or variability in product characteristics; (iv) it may be uneconomical to produce; (v) the timing of market introduction of the compounds we may develop and competitive products may be inopportune; (vi) political and legislative changes may make the commercialization of any product candidates we may develop in the future, more difficult; (vii) we may fail to obtain reimbursement approvals or pricing that is cost effective for patients as compared to other available forms of treatment or that covers the cost of production and other expenses; (viii) they may not compete effectively with existing or future alternatives; (ix) we may be unable to develop commercial operations and to sell marketing rights; (x) it may fail to achieve market acceptance; or (xi) we may be precluded from commercialization of a product due to proprietary rights of third parties.

Because we have limited manufacturing experience, and no manufacturing facilities or infrastructure, we are dependent on third-party manufacturers to manufacture product candidates for us.

We have limited manufacturing experience and no manufacturing facilities, infrastructure or clinical or commercial scale manufacturing capabilities. In order to continue to develop our product candidates, apply for regulatory approvals, and ultimately commercialize products, we need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities. We currently rely upon third parties to produce material for nonclinical and clinical testing purposes and expect to continue to do so in the future. We also expect to rely upon third parties to produce materials that may be required for the commercial production of our product candidates, if approved. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any product candidates on a timely and competitive basis. We currently do not have any long-term supply contracts.

There are a limited number of manufacturers who operate under the FDA’s cGMP regulations capable of manufacturing our product candidates. As a result, we may have difficulty finding manufacturers for our product candidates suitable for our needs. If we are unable to arrange for third-party manufacturing of our product

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candidates on a timely basis, or on acceptable terms, we may not be able to complete development of our product candidates or market them.

Any contract manufacturers with which we enter into manufacturing arrangements will be subject to extensive regulatory requirements and ongoing periodic, unannounced inspections or remote regulatory assessments by the FDA, or foreign equivalent, and corresponding state and foreign agencies or their designees to ensure compliance with cGMP requirements and other governmental regulations and corresponding foreign standards. Any failure by our third-party manufacturers to comply with such requirements, regulations or standards could lead to a delay in the conduct of our clinical trials, or a delay in, or failure to obtain, regulatory approval of any of our product candidates. Such failure could also result in sanctions being imposed, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, product seizures or recalls, imposition of operating restrictions, total or partial suspension of production or distribution, or criminal prosecution.

Additionally, contract manufacturers may not be able to manufacture our product candidates at a cost or in quantities necessary to make them commercially viable. Furthermore, changes in the manufacturing process or procedure, including a change in the location where the drug substance or product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval in accordance with the FDA’s cGMP and marketing application regulations and may require that we conduct bridging studies to demonstrate that the product produced under prior processes and procedures or by prior manufacturers is comparable to future product. Contract manufacturers may also be subject to comparable foreign requirements. This review may be costly and time-consuming and could delay or prevent the launch of a product candidate. The FDA or similar foreign regulatory agencies at any time may also implement new standards or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. If we or our contract manufacturers are unable to comply, we or they may be subject to regulatory action, civil actions or penalties.

We have no experience selling, marketing or distributing potential products and no internal capability to do so.

Advancing compounds through Phase 3 development and regulatory approval will require us to begin commercialization preparation activities and incur related expenses. These activities will include, among other things, the development of an in-house marketing organization and sales force, a market access and payor reimbursement strategy and a distribution function, which will require significant capital expenditures, management resources and time. If we are unable to adequately prepare the market for the potential future commercialization of compounds, we may not be able to generate product revenue once marketing authorization is obtained.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements on commercially reasonable terms, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates. Finally, regardless of whether we contract out our sales and marketing functions, we will be responsible for the marketing and promotion of our products and may be held responsible should any products be improperly marketed or promoted.

If third parties on whom we rely for clinical and preclinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business may suffer.

We do not have the ability to independently conduct the clinical or preclinical trials required to obtain regulatory approval for our product candidates. We depend on independent investigators, contract research organizations (“CROs”), and other third-party service providers in the conduct of the trials of our product candidates and expect to continue to do so. We expect to contract with CROs, investigators, and other third parties for future clinical and preclinical trials but there is no guarantee that we will be able to at all or on favorable terms. We rely heavily on these parties for successful execution of our trials, but do not control many aspects of their activities. We are responsible for ensuring that each of our trials is conducted in accordance with the applicable regulations and protocols for the trial. Third parties may not complete activities on schedule, or at all, or may not conduct our trials in accordance with regulatory requirements or our protocols. If these third parties fail to carry out their obligations,

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we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible. There can be no assurance that we will be able to sustain our relationships with these third-party entities, secure additional partnerships, or identify alternative sites or CROs in the event of any termination of our existing agreements or should we need to establish alternative arrangements. Moreover, if third parties fail to carry out their obligations and comply with the applicable regulatory requirements, our preclinical or clinical trials may need to be extended, delayed, terminated or repeated, and we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, or to commercialize such product candidate being tested in such trials. If we seek to conduct any of these activities ourselves in the future, we will need to recruit appropriately trained personnel and add to our research, clinical, quality and corporate infrastructure. Moreover, if we need to replace any third parties, we may not be able to do so in a timely fashion or on commercially reasonable terms.

The commercial success of any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.

Any products that we ultimately bring to the market, if they receive marketing approval, may not gain market acceptance by physicians, patients, third-party payors or others in the medical community. If our products do not achieve an adequate level of acceptance, we may not generate product revenue and we may not become profitable. The degree of market acceptance of our products, if approved for commercial sale, will depend on a number of factors, including: (i) the prevalence and severity of any side effects; (ii) the efficacy and potential advantages over alternative treatments; (iii) the ability to offer our product candidates for sale at competitive prices; (iv) relative convenience and ease of administration; (v) the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; (vi) the strength of marketing and distribution support and the timing of market introduction of competitive products; and (vii) publicity concerning our products or competing products and treatments.

Even if a potential product displays a favorable efficacy and safety profile, market acceptance of the product will not be known until after it is launched. Our efforts to educate patients, the medical community, and third-party payors about our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional methods used by our competitors.

If we are unable to obtain adequate reimbursement from third-party payors for any products that we may develop or acceptable prices for those products, our revenues and prospects for profitability will suffer.

Most patients rely on Medicare, Medicaid, private health insurers, and other third-party payors to pay for their medical needs, including any drugs we may market. If third-party payors do not provide adequate coverage or reimbursement for any products that we may develop, our revenues and prospects for profitability will suffer.

Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly-approved products. These third-party payors may base their coverage and reimbursement on the coverage and reimbursement rate paid by carriers for Medicare beneficiaries. Furthermore, many such payors are investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by health care providers, which could limit the price we might establish for products that we or our current or future collaborators may develop or sell, which would result in lower product revenues or royalties payable to us. In particular, third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop or impose other patient access or utilization controls or limitations.

We face a risk of product liability claims and may not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing, and marketing of prescription products. We face a risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk if we commercially sell any products. Regardless of merit or eventual outcome, liability claims and product recalls may result in: (i) decreased demand for our product candidates and products; (ii) damage to our reputation; (iii) regulatory investigations that could require costly recalls or product modifications; (iv) withdrawal of clinical trial participants; (v) costs to defend related ligation; (vi) substantial monetary awards to clinical trial participants or patients; (vii) loss of revenue; (viii) the diversion of

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management’s attention away from managing our business; and (ix) the inability to commercialize any products that we may develop.

Although we have product liability and clinical trial liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations. We may not be able to obtain or maintain adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could also prevent or interfere with our commercialization efforts.

Risks Relating to Ownership of Our Preferred and Common Stock

Provisions in our restated certificate of incorporation (“Charter”) and second amended and restated bylaws (“Bylaws”) and Delaware law, may prevent a change in control that stockholders may consider desirable.

Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) and our Charter and Bylaws contain provisions that might enable our management to resist a takeover of our company or discourage a third party from attempting to take over our company. These provisions include: (i) a classified board of directors; (ii) limitations on the removal of directors; (iii) limitations on stockholder proposals at meetings of stockholders; (iv) the inability of stockholders to act by written consent or to call special meetings; and (v) the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval. These provisions could: (i) have the effect of delay, defer, or prevent a change in control of us or a change in our management that stockholders may consider favorable or beneficial or (ii) discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions.

The Company’s Bylaws provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.

Our Bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Company to the Company or its stockholders, (iii) any action arising pursuant to any provision of the DGCL, the Company’s Charter or the Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Charter or the Bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against the Company or its directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in our Bylaws would not apply to claims brought under the Exchange Act or the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction. Additionally, such provision will not relieve us of our duty to comply with the federal securities laws and the rules and regulations thereunder, and stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

Six stockholders beneficially own approximately 69% of our outstanding common stock in the aggregate. If these significant stockholders choose to act together, they could exert substantial influence over our business, and the interests of these stockholders may conflict with those of other stockholders.

Following the Series Z Preferred Stock Conversion (as defined below) there is a concentration of ownership of our outstanding common stock because approximately 69% of our outstanding common stock is beneficially owned by six stockholders. As of March 1, 2023: (i) entities affiliated with Pillar Invest Corporation (the “Pillar Investment Entities”) beneficially owned approximately 11.2% of our outstanding common stock; (ii) NovaQuest beneficially owned approximately 9.8% of our outstanding common stock; (iii) Dr.  Atul Chopra, a founder and a member of Legacy Aceragen’s board of directors, beneficially owned approximately 17.5% of our outstanding common stock; and (iv) Mr. John Taylor, Mr. Daniel Salain, and Mr. Andrew Jordan (“Executives”) individually beneficially owned

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17.5%, 17.5% and 5.4% of our common stock, respectively (“Pillar Investment Entities” and, together with NovaQuest, Dr. Chopra, and Executives, the “Significant Securityholders”). If any of our Significant Securityholders acted together, they could be able to exert substantial influence over our business. Additionally, the interests of the Significant Securityholders may be different from or conflict with the interests of our other stockholders. This concentration of voting power with the Significant Securityholders could delay, defer or prevent a change of control, entrench our management and the board of directors or delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire. In addition, conflicts of interest could arise in the future between us, on the one hand, and either of our Significant Securityholders on the other hand, concerning potential competitive business activities, business opportunities, the issuance of additional securities and other matters.

The issuance or sale of shares of our common stock could depress the trading price of our common stock.

If (i) we issue additional shares of our common stock or rights to acquire shares of our common stock in other future transactions, (ii) any of our existing stockholders sells a substantial amount of our common stock, or (iii) the market perceives that such issuances or sales may occur, then the trading price of our common stock may significantly decrease. In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders.

Because we do not intend to pay dividends on our common stock, investor returns will be limited to any increase in the value of our stock.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business and do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future.

Our Series X Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of our Series X Preferred Stock differing from those of the holders of common stock.

The Series X Preferred Stock ranks senior to our common stock with respect to dividend rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution, or winding up of our affairs. The holders of our Series X Preferred Stock are entitled to receive distributions on shares of Series X Preferred Stock as set forth in (a) the Purchase Agreement, and (b) the PRV Agreement (any such distributions under the Purchase Agreement and the PRV Agreement, the “Preferred Distributions”), prior and in preference to any declaration or payment of any other distribution or dividend (other than dividends on shares of Common Stock payable in shares of Common Stock).

In addition, holders of Series X Preferred Stock are entitled to receive a distribution in the event either (i) Aceragen receives any proceeds from the sale of a PRV granted by the FDA in connection with regulatory approval of a ACG-801 (recombinant human acid ceramidase) or ACG-701 (sodium fusidate) product or (ii) Aceragen does not receive such a PRV or does not complete a PRV sale within a certain period after receipt. The holders of Series X Preferred Stock are also entitled to net sales distributions based upon future net sales of the ACG-801 and ACG-701.

The holders of our Series X Preferred Stock also have the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series X Preferred Stock upon certain change of control events or Product Divestiture (as defined in the PRV Agreement) of a ACG-801 product without NovaQuests’ consent with respect to certain change of control events or Product Divestiture (as defined in the PRV Agreement), and Aceragen may, and NovaQuest may require us to, redeem the Series X Preferred Stock at a price equal to the fair market value thereof or make certain distributions to the holders of Series X Preferred Stock.

These dividend, distribution, and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for general corporate purposes. Our obligations to the holders of the Series X Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders of shares of Series X Preferred Stock and holders of our common stock.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated audited financial statements and accompanying notes appearing elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis includes forward-looking statements that are subject to risks and uncertainties, including those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of this Form 10-K, that could cause actual results to differ materially from historical results or anticipated results.

Prior to January 17, 2023, we were known as Idera Pharmaceuticals, Inc. On September 28, 2022, we completed the Aceragen Acquisition, whereby we acquired all of the outstanding equity interests in Legacy Aceragen. In connection with the Aceragen Acquisition and related transactions, we changed our name to Aceragen, Inc. Unless the context indicates otherwise, references in this section to the “Company,” “Aceragen,” “Idera,” “we,” “us,” “our” and similar terms refer to Aceragen, Inc. (f/k/a Idera Pharmaceuticals, Inc.) and our consolidated subsidiaries. References to “Legacy Aceragen” refer to Aceragen, Inc. prior to the consummation of the Aceragen Acquisition.

Overview

We are a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development, and ultimately the commercialization, of product candidates for rare disease indications characterized by small, well-defined patient populations with serious unmet medical needs. Our current focus is to develop and optimize commercial value of ACG-701 (patented formulation of sodium fusidate) and ACG-801 (recombinant human acid ceramidase (rhAC)) for appropriate patients. We have in the past and may in the future explore collaborative alliances to support development and commercialization of any of our drug candidates. We may also seek to identify and potentially acquire rights to novel development and commercial-stage rare disease programs through new business development opportunities, including additional strategic alternatives.

Until December 2021, we were developing tilsotolimod, via intratumoral injection, for the treatment of solid tumors in combination with nivolumab, an anti-PD1 antibody marketed as Opdivo® by Bristol Myers Squibb Company (“BMS”), and/or ipilimumab, an anti-CTLA4 antibody marketed as Yervoy® by BMS. Due to Phase 3 results in anti-PD-1 refractory advanced melanoma (ILLUMINATE-301), reported in March 2021, which showed the study failed to meet its primary endpoint, as well as a decision in December 2021 to discontinue enrollment in ILLUMINATE-206, our Phase 2 study in solid tumors, Company-sponsored development of tilsotolimod in oncology was discontinued. Although clinical trials with tilsotolimod have not yet translated into a new treatment alternative for patients, we believe that data supporting tilsotolimod’s mechanism of action and encouraging safety profile from across the array of pre-clinical and clinical work to date, together with its intellectual property protection, are noteworthy. As a result, in December 2021, we announced that we would consider an out-licensing arrangement so that tilsotolimod’s full potential might continue to be explored on behalf of patients who did not respond to traditional immunotherapy, together with other alternatives.

In September 2022, we acquired Legacy Aceragen, a privately-held biotechnology company addressing rare, orphan pulmonary, and rheumatic diseases for which there are limited or no available treatments. Legacy Aceragen owned or controlled the intellectual property related to ACG-701 (patented formulation of sodium fusidate) and ACG-801 (recombinant human acid ceramidase (rhAC)). Following the Aceragen Acquisition, our business strategy is to develop and optimize commercial value of ACG-701 and ACG-801 for appropriate patients. Accordingly, we are developing ACG-701 to treat cystic fibrosis (“CF”) pulmonary exacerbations (“PEx”) and melioidosis, a severe, life-threatening infection, and ACG-801 to treat patients suffering from a genetic mutation in the ASAH 1 gene, also known as Farber disease.

Recent Developments

Business Acquisition

On the Acquisition Date, in accordance with the Merger Agreement, we acquired 100% of the outstanding security interests of Legacy Aceragen in a “stock-for-stock” transaction, whereby all Legacy Aceragen outstanding equity interests were exchanged for a combination of shares of our common stock, shares of Series Z Preferred Stock,

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and shares of the newly-designated Series X Preferred Stock. Under the terms of the Merger Agreement, Legacy Aceragen stockholders received (i) 451,608 shares of our common stock (inclusive of shares subject to repurchase), (ii) 80,656 shares of Series Z Preferred Stock (inclusive of shares subject to repurchase), and (iii) five shares of Series X Preferred Stock. In addition, all outstanding options and warrants to purchase Legacy Aceragen common stock were converted into stock options and warrants to purchase shares of our common stock and Series Z Preferred Stock on terms substantially identical to those in effect prior to the Aceragen Acquisition, except for adjustments to the underlying number of shares and the exercise price based on the Merger Agreement exchange ratio.

Pursuant to the Merger Agreement, we held the Special Meeting at which our stockholders approved, among other matters: the Conversion Proposal and (ii) the Reverse Stock Split Proposal. The transactions following the approval of the Merger Agreement Meeting Proposals are discussed in further detail below.

Reverse Stock Split and Corporate Name Change

Following approval of the Reverse Stock Proposal, our board of directors approved a one-for-seventeen (1:17) reverse split of our issued and outstanding shares of common stock (the “Reverse Stock Split”). On January 17, 2023, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Restated Certificate of Incorporation (the “Certificate of Amendment”) to effect the Reverse Stock Split and the Company Name Change (as defined below). The Reverse Stock Split became effective as of 4:59 p.m. Eastern Time on January 17, 2023. As a result of the effectiveness of the Reverse Stock Split, every 17 shares of our issued and outstanding common stock were automatically combined, converted, and changed into one share of our common stock, without any change in the number of authorized shares or the par value per share. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units, and warrants to purchase shares of common stock and the number of shares reserved for issuance pursuant to our equity incentive compensation plans.

Also on January 17, 2023, and in connection with the previously-announced merger between Legacy Aceragen and us, our board of directors approved a change in name from “Idera Pharmaceuticals, Inc.” to “Aceragen, Inc.” (the “Company Name Change”), as reflected in the Certificate of Amendment. The Company Name Change became effective as of 4:59 p.m. Eastern Time on January 17, 2023.

Conversion of Series Z Non-Voting Convertible Preferred Stock

Following approval of the Conversion Proposal, effective January 17, 2023 at 5:00 p.m. Eastern Time, all 80,656 outstanding shares of our Series Z Preferred Stock were automatically converted into 4,744,467 shares of our common stock pursuant to the terms of the Series Z Preferred Stock (the “Series Z Preferred Stock Conversion”).

Nasdaq Compliance

As previously disclosed by Current Reports on Form 8-K filed with the SEC on December 1, 2021, May 27, 2022, and November 23, 2022, the Company received deficiency letters from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”), notifying the Company that it was not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires the Company to maintain a minimum closing bid price of $1.00 per share for continued listing on The Nasdaq Capital Market. In response to the Staff’s letter, in November 2022, the Company timely requested a hearing before a Nasdaq Hearing Panel (the “Panel”), which was held on January 5, 2023. By decision dated January 10, 2023, the Panel granted the Company an extension until January 20, 2023, to complete the Special Meeting and attendant transactions, including the Reverse Stock Split, and thereby evidence compliance with all applicable criteria for continued listing on The Nasdaq Capital Market, including the initial listing $4.00 bid price requirement applicable due to the Series Z Preferred Stock Conversion, which constituted a “change of control” (as that term is defined by Nasdaq), requiring the Company to meet all criteria for initial listing on The Nasdaq Capital Market at that time. Following the Reverse Stock Split, which was effective upon the market open on Wednesday, January 18, 2023, the Company was in compliance with all applicable Nasdaq listing standards and Nasdaq issued an approval letter confirming Aceragen’s listing.

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Cost-reduction Plan Implementation

On April 13, 2023, the Board approved certain cost-cutting measures with a view to preserving capital to support our continuing operations. As part of this plan, we have commenced the furlough of 12 employees, representing approximately 46% of our workforce. Additionally, certain of our employees and executive officers will defer portions of their respective base salaries in amounts that exceed $200,000, with such deferrals having a retroactive effective date of April 5, 2023. We will continue to review operations for other opportunities to reduce costs and pursue financing opportunities. For more information, please see Item 9B of this Form 10-K.

Results of Operations

The following is a discussion of results of operations for fiscal 2022 compared to fiscal 2021. For a discussion of results of operations for fiscal 2021 compared to fiscal 2020, please refer to Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

Years ended December 31, 2022 and 2021

Overview

During each of the years ended December 31, 2022 and 2021 our loss from operations totaled $27.8 million.

Prior to the Aceragen Acquisition, all our revenues had been from collaboration and license agreements, although we did not generate any such revenue in 2021 and have received no revenues from the sale of commercial products. Additionally, research and development expenses historically comprised the majority of our total operating expenses until we terminated our ILLUMINATE development program in December 2021, resulting in general and administrative expenses, acquisition-related costs and restructuring costs to comprise the majority of our total operating expenses for the year ended December 31, 2022. Following the Aceragen Acquisition, we expect to generate revenues from certain U.S. government contracts and, assuming adequate funding, for research and development expenses to comprise the majority of our total operating expenses, including in 2023 and beyond.

The following summarizes the components of loss from operations, as discussed further below:

Year Ended December 31,

($ in thousands)

$ Change

% Change

Government contracts revenue

Operating expenses:

Research and development

General and administrative

Acquisition-related costs

Restructuring and other costs

Total operating expenses

Loss from operations

Government Contracts Revenue

In connection with the Aceragen Acquisition, we assumed certain U.S. government contracts. Revenues from reimbursable contracts are recognized as costs are incurred, generally based on allowable direct costs incurred during the period, plus allocable overheads together with any recognizable earned fee.

Government contracts revenue for the year ended December 31, 2022 totaled $4.9 million of which $4.6 million related to a contract assumed in the Aceragen Acquisition funded by the Department of Defense’s DTRA to develop ACG-701 as a potential medical countermeasure against the pathogen that causes melioidosis, B. Pseudomallei. This contract is expected to further fund clinical and regulatory development of ACG-701 up to an additional $30.0 million. Our other government contracts are not currently significant to our operations and not expected to

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be material in the future. We did not generate any government contracts revenue for the fiscal year ended December 31, 2021.

Research and Development Expenses

For each of our research and development programs, we incur both direct and indirect expenses. We track direct research and development expenses by program, which may include internal personnel costs and other third-party costs such as contract research, consulting and clinical trial and manufacturing costs. We do not allocate indirect research and development expenses, which may include regulatory, laboratory (equipment and supplies), personnel, facility, and other overhead costs (including depreciation and amortization), to specific programs.

During the fiscal year ended December 31, 2022, our overall research and development expenses declined by 26%, as compared to 2021, primarily due to decreases in external development costs associated with tilsotolimod (IMO-2125) and other drug development expenses. These decreases are primarily attributed to (i) lower costs incurred with contract research organizations supporting our ILLUMINATE development program as a result of our decision to discontinue development of tilsotolimod, (ii) lower costs incurred with drug manufacturing activities, and (iii) lower expenses incurred in connection with the Scriptr Agreement.

We also expect that our research and development costs will increase in future periods as we proceed with the development of ACG-701 and ACG-801, however, such development will depend on our ability to raise capital, as discussed further below under the caption “Liquidity and Capital Resources.”

In the table below, research and development expenses are set forth in the following categories: (i) ACG-701 (REPRIEVE Study (CF PEx)) external development expense, (ii) ACG-701 (TERRA Study (Melioidosis)) external development expense, (iii) ACG-801 (Farber disease) external development expense, (iv) Tilsotolimod (IMO-2125), and (v) other drug development expenses.

Year Ended December 31,

($ in thousands)

$ Change

% Change

ACG-701 development expense

REPRIEVE Study (CF PEx)

TERRA Study (Melioidosis)

Subtotal

ACG-801 development expense (Farber disease)

Tilsotolimod (IMO-2125) development expense

Other drug development expense

Total research and development expenses

ACG-701 Development Expenses

These expenses are comprised of expenses we incurred in connection with the development of ACG-701 for CF PEx and Melioidosis, including our ongoing REPRIEVE and TERRA Studies, and include external development expenses incurred with contract research organizations, contract development and manufacturing organizations, subcontractors, and other third-party vendors. In addition, these expenses include salary costs, but exclude other internal personnel-related costs, such as stock-based compensation and other benefits, and overhead expenses.

We acquired the ACG-701 development program in connection with the Aceragen Acquisition and began to incur program-related expenses following the Acquisition Date. We expect to continue to incur significant expenses related to the development of ACG-701 in 2023 and beyond, subject to adequate financing.

ACG-801 Development Expenses

These expenses are comprised of expenses we incurred in connection with the development of ACG-801 for Farber disease, including our anticipated ADVANCE Study, which we expect to initiate clinical activities for in the first half of 2024, subject to funding. Such expenses include external development expenses incurred with contract research organizations, contract development and manufacturing organizations, subcontractors, and other third-

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party vendors. In addition, these expenses include salary costs, but exclude other internal personnel-related costs, such as stock-based compensation and other benefits, and overhead expenses.

We acquired the ACG-801 development program in connection with the Aceragen Acquisition and began to incur program-related expenses following the Acquisition Date. We expect to continue to incur significant expenses related to the development of ACG-801 in 2023 and beyond, subject to adequate financing.

Tilsotolimod (IMO-2125) Development Expenses

These expenses include external expenses we have incurred in connection with the development of tilsotolimod, as part of our ILLUMINATE development program, which we commenced clinical development of in July 2015 but was discontinued in December 2021. These external expenses include payments to independent contractors and vendors for drug development activities conducted after the initiation of tilsotolimod clinical development in immuno-oncology but exclude internal costs such as salaries and other personnel-related costs and overhead expenses.

Following the announcement that all Company-sponsored development of tilsotolimod was discontinued in December 2021, all significant study-related activities concluded. As such, we do not anticipate incurring significant additional expenses related to tilsotolimod in 2023 and beyond.

Other Drug Development Expenses

These expenses include internal costs, such as salary and other personnel-related costs and overhead expenses not allocated to a specific development program. In addition, these expenses include costs incurred related to our research collaboration with Scriptr and other external expenses, such as payments to contract vendors, associated with compounds that were previously being developed but are not currently being developed, other than tilsotolimod. For the years ended December 31, 2022 and 2021, we incurred $3.5 million and 7.1 million, respectively, of other drug development expenses. The decrease in other drug development expenses during 2022, as compared to 2021, was primarily due to (i) lower expenses incurred pursuant to the Scriptr Agreement of $1.6 million, and (ii) lower personnel-related costs resulting from the April 2021 reduction-in-force (discussed below), which primarily impacted research and development personnel as we were focused in 2022 on strategic alternatives, which resulted in the Aceragen Acquisition.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll, stock-based compensation expense, consulting fees, and professional legal fees associated with our patent applications and maintenance, our corporate regulatory filing requirements, our corporate legal matters, and our business development initiatives.

For the year ended December 31, 2022, general and administrative expenses totaled $12.2 million, a 22% increase, as compared to $10.0 million for the year ended December 31, 2021. The increase in general and administrative expenses during 2022, as compared to 2021, was primarily due to increases in: (i) personnel costs related to the acquisition of Legacy Aceragen employees (including salaries, stock-based compensation and bonuses), (ii) professional and consulting fees (including accounting and legal costs), and (iii) other overhead costs.

Acquisition-related Costs

Acquisition-related costs consist of charges for transaction, integration-related professional fees, retention bonuses and other incremental costs directly related to these activities.

Acquisition-related costs for the year ended December 31, 2022 was $4.6 million. All acquisition-related costs related to the Aceragen Acquisition and primarily consisted of legal and transaction related fees, and retention bonuses to certain employees. No such costs were incurred during 2021.

Restructuring and Other Costs

In April 2021, following the announcement that the ILLUMINATE-301 trial did not meet its primary endpoint of ORR, we implemented a reduction-in-force, which affected approximately 50% of our workforce through December 31,

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2021, primarily in the area of research and development. The decision was made in order to align our workforce with its needs in light of the outcome of ILLUMINATE-301’s ORR endpoint, its ongoing ILLUMINATE development program, and other business development activities focused on identifying new portfolio opportunities. In September 2022, in connection with the Aceragen Acquisition, we restructured our operations and implemented a reduction-in-force which affected approximately 54% of our pre-Aceragen Acquisition workforce.

For the year ended December 31, 2022, restructuring and other costs totaled $3.7 million, a 185% increase, compared to $1.3 million for the year ended December 31, 2021. The increase in restructuring costs during 2022, as compared to 2021, was primarily due to increases in severance and related benefits resulting from the composition of the workforce effected from the reduction-in-force implemented in September 2022, which included several executives, in connection with the Aceragen Acquisition.

Interest Income (Expense), net

Interest income, net of interest expense (which included non-cash charges for accretion of discounts on the Acquisition Obligation of approximately $0.1 million), for the year ended December 31, 2022 totaled $0.2 million. Interest income, net of interest expense, for the year ended December 31, 2021 was not material. The increase in 2022, as compared to 2021, was primarily due to higher interest rates.

Amounts may fluctuate from period to period due to changes in average investment balances, money market funds classified as cash equivalents, and composition of investments.

Warrant Revaluation Gain

During the years ended December 31, 2022 and 2021, we recorded a non-cash warrant revaluation gain of approximately $0.4 million and $7.0 million, respectively.

The non-cash gain for the fiscal year ended December 31, 2022 related to the change in fair value of our liability classified warrants assumed in connection with the Aceragen Acquisition in September 2022. Due to the nature of and inputs in the model used to assess the fair value of our outstanding warrants, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the remaining life of the warrants. Warrant revaluation loss for 2022 was driven primarily by a decrease in our stock price during the period.

The non-cash gain for the fiscal year ended December 31, 2021 related to the derecognition of the warrant liability in the first quarter of 2021 due to the termination of such liability-classified warrants that were issued pursuant to the December 2019 Securities Purchase Agreement as more fully described in Note 9 of the notes to condensed consolidated financial statements appearing elsewhere in this Form 10-K .

Series X Preferred Stock Liability Loss

During the year ended December 31, 2022, we recorded a non-cash Series X Preferred Stock liability loss of approximately $2.4 million. No such gain or loss was recorded during the year ended December 31, 2021.

The non-cash loss for the year ended December 31, 2022 related to the change in fair value of our liability-classified Series X Preferred Stock, which was issued in connection with the Aceragen Acquisition in September 2022.

Future Tranche Right Revaluation Gain or Loss

During the year ended December 31, 2021, we recorded a non-cash future tranche right revaluation gain of approximately $118.8 million. No such gain or loss was recorded during the year ended December 31, 2022.

The non-cash gain for the year ended December 31, 2021 related to the derecognition of the future tranche right liability during the first quarter of 2021 associated with the future tranche rights issued pursuant to the December 2019 Securities Purchase Agreement, as more fully described in Note 9 of the notes to condensed consolidated financial statements appearing elsewhere in this Form 10-K, due to the termination of the future tranche rights.

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Foreign Currency Exchange and Other Gain (Loss), net

During each of the years ended December 31, 2022 and 2021, we recorded a net foreign currency exchange and other loss of less than $0.1 million. Such gains and losses, net, are not material to our business and not expected to be material in the foreseeable future.

Income Tax Benefit

During the year ended December 31, 2022, we recorded $6.3 million in non-cash income tax benefit related to our evaluation of the realizability of our deferred tax assets that we determined that the valuation allowance should be decreased in consideration of positive and negative evidence bearing upon our ability to realize certain of our deferred tax assets.

There was no income tax benefit or expense recorded during the year ended December 31, 2021.

Net Income or Loss to Common Stockholders

As a result of the factors discussed above, we incurred a net loss of $23.4 million for the year ended December 31, 2022, compared to net income of $98.1 million for the year ended December 31, 2021.

Basic net loss applicable to common stockholders for the year ended December 31, 2022 was $23.4 million, as compared to basic net income applicable to common stockholders for the year ended December 31, 2021 of $96.9 million. Excluding the non-cash warrant revaluation gain of $7.0 million and future tranche right revaluation gain of $118.8 million for the year ended December 31, 2021, basic net loss applicable to common stockholders was $28.8 million.

Diluted net loss applicable to common stockholders for the year ended December 31, 2022 was $23.4 million, as compared to diluted net loss applicable to common stockholders for the year ended December 31, 2021 of $28.8 million.

Net Operating Loss Carryforwards

As of December 31, 2022, the Company had cumulative federal, various state, and Switzerland net operating loss carryforwards (“NOLs”) of approximately $355.8 million, $362.7 million, and $0.9 million, respectively, available to reduce federal and state taxable income, respectively. As a result of the Tax Cuts and Jobs Act of 2017, federal net operating losses incurred for taxable years beginning after January 1, 2018 have an unlimited carryforward period, but can only be utilized to offset 80% of taxable income in future taxable periods. Of the $355.8 million of federal NOLs, $158.4 million have an unlimited carryforward and the remaining NOLs are subject to expiration through 2037. In addition, at December 31, 2022, the Company had cumulative federal and state tax credit carryforwards of $28.3 million and $1.9 million, respectively. The federal credits expire through 2042 and the state credits expire through 2033.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, prescribe limitations on the amount of NOLs and tax credit carryforwards that may be utilized in any one year. Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. In December 2017, the Company completed a study which determined that ownership changes had occurred. The ownership changes have and will continue to subject the Company’s pre-ownership change NOL carryforwards to an annual limitation, which will significantly restrict the Company’s ability to use them to offset taxable income in periods following the ownership change . The federal and state net operating loss and tax credit carryforwards and related deferred tax assets discussed above and included in Note 16 to the consolidated financial statements appearing elsewhere in this Form 10-K have been adjusted to reflect the limitations that resulted from this study. As no study has been completed subsequent to 2017, additional ownership change limitations may result from ownership changes that have occurred, or may occur in the future. In conjunction with the Aceragen Acquisition, the Company acquired Legacy Aceragen’s federal, various state, and Switzerland NOL’s of $8.1 million, $19.1 million, and $0.8 million, respectively.

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Financial Condition, Liquidity and Capital Resources

Financial Condition

As of December 31, 2022, we had an accumulated deficit of $758.8 million. As of the date of this Form 10-K, substantially all our revenues have been from collaboration and license agreements and a contract with the U.S. government that we assumed in the Aceragen Acquisition, and we have received no revenues from the sale of commercial products.

We have devoted substantially all our efforts to research and development, including clinical trials, and we have not completed development of any commercial products. Our research and development activities, together with our general and administrative expenses, are expected to continue to result in substantial operating losses for the foreseeable future. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity, total assets, and working capital. Due to the numerous risks and uncertainties associated with developing drug candidates, and if approved, commercial products, we are unable to predict the extent of any future losses, whether or when any of our drug candidates will become commercially available or when we will become profitable, if at all.

Liquidity and Capital Resources

Overview

We require cash to fund our operating expenses and to make capital expenditures. Historically, we have funded our cash requirements primarily through the following:

sale of common stock, preferred stock and future tranche rights, and warrants (including pre-funded warrants);

exercise of warrants;

(iii)

debt financing, including capital leases;

license fees, research funding and milestone payments under collaborative and license agreements, and clinical funding arrangements, including reimbursements under U.S. Government funded programs; and

interest income.

SVB

On March 10, 2023, Silicon Valley Bank (“SVB”), at which we maintain cash and cash equivalents in multiple accounts, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The failure of SVB exposed us to liquidity and credit risk prior to the completion of the FDIC resolution of SVB in a manner that fully protects all depositors. As a result, we do not anticipate any losses with respect to our funds that had been deposited with SVB.

ATM Agreement

In November 2018, we entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50.0 million through JMP as our agent.

During the year ended December 31, 2021, we sold 301,021 shares of common stock pursuant to the ATM Agreement resulting in net proceeds, after deduction of commissions and other offering expenses, of $15.3 million. No shares were sold during the year ended December 31, 2022. As of March 31, 2023, we may sell up to an additional $19.5 million of shares under the ATM Agreement

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Funding Requirements

We had cash and cash equivalents of approximately $12.0 million at December 31, 2022. We believe based on our current operating plan, our existing cash and cash equivalents on hand as of December 31, 2022 will enable us to fund our operations into May 2023. Accordingly, we need to raise additional capital to continue to fund our operations and service our obligations in the future. If we are unable to raise additional capital when needed, we will not be able to continue as a going concern. We do not currently have any products approved for sale and do not generate any revenue from product sales. Accordingly, we expect to rely primarily on equity and/or debt financings and our clinical funding arrangements (e.g., contract with Department of Defense’s DTRA) to fund our continued operations. We are seeking and expect to continue to seek additional funding through financings of equity and/or debt securities, strategic research and development collaborations, clinical funding arrangements, or the sale or license of technology assets. We may also engage in strategic alternative conversations of mergers, acquisition, or sale of the company or assets.

Financing may not be available to us when we need it, or on favorable or acceptable terms, or at all. We could be required to seek funds through collaborative alliances or through other means that may require us to relinquish rights to some of our technologies, drug candidates or drugs that we would otherwise pursue on our own. In addition, if we raise additional funds by issuing equity securities, our then existing stockholders may experience dilution. The terms of any financing may adversely affect the holdings or the rights of existing stockholders. An equity financing that involves existing stockholders may cause a concentration of ownership. 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, and are likely to include rights that are senior to the holders of our common stock. Any additional debt or equity financing may contain terms which are not favorable to us or to our stockholders, such as liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 16 to the consolidated financial statements included elsewhere in this Form 10-K, additional equity financings may also result in cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net operating loss and tax credit carryforwards that we may utilize in any one year.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

significantly delay, scale back, or discontinue the development or commercialization of our product candidates;

seek strategic alliances, or amend existing alliances, for research and development programs at an earlier stage than otherwise would be desirable or that we otherwise would have sought to develop independently, or on terms that are less favorable than might otherwise be available in the future;

dispose of technology assets, including current product candidates, or relinquish or license on unfavorable terms, our rights to technologies or any of our product candidates that we otherwise would seek to develop or commercialize ourselves;

pursue the sale of our company to a third party at a price that may result in a loss on investment for our stockholders; or

file for bankruptcy or cease operations altogether.

Any of these events could have a material adverse effect on our business, operating results, and prospects.

We believe the key factors which will affect our ability to obtain funding are:

the receptivity of the capital markets to financings by biotechnology companies generally and companies with drug candidates and technologies similar to ours specifically;

the  receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter into or attempt to enter into;

the results of our clinical development activities in our drug candidates we develop on the timelines anticipated;

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competitive and potentially competitive products and technologies and investors’ receptivity to our drug candidates we develop and the technology underlying them in light of competitive products and technologies;

the cost, timing, and outcome of regulatory reviews; and

our ability to enter into additional collaborations with biotechnology and pharmaceutical companies and the success of such collaborations.

In addition, increases in expenses or delays in clinical development may adversely impact our cash position and require additional funds or cost reductions.

Cash Flows

The following table presents a summary of the primary sources and uses of cash for the years ended December 31, 2022 and 2021:

Year Ended December 31,

(in thousands)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Decrease in cash and cash equivalents

Operating Activities . The net cash used in operating activities for the periods presented consisted primarily of our net (loss) income adjusted for non-cash charges/gains and changes in components of working capital. The change in our operating cash outflows for the year ended December 31, 2022, as compared to 2021, was nominal.

Investing Activities . Net cash provided by investing activities for the year ended December 31, 2022 consisted of $5.5 million in cash acquired in connection with the Aceragen Acquisition. Net cash provided by investing activities for the year ended December 31, 2021 consisted of $4.5 million in proceeds from the maturity of available-for-sale securities.

Financing Activities . Net cash used in financing activities for the year ended December 31, 2022 consisted of $1.5 million in repayments of outstanding debt assumed in connection with the Aceragen Acquisition, offset in part by proceeds from employee stock purchases and exercise of common stock warrants. Net cash provided by financing activities for the year ended December 31, 2021 included aggregate net proceeds of $19.5 million from financing arrangements consisting of $4.2 million received pursuant to the LPC Purchase Agreement (as defined below) and $15.3 million received under the ATM Agreement, plus $0.3 million received from the exercise of stock options and warrants, partially offset by $0.4 million in payments related to our short-term insurance premium financing arrangement.

Material Cash Requirements

Aceragen Acquisition Obligation

As of December 31, 2022, we had a material debt obligation in the amount of $6.1 million related to a $7.5 million debt obligation we assumed in connection with the Aceragen Acquisition, of which approximately $1.5 million was paid in October 2022. On January 31, 2023, we issued 12% convertible unsecured promissory notes (the “Convertible Notes”) to certain of the debtholders in an aggregate amount of approximately $5.9 million. The Convertible Notes bear annual interest at 12%, beginning on April 1, 2023, and may be converted into shares of Company’s common stock. The terms of the Convertible Notes also provide the noteholders with customary registration rights covering the common stock issued following any conversion of the Convertible Notes.

See Note 7 of the notes to our consolidated financial statements appearing elsewhere in this Form 10-K for additional information.

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Lease Obligations

As of December 31, 2022, we had a material lease commitment in an aggregate amount of $0.6 million relating to our facility in Exton, Pennsylvania. This lease expires on May 31, 2025. See Note 15 of the notes to our consolidated financial statements appearing elsewhere in this Form 10-K for additional information.

Critical Accounting Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to (i) indefinite-lived intangible assets, (ii) warrants and Series X Preferred Stock liabilities and related revaluation gains (losses), (iii) research and development prepayments, accruals and related expenses, and (iv) stock-based compensation. Management bases its estimates and judgments on historical experience and on 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.

We regard an accounting estimate or assumption underlying our financial statements as a “critical accounting estimate” if:

the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

the impact of the estimates and assumptions on financial condition or operating performance is material.

While our significant accounting policies are described in more detail in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our financial statements.

Indefinite-lived Intangible Assets

Indefinite-lived intangible assets consist of In-Process Research & Development (“IPR&D”). The fair values of IPR&D project assets acquired in business combinations are capitalized. We generally utilize the Multi-Period Excess Earning Method to determine the estimated fair value of the IPR&D assets acquired in a business combination. The projections used in this valuation approach are based on many factors, such as relevant market size, the estimated probability of regulatory success rates, anticipated patent protection, expected pricing, expected treated population and estimated payments (e.g., royalty). The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate.

Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We consider many factors in evaluating whether the value of our intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance.

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Warrant and Series X Preferred Stock Liabilities and Related Revaluation Gain (Loss)

Warrant Liability . In connection with the Aceragen Acquisition, a portion of the consideration paid to Legacy Aceragen warrant holders was in the form of warrants to purchase shares of Series Z Preferred Stock (the “Series Z Warrants”). The Series Z Warrants are classified as liabilities because the underlying Series Z Preferred Stock is contingently redeemable. We use a Black-Scholes option pricing model to value our liability-classified warrants, which incorporates assumptions and estimates, including (i) the remaining contractual term of the warrants, (ii) risk-free interest rate, (iii) expected dividend yield, and (iv) expected volatility of the price of the underlying shares of Series Z Preferred Stock. The estimated the expected stock volatility is based on the historical volatility of our common stock for a term equal to the remaining contractual term of the warrants. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. Expected dividend yield was determined based on the fact that we had never paid cash dividends and did not expect to pay any cash dividends in the foreseeable future. Due to the nature of and inputs in the model used to assess the fair value of the warrants, it is not abnormal to experience significant fluctuations during each remeasurement period.

Series X Preferred Stock Liability . In conjunction with the Aceragen Acquisition, we determined that the newly issued Series X Preferred Stock represents a sale of future revenues and is classified as a liability under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt, and have elected to account for the Series X Preferred Stock liability under the fair value option. The fair value of the Series X Preferred Stock liability represents the present value of estimated future payments, including royalty payments, as well as estimated payments that are contingent upon the achievement of specified milestones. The fair value of the Series X Preferred Stock liability is based on the cumulative probability of the various estimated payments. The fair value measurement is based on significant Level 3 unobservable inputs such as estimated sales proceeds related to the PRV, the relevant market size, the estimated probability of regulatory success rates, anticipated patent protection, expected pricing, expected treated population, sales by region, estimated royalty payments and discount rate . Any changes in the fair value of the liability in the reporting periods are recognized in the consolidated statement of operations until it is settled.

Research and Development Prepayments, Accruals and Related Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued and prepaid expenses for research and development activities performed by third parties, including CROs clinical investigators and our research collaboration partners. These estimates are made as of the reporting date of the work completed over the life of the individual study in accordance with agreements established with CROs and clinical trial sites. Some CROs invoice us on a monthly basis, while others invoice upon achievement of milestones and the expense is recorded as services are rendered. We determine the estimates of research and development activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers and research collaboration partners as to the progress or stage of completion of trials or services, as of the end of each reporting period, pursuant to contracts with clinical trial centers and CROs and the agreed upon fee to be paid for such services. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Clinical trial site costs related to patient enrollments are recorded as patients are entered into the trial.

Stock-Based Compensation

We recognize all share-based payments to employees and directors as expense in our statements of operations based on their fair values. We record compensation expense over an award’s requisite service period, or vesting period, based on the award’s fair value at the date of grant. Our policy is to charge the fair value of stock options as an expense, adjusted for forfeitures, on a straight-line basis over the vesting period, which is generally four years for employees and one year for directors.

We use the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes option pricing model relies on a number of key assumptions to calculate estimated fair values, including assumptions as to average risk-free interest rate, expected dividend yield, expected life, and expected volatility. For the assumed risk-free interest rate, we use the U.S. Treasury security rate with a term equal to the expected life of the option. Our assumed dividend yield of zero is based on the fact that we have never paid cash dividends to

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common stockholders and have no present intention to pay cash dividends. We use an expected option life based on actual experience. Our assumption for expected volatility is based on the actual stock-price volatility over a period equal to the expected life of the option.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, or if we decide to use a different valuation model, the stock-based compensation expense we recognize in future periods may differ significantly from what we have recorded in the current period and could materially affect our loss from operations, net income (loss) and earnings (loss) per share. It may also result in a lack of comparability with other companies that use different models, methods, and assumptions. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. These characteristics are not present in our option grants. Although the Black-Scholes option pricing model is widely used, existing valuation models, including the Black-Scholes option pricing model, may not provide reliable measures of the fair values of our stock-based compensation.

New Accounting Pronouncements

New accounting pronouncements are discussed in Note 2 of the notes to our consolidated financial statements appearing elsewhere in this Form 10-K.