ALGS US Equity☆

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 in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Special note regarding forward-looking statements” and “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on December 31 each year.

Overview

We are a clinical-stage biopharmaceutical company focused on developing novel therapeutics to address unmet medical needs in viral and liver diseases. We utilize our proprietary oligonucleotide and small molecule platforms to develop pharmacologically optimized drug candidates for use in combination regimens designed to achieve improved treatment outcomes. Our lead effort is to develop a functional cure for Chronic Hepatitis B (CHB), which often results in life-threatening conditions such as cirrhosis, end-stage liver disease (ESLD) and the most common form of liver cancer, hepatocellular carcinoma (HCC). The most widely used treatment for CHB, nucleos(t)ide analogs, suppresses viral replication but only achieves low rates of functional cure and often requires long-term administration. To address this issue, we have developed a portfolio of differentiated drug candidates for CHB, including a small molecule Capsid Assembly Modulator (CAM) and oligonucleotides (Antisense Oligonucleotides (ASO) and Small Interfering Ribonucleic Acids (siRNA)), each of which is designed against clinically validated targets in the Hepatitis B Virus (HBV) life cycle. We are also exploring approaches towards boosting immune response with the use of small molecule antagonists of the PD1/PD-L1 interaction. We believe that combination regimens utilizing our portfolio of CHB drug candidates may lead to higher rates of functional cure.

Initial Phase 1a studies in healthy volunteers (HVs) for our CAM and ASO drug candidates have been completed and Phase 1b dose range studies evaluating the safety, pharmacokinetics and antiviral activity of these drugs in CHB patients are ongoing. For the CAM drug candidate, ALG-000184, preliminary data as of January 28, 2022, in bothHVs and CHB subjects indicate the drug has a predictable, dose proportional pharmacokinetic (PK) profile and was well tolerated after up to 28 days of oral daily dosing. Specifically, one unrelated serious adverse event (SAE) (hospitalization for management of pre-existing back pain) and no treatment emergent adverse events (TEAEs) leading to discontinuation have been reported and no concerning TEAEs, laboratory abnormalities, or other safety assessments have been identified by the study’s safety committee. Preliminary antiviral activity data through completion of dosing (i.e., 28 days) are available in cohorts of Hepatitis B E-antigen (HBeAg) negative subjects (100 mg (Cohort 1) and 50 mg (Cohort 2)) and HBeAg positive subjects (100 mg (Cohort 4)). ALG-000184 was observed to have similar levels of activity at 50-100 mg doses in Cohorts 1-2, where both doses achieved HBV DNA and HBV RNA reductions of approximately 3-4 log10 IU/mL and approximately 1.5-2 log10 copies/mL, respectively. In both of these cohorts, HBV DNA and HBV RNA levels fell below the lower limit of quantitation (LLOQ) in ≥75% and 100% of subjects, respectively. In Cohort 4 (HBeAg positive subjects receiving 100 mg ALG-000184), HBV DNA and HBV RNA declined by >4 log10 IU/mL and >3 log10 copies/mL, respectively, with no plateauing of the antiviral effect throughout dosing. Enrollment in Cohorts 3 (10 mg for 28 days in HBeAg negative CHB) and 5 (300 mg for 28 days in HBeAg positive CHB) is ongoing with topline data planned to be presented at a scientific conference in mid-2022. In order to understand the effects of longer-term dosing with ALG-000184 on viral markers (e.g., HBV DNA, HBV RNA, HBsAg, and HBeAg) as well as safety, the Phase 1 protocol has been amended to add Part 4, which is planned to dose HBeAg positive subjects for 12 weeks at the 100 mg and 300 mg dose levels in combination with a nucleos(t)ide analog. Dosing in Part 4 is expected to be completed during the fourth quarter of 2022.

For the ASO drug candidate, ALG-020572, dosing in HVs is complete. After reviewing preliminary data through Cohort 4 (480 mg given subcutaneously (SC)), the highest dose evaluated, the study’s safety committee identified no concerning findings. Based on the drug’s acceptable safety and PK profile to date, dosing in Part 2, which is evaluating multiple SC doses (7 doses given over 29 days) in CHB patients, was initiated at the 210 mg dose level. Enrollment in the first cohort of CHB subjects is complete. Preliminary data, including antiviral activity, through multiple cohorts in Part 2 are anticipated to be shared at a scientific conference in the fourth quarter of 2022.

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Our preclinical activities to advance our siRNA targeted against HBV are ongoing, with the clinical trial application (CTA) filing for ALG-125755 on-track for the first half of 2022 and dosing in HVs set to begin in the third quarter of 2022.

If our CHB drug candidates are advanced from Phase 1 into Phase 2 development, we plan in 2023 to initiate a Phase 2 platform study to evaluate the safety and efficacy of various combinations of our CAM, ASO, and siRNA drug candidates with or without additional drugs with alternative mechanisms of action.

Finally, note that our CHB portfolio previously included the drug candidate, ALG-010133, one of our proprietary S-antigen Transport-inhibiting Oligonucleotide Polymers (STOPSTM) drug candidates that was in a Phase 1b dose range finding trial (NCT04485663) evaluating subjects with CHB. In January 2022, we announced that we halted further development of ALG-010133 based on data from the Phase 1b trial, which indicated there was insufficient antiviral activity to warrant further development.

Our second area of focus is in non-alcoholic steatohepatitis (NASH), a complex, chronic liver disease where combination regimens may likewise prove beneficial. Our most advanced drug candidate for NASH is

ALG-055009, a small molecule THR-ß agonist. This drug candidate is being evaluated in a Phase 1a/1b study in HVs (oral single ascending doses) and subjects with hyperlipidemia (14 oral daily doses); dosing in both populations is currently underway. Topline data, including safety, PK, and anti-lipid effects in hyperlipidemic subjects are anticipated in the third quarter of 2022. Based on the previously demonstrated effects of other thyromimetics on liver fat, noninvasive markers of nonalcoholic fatty liver disease (NAFLD)/NASH, and liver histology in NASH patients, we believe ALG-055009 has the potential to become an integral component of future combination regimens for NASH.

Our third area of focus is to develop drug candidates with pan-coronavirus activity, including against Severe Acute Respiratory Syndrome coronavirus 2 (SARS-CoV-2), the virus responsible for COVID-19. Our efforts to identify a coronavirus therapeutic are focused on a small molecule approach, where we are exploring coronavirus protease inhibitors in collaboration with Katholieke Universiteit Leuven (KU Leuven), the Center for Innovation and Stimulation of Drug Discovery (CISTIM) and the Centre for Drug Design and Discovery (CD3).

In October 2020, we completed our initial public offering (IPO) and issued 10,000,000 shares of our common stock at a price to the public of $15.00 per share for net proceeds of $135.4 million, after deducting underwriting discounts and commissions of $10.5 million and estimated expenses of $4.1 million. In connection with the IPO, all shares of Series A, Series B-1 and Series B-2 redeemable convertible preferred stock converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million, after deducting underwriting discounts and commissions of $1.2 million. Prior to our IPO, we had received gross proceeds of approximately $186.9 million from sales of our preferred stock and our issuance of convertible debt.

In July 2021, we completed a follow-on offering and issued 4,400,000 shares of our common stock at a price to the public of $19.00 per share for net proceeds of $77.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

We have incurred net losses and negative cash flows from operations in each year since our formation in February 2018. Our net losses were $128.3 million and $108.5 million for the years ended December 31, 2021 and 2020, respectively. We have had no revenue from product sales. As of December 31, 2021, we had an accumulated deficit of $303.1 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. Our net operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of our clinical trials and nonclinical studies and our other research and development expenses. We have no internal manufacturing capabilities or sales force and outsource a substantial portion of our clinical trial work to third parties.

Components of our results of operations

Operating expenses

Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.

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Research and development expenses

We rely substantially on third parties to conduct our discovery activities, nonclinical studies, clinical trials and manufacturing. We primarily estimate research and development expenses based on estimates of services performed and rely on third party contractors and vendors to provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates. A portion of our research and development expenses are based on contractual milestones. Research and development costs consist primarily of costs incurred for the identification and development of our drug candidates through our technology platforms, which include:

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salaries, benefits and other employee-related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

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costs of outside consultants, including their fees, and related travel expenses;

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costs associated with in-process research and development, including license fees and milestones paid to third-party collaborators for technologies with no alternative use;

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costs related to production of clinical materials, including fees paid to contract manufacturers;

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expenses incurred under agreements with collaborators that perform nonclinical activities;

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costs related to compliance with regulatory requirements; and

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facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.

We expense research and development costs as the services are performed or the goods are received. Non-refundable payments for goods or services that will be used for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed until it is no longer expected that the goods will be delivered, or the services will be rendered.

We expect our research and development costs to increase in future periods as we continue to invest in research and development activities and advance our nonclinical and clinical programs through clinical development. The process of conducting nonclinical studies and, eventually, clinical trials necessary to obtain regulatory approval is costly and time consuming, and the successful development of our drug candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or clinical trials or if and to what extent we will generate revenue from the commercialization and sale of any of our drug candidates.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs not otherwise classified as research and development costs.

We expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our drug candidates. We also expect to incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing rules and requirements of the Securities and Exchange Commission (the SEC), director and officer insurance costs, and investor and public relations costs.

Interest and other (expense) income, net

Interest and other (expense) income, net comprises interest (expense) income, net and other income (expense), net. Interest income (expense), net primarily consists of interest earned on our cash, cash equivalents, and investments and interest expense related to our convertible preferred stock liability and warrants. Other (expense) income, net consists primarily of the change in fair value of our derivative liabilities.

We classified our warrants and the commitment to sell redeemable convertible preferred stock as liabilities on

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our consolidated balance sheets and recorded changes in fair value at each balance sheet date with the corresponding change recorded as other income (expense), net. Prior to our IPO, all outstanding warrants were exercised for the issuance of shares of common stock and, upon that exercise, such warrants were no longer outstanding. Similarly, the redeemable convertible preferred stock liability was converted to common stock.

We do not anticipate other (expense) income, net to fluctuate in the future due to the conversion of the redeemable convertible preferred stock liability prior to our IPO.

Provision for income taxes

Since our inception in 2018, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2021, we had federal net operating loss (NOL) carryforwards of $255.9 million available to reduce taxable income and these NOLs can be carried forward indefinitely. We have state NOL carryforwards of $263.0 million as of December 31, 2021, available to reduce future state taxable income, which expire at various dates beginning in 2038. As of December 31, 2021, the Company had $1.5 million of Australia NOL carryforwards, which carryforward indefinitely. As of December 31, 2021, we also had federal and state research and development tax credit carryforwards of $6.1 million and $3.0 million, respectively. The federal development tax credit carryforwards begin to expire in 2038, while the state development tax credit carryforwards can be carried forward indefinitely. Under Sections 382 and 383 of the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period), 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. We performed an IRC Section 382 analysis in 2021 and determined there was an ownership change that resulted in Section 382 limitations. The ownership change limited our ability to utilize net operating losses against future taxable income but will not result in the expiration of any NOLs. We may in the future experience ownership changes as a result of changes in our stock ownership (some of which are not in our control). In addition, under current tax law, federal NOL carryforwards generated in periods after December 31, 2017, may be carried forward indefinitely but, in taxable years beginning after December 31, 2020, may only be used to offset 80% of our taxable income. For these reasons, our ability to utilize our NOL carryforwards and other tax attributes to reduce future tax liabilities may be limited.

Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our operating expenses for the years ended December 31, 2021 and 2020:

Consolidated Statements of Operations Data: 2021 2020 Change

(in thousands) $ %

Revenue from collaborations $ 4,359 $ — $ 4,359 — %

Operating expenses:

Interest and other income (expense), net

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Research and development expenses

Research and development expenses were $104.2 million for the year ended December 31, 2021, compared to $79.9 million for the year ended December 31, 2020, an increase of $24.3 million. The increase was due to an increase of $8.3 million of additional employee-related costs, of which $6.2 million related to stock-based compensation. Additionally, we had an increase of $10.5 million in third-party expenses for our nonclinical programs and the continued increase in expenditures related to research, development and manufacturing activities associated with our CAM, ASO and STOPs, clinical trial activities, as well as activities related to our NASH program (we have discontinued our STOPs program in the first quarter of 2022, refer to Note 16, Subsequent Events for further details). In addition, we had higher facilities and related expenses allocated to research and development in 2021.

General and administrative expenses

General and administrative expenses were $28.5 million for the year ended December 31, 2021, compared to $17.9 million for the year ended December 31, 2020, an increase of $10.6 million. The increase was primarily due to an increase of $6.4 million of additional employee-related costs, of which $4.3 million related to stock-based compensation. In addition, we had a $4.0 million increase in third-party expenses primarily due to increased administrative and legal costs and an increase in of $2.6 million for D&O insurance, all to support our status as a public company, partially offset by a decrease in facilities and related expenses allocated to general and administrative cost centers in 2021.

Interest income, net

Interest income, net decreased to $0.2 million for the year ended December 31, 2021 from $1.3 million for the year ended December 31, 2020, a decrease of approximately $1.0 million, primarily due to the change in our portfolio of cash equivalents, short-term and long-term investments as well as a general decrease in market interest rates during the year ended December 31, 2021.

Other (loss) income, net

Other (loss) income, net was a loss of $0.1 million for the year ended December 31, 2021 compared to a loss of $11.8 million for the year ended December 31, 2020, a difference of $11.7 million. The difference was due primarily to the prior year loss recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities prior to our IPO.

Liquidity and capital resources

Liquidity

We have incurred net losses since inception. We have not generated any revenue from product sales or any other sources and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at least several years, if ever.

Our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock, net proceeds from our IPO, and the issuance of convertible debt. In October 2020, we issued an aggregate of 3,569,630 shares of our Series B-2 redeemable convertible preferred stock in the second tranche of our Series B convertible preferred stock financing for aggregate proceeds of $40.0 million. On October 20, 2020, we closed our IPO and issued 10,000,000 shares of our common stock at a price to the public of $15.00 per share for net proceeds of $135.4 million, after deducting underwriting discounts and commissions of $10.5 million and expenses of $4.1 million. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million, after deducting underwriting discounts and commissions of $1.2 million. In July 2021, we completed a follow-on offering and issued 4,400,000 shares of our common stock at a price to the public of $19.00 per share for net proceeds of $77.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

As of December 31, 2021, we had cash, cash equivalents and investments of $205.8 million.

Capital resources

Our primary use of cash is to fund operating expenses, which consist primarily of research and development costs related to our drug candidates and our discovery programs, and to a lesser extent, general and administrative

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expenditures. We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to our most advanced drug candidate ALG-000184, which we have initiated clinical trials, as well as our research and development of our other drug candidates within our CHB, NASH and coronavirus programs.

In addition, we are incurring additional costs associated with operating as a public company following our IPO in October 2020. We expect that our expenses will increase substantially to the extent we:

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conduct our current and future clinical trials, and additional nonclinical studies;

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initiate and continue research and nonclinical and clinical development of other drug candidates;

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seek to identify additional drug candidates;

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pursue marketing approvals for any of our drug candidates that successfully complete clinical trials, if any;

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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

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require the manufacture of larger quantities of our drug candidates for clinical development and potentially commercialization;

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obtain, maintain, expand, protect and enforce our intellectual property portfolio;

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acquire or in-license other drug candidates and technologies;

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hire and retain additional clinical, quality control and scientific personnel;

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achieve milestones triggering payments by us under our current and potential future licensing and/or collaboration agreements;

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build out or expand existing facilities to support our ongoing development activity; and

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add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to becoming a public company.

We believe that our existing cash, cash equivalents and investments will enable us to fund our planned operating expenses and capital expenditure requirements through at least the twelve months from the date of issuing our financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Furthermore, we may elect to raise additional capital on an opportunistic basis to fund operations.

Because of the numerous risks and uncertainties associated with our research and development programs and because the extent to which we may enter into collaborations with third parties for development of our drug candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our drug candidates. Our future capital requirements will depend on many factors, including:

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the scope, progress, results and costs of researching and developing our drug candidates and programs, and of conducting nonclinical studies and clinical trials;

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the timing of, and the costs involved in, obtaining marketing approvals for drug candidates we develop if clinical trials are successful;

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the cost of commercialization activities for our current drug candidates, and any future drug candidates we develop, whether alone or in collaboration, including marketing, sales and distribution costs if our current drug candidates or any future drug candidate we develop is approved for sale;

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the cost of manufacturing our current and future drug candidates for clinical trials in preparation for marketing approval and commercialization;

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our ability to establish and maintain strategic licenses or other arrangements and the financial terms of such agreements;

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the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

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the timing, receipt and amount of sales of, or profit share or royalties on, our future products, if any;

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the emergence of competing therapies for hepatological indications and viral diseases and other adverse market developments; and

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any acquisitions or in-licensing of other programs or technologies.

Developing pharmaceutical products, including conducting nonclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any drug candidates or generate revenue from the sale of any drug candidate for which we may obtain marketing approval. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of a common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely constrain our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute ownership interest.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Net cash (used in) operating activities $ (115,662 ) $ (74,263 )

Net cash provided by investing activities 3,022 32,755

Net cash provided by financing activities 78,677 192,348

Operating activities

During Fiscal 2021, operating activities used $115.7 million of cash, primarily resulting from our net loss of $128.3 million and cash used as a result of changes in our operating assets and liabilities of $4.7 million, partially offset by non-cash charges of $17.3 million. Net cash used as a result of changes in our operating assets and liabilities of $4.7 million consisted of an increase in other assets of $8.1 million, a decrease of $4.4 million in deferred revenue from collaborations, a decrease of $1.4 million in operating lease liabilities, a decrease of $0.3 million in accounts payable and a decrease of $0.2 million in other liabilities, partially offset by an increase in accrued liabilities of $9.7 million. The increase in other assets resulted from advances for clinical trial costs and deposits for manufacturing slot reservation fees. The decrease in deferred revenue from collaborations was a result of recognition of revenue from collaborations due to progress towards the completion of the project. Operating lease liabilities decreased due to contractual lease payments, and the increase in accrued liabilities was due primarily due

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to a ramp in manufacturing activities for various drug compounds that are expected to be consumed in future clinical trials.

During Fiscal 2020, operating activities used $74.3 million of cash, primarily resulting from our net loss of $108.5 million, partially offset by non-cash charges of $18.2 million and cash provided by changes in our operating assets and liabilities of $16.1 million. Net cash provided by changes in our operating assets and liabilities of $16.1 million consisted of an increase of $9.4 million in accounts payable and accrued liabilities, an increase of $12.0 million in deferred revenue, partially offset by an increase of $4.1 million in other current assets and a decrease of $1.3 million in operating lease liability. The increase in accounts payable and accrued liabilities was largely due to an increase in external research and development costs. The increase in other assets was largely due to an increase in prepayments for services. The decrease in operating lease liability was a result of payments made on outstanding lease obligations.

Investing activities

During Fiscal 2021, investing activities provided $3.0 million of cash, consisting primarily of $23.0 million of investment maturities, offset by $19.1 million of investment purchases and $0.9 million of purchases of property and equipment.

During Fiscal 2020, investing activities provided $32.8 million of cash, consisting primarily of $80.1 million of investment maturities, offset by $45.3 million of investment purchases and $2.1 million of purchases of property and equipment.

Financing activities

During Fiscal 2021, net cash provided by financing activities was $78.7 million, consisting primarily of $78.6 million in proceeds from our follow-on offering, net of issuance costs, and $1.0 million from the issuance of common stock from the exercise of employee stock options and the issuance of shares through our employee stock purchase plan. The cash provided was partially offset by costs related to our follow-on offering of $0.9 million and payments for our capital leases of $0.1 million.

During Fiscal 2020, net cash provided by financing activities was $192.3 million, consisting primarily of $155.5 million in net proceeds from the initial public offering and underwriters exercise of the overallotment option and $41.1 million in proceeds from the issuance of redeemable convertible preferred stock, partially offset by $4.1 million in payments of deferred offering costs.

Contractual obligations and commitments

Our principal commitments consist of obligations under our operating leases for office space in South San Francisco, California, and Belgium, and finance lease commitments representing obligations related to vehicle leases for employees and a lease for lab equipment. All of our finance leases are for assets in Belgium. We do not have any material purchase commitments for contracts with fixed or minimum service requirements. We also enter into contracts in the normal course of business with various vendors that generally provide for contract termination following a certain notice period. The Company enters into contracts in the normal course of business that includes arrangements with clinical research organizations, vendors for preclinical research and vendors for manufacturing. These agreements generally allow for cancellation with notice. As of December 31, 2021, the Company had non-cancellable purchase commitments of approximately $1.9 million related to the discontinued development of STOPSTM drug candidate. Refer to note 16, Subsequent Events, for further details.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Indemnification agreements

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never

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incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

Critical accounting estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and the disclosure of assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on relevant assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Accrued research and development costs

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of clinical trials and nonclinical studies. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These expenses are a significant component of our research and development costs. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordance with agreements established with these third-party service providers. Any payments made in advance of services provided are recorded as prepaid expenses and other assets, which are expensed as the contracted services are performed.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed could vary from actuals and result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. For the periods presented, we have experienced no material differences between our accrued expenses and actual expenses.

Research and development expenses

We expense research and development costs as incurred. Acquired intangible assets are expensed as research and development if, at the time of payment, the technology is under development; is not approved by the U.S. Food and Drug Administration or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable alternative future use.

Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, and third-party license fees. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are expensed as incurred. In-process research and development (IPR&D) expense represents the costs to acquire technologies to be used in research and development that have not reached technological feasibility or have no alternative future uses and thus are expensed as incurred. IPR&D expense also includes upfront license fees and milestones paid to collaborators for technologies with no alternative use.

Stock-based compensation

We measure stock options and other stock-based awards granted to employees, directors and other service providers based on their fair value on the date of grant and recognize compensation expense of those awards over

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the requisite service period, which is generally the vesting period of the respective award. We recognize the impact of forfeitures on stock-based compensation expense as forfeitures occur. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions. During the year ended December 31, 2021, we did not grant any stock-based awards with performance-based vesting conditions. During the year ended December 31, 2020, we granted stock-based awards with performance-based vesting conditions. We recognize compensation expense related to these awards when it is determined that satisfying the performance conditions is probable using the accelerated attribution method over the requisite service period.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective assumptions including:

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Expected term—We have opted to use the “simplified method” for estimating the expected term of plain-vanilla options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years). We estimated the expected term of performance-based vesting options based on the expected life of the options to remain outstanding, which is estimated to be materially consistent with time-vesting options.

•

Risk-free interest rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

•

Expected dividend—We have not issued any dividends and do not anticipate to issue dividends on our common stock. As a result, we have estimated the dividend yield to be zero.

•

Expected volatility—Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Emerging growth company status

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” (an EGC) can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an EGC; however, we may adopt certain new or revised accounting standards early.

We will remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided to EGCs by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an EGC, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) or (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

Recently issued and adopted accounting pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

Our cash, cash equivalents and investments of $205.8 million as of December 31, 2021, consist of bank deposits, money market funds, certificates of deposit and US Treasury available-for-sale securities. We are exposed to market risk related to changes in interest rates applicable to our investment portfolio of cash equivalents and short-term and long-term investments. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Should U.S. interest rates decline, interest income would be reduced in future periods for short- and long-term investments which mature and the proceeds of which are reinvested in similar instruments at lower interest rates. Additionally, the fair value of our short-term and long-term investments is subject to change as a result of potential changes in market interest rates, including changes resulting from the impact of the COVID-19 pandemic. As of December 31, 2021, we estimate that a hypothetical 100 basis point adverse movement would not result in a material impact on our financial position or results of operations or cash flows.

Foreign currency exchange risk

We have employees and operations, including contracts with third-party vendors, in Europe through our subsidiary Aligos Belgium BVBA. We have similar, but more limited, operations in Australia and China. Though the functional currency in these locations is the U.S. dollar, we remeasure transactions initially recorded in local currencies in these locations, the Euro, Australian dollar and Chinese Yuan, respectively, to the U.S. dollars periodically. As such, we are exposed to foreign currency exchange risk as the underlying contracts to pay employees or vendors in these locations are generally denominated in the local currencies. A decline in the value of the U.S. dollar relative to these currencies would increase our cost of doing business in these locations. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our financial position or results of operations or cash flows.

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Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID 42) 117

Consolidated Balance Sheets 118

Consolidated Statements of Operations and Comprehensive Loss 119

Consolidated Statements of Cash Flows 121

Notes to Consolidated Financial Statements 123

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Aligos Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Aligos Therapeutics, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.

Redwood City, California

March 10, 2022

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Consolidated balance sheets

(In thousands, except share and per share data)

December 31, December 31,

ASSETS

Current assets:

Operating lease right-of-use assets 8,789 6,901

Long-term investments 15,110 —

LIABILITIES, PREFERRED STOCK,

AND STOCKHOLDERS’ EQUITY

Current liabilities:

Operating lease liabilities, current 2,769 2,442

Finance lease liabilities, current 138 64

Deferred Revenue from collaborations, current 7,641 7,891

Operating lease liabilities, net of current portion 11,287 10,371

Finance lease liabilities, net of current portion 261 130

Deferred revenue from collaborations — 4,109

Commitments and contingencies (Note 13)

Stockholders’ equity:

Accumulated other comprehensive income (loss) 452 (188 )

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated statements of operations and comprehensive loss

(In thousands, except share and per share data)

Year EndedDecember 31, Year EndedDecember 31,

Revenue from collaborations $ 4,359 $ —

Operating expenses:

Interest and other (expense) income, net 132 (10,548 )

Income tax expense (143 ) (161 )

Other comprehensive (loss) and income:

Gain (loss) on pension plans 749 (141 )

(Loss) gain on available for sale investments (109 ) 68

Net loss per share, basic and diluted $ (3.22 ) $ (10.87 )

Weighted average shares of common stock, basic and diluted 39,855,403 9,988,191

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit)

(In thousands, except share and per share data)

Vesting of early exercised common stock — — — — — — — — 363 — — 363

Costs related to the IPO and Greenshoe — — — — — — — — (4,116 ) — — (4,116 )

Stock-based compensation — — — — — — — — 2,975 — — 2,975

Other comprehensive loss — — — — — — — — — — (73 ) (73 )

Issuance of common stock under employee stock purchase plan 45,610 — 653 — — 653

Costs related to the follow-on offering — — — — — — — — (875 ) — — (875 )

Vesting of early exercised common stock — — — — — — — — 292 — — 292

Other comprehensive loss — — — — — — — — — — 640 640

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated statements of cash flows

(In thousands)

Year EndedDecember 31, Year EndedDecember 31,

Cash flows from operating activities:

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

Accretion of discount on short term investments 86 234

Amortization of right of use assets 759 590

Change in fair value of derivative liability — 296

Change in fair value of convertible preferred stock liabilities — 11,387

Changes in operating assets and liabilities:

Operating lease liabilities (1,404 ) (1,266 )

Other liabilities (245 ) —

Deferred revenue from collaborations (4,359 ) 12,000

Cash flows from investing activities:

Purchases of short-term investments (2,696 ) (32,097 )

Purchases of long-term investments (16,390 ) (13,184 )

Purchases of property and equipment (892 ) (2,064 )

Net cash and cash equivalents provided by investing activities $ 3,022 $ 32,755

Cash flows from financing activities:

Payments on finance lease (79 ) (58 )

Payments of deferred offering costs (875 ) (4,116 )

Payments of Series B-1 issuance cost — (405 )

Proceeds from the issuance of common stock under employee stock plans 1,047 260

Cash, cash equivalents, and restricted cash, beginning of period 220,943 70,103

Cash, cash equivalents, and restricted cash, end of period $ 186,980 $ 220,943

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated statements of cash flows (Continued)

(In thousands)

Year EndedDecember 31, Year EndedDecember 31,

Reconciliation to amounts on the consolidated balance sheet:

Total cash, cash equivalents, and restricted cash $ 186,980 $ 220,943

Supplemental disclosures of cash flow information:

Interest paid $ — $ —

Income taxes paid $ — $ —

Supplemental disclosures of noncash financing and investing activities:

Leasehold improvement directly paid by landlord $ — $ 79

Mark to market adjustments for available-for-sale investments $ (109 ) $ 68

Equipment acquired through finance lease $ 284 $ —

Vesting of early exercised options $ 292 $ 363

Acquisition of right-of-use asset through operating lease obligation $ 2,647 $ —

PP&E purchase still in accounts payable $ 15 $ 82

Change in pension obligation $ 749 $ (141 )

Change in fair value of derivative liability upon exercise of warrants $ — $ 757

The accompanying notes are an integral part of these consolidated financial statements.

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Aligos Therapeutics, Inc.

Notes to consolidated financial statements

Unless otherwise indicated, financial information except share and per share data, including dollar values stated in the text of the notes to financial statements, is expressed in dollars.

1. Organization

Description of business

Aligos Therapeutics, Inc. (Aligos-US) was incorporated in the state of Delaware on February 5, 2018 (inception). On September 10, 2018, the Company formed Aligos Belgium BVBA (the Subsidiary or Aligos-Belgium). On March 30, 2020, the Company formed as a wholly owned subsidiary, Aligos Australia Pty LTD (Aligos-Australia), a proprietary limited company. On May 18, 2021, the Company formed as a wholly owned subsidiary, Aligos Therapeutics (Shanghai) Co. Ltd. (Aligos-Shanghai) and together with Aligos-US, Aligos-Belgium, and Aligos-Australia being the Company or Aligos.

Aligos is a clinical-stage biopharmaceutical company developing novel therapeutics to address unmet medical needs in viral and liver diseases, including chronic hepatitis B and coronaviruses and therapeutics for nonalcoholic steatohepatitis (NASH).

The Company is devoting substantially all of its efforts to the research and development of its drug candidates. The Company has not generated any product revenue to date. The Company is also subject to a number of risks similar to other companies in the biotechnology industry, including the uncertainty of success of its preclinical studies and clinical trials, regulatory approval of drug candidates, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third-parties, product liability, and dependence on key individuals.

Reverse stock split

On October 8, 2020, the Company’s board of directors approved a 1-for-9.3197 reverse stock split (the Reverse Stock Split) of the Company’s common stock and redeemable convertible preferred stock to be consummated prior to the effectiveness of the Company’s planned initial public offering (IPO). The par value and authorized shares of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented. The Company filed an amended and restated certificate of incorporation in Delaware on October 9, 2020 that automatically effectuated the Reverse Stock Split without any further action required.

Initial public offering

On October 20, 2020, the Company closed its IPO and issued 10,000,000 shares of its common stock at a public offering price of $15.00 per share for net proceeds of $135.4 million, after deducting underwriting discounts and commissions of $10.5 million and expenses of $4.1 million. In connection with the IPO, all shares of Series A redeemable convertible preferred stock (Series A), Series B-1 redeemable convertible preferred stock (Series B‐1) and Series B-2 redeemable convertible preferred stock (Series B-2) converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million in net proceeds, after deducting underwriting discounts and commissions of $1.2 million.

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Liquidity

The Company has incurred losses and negative cash flows from operations since its inception. As of December 31, 2021 and 2020, the Company has an accumulated deficit of approximately $303.1 million and $174.7 million, respectively. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of expanded research and development activities.

As of December 31, 2021, the Company has unrestricted cash, cash equivalent and investments of approximately $205.8 million, which is available to fund future operations. The Company expects to continue to spend substantial amounts to continue the nonclinical and clinical development of its current and future programs. If the Company is able to gain marketing approval for drug candidates that are being developed, it will require significant additional amounts of cash in order to launch and commercialize such drug candidates. In addition, other unanticipated costs may arise. Because the design and outcome of the Company’s planned and anticipated clinical trials is highly uncertain, the Company cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any drug candidate the Company may develop.

The Company expects to finance its cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. In addition, the Company may seek additional capital to take advantage of favorable market conditions or strategic opportunities even if the Company believes it has sufficient funds for its current or future operating plans. Based on the Company’s research and development plans, it is expected that the Company’s existing cash, cash equivalents and investments, will enable the Company to fund its operations for at least 12 months following the date the consolidated financial statements are issued. However, the Company’s operating plan may change as a result of many factors currently unknown, and the Company may need to seek additional funds sooner than planned. Moreover, it is particularly difficult to estimate with certainty the Company’s future expenses given the dynamic nature of its business, the COVID-19 pandemic and the macro-economic environment generally.

The Company’s ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond its control. In particular, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists or deepens, the Company could be unable to access additional capital, which could negatively affect its ability to consummate certain corporate development transactions or other important, beneficial or opportunistic investments. If additional funds are not available to the Company when needed, on terms that are acceptable to the Company, or at all, the Company may be required to: delay, limit, reduce or terminate nonclinical studies, clinical trials or other research and development activities or eliminate one or more of its development programs altogether; or delay, limit, reduce or terminate its efforts to establish manufacturing and sales and marketing capabilities or other activities that may be necessary to commercialize any future approved products, or reduce the Company’s flexibility in developing or maintaining its sales and marketing strategy.

2. Summary of significant accounting policies

The accompanying consolidated financial statements have been prepared on a basis that contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

Risks and uncertainties

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability. Drug candidates currently under development will require significant additional research and development efforts, including extensive nonclinical and clinical testing and regulatory approval.

Moreover, it is particularly difficult to estimate with certainty the Company’s future expenses given the dynamic nature of its business, the COVID-19 pandemic and the macro-economic environment generally.

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include all adjustments necessary for the fair presentation of the

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Company’s financial position for the periods presented. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (ASC), and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB).

Principles of consolidation

The accompanying consolidated financial statements include Aligos-US and its wholly owned subsidiaries Aligos-Belgium, Aligos-Australia and Aligos-Shanghai. All intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP generally requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets and liabilities, at the dates of the consolidated financial statements and the reported amounts of expenses during the reporting period. Areas where management uses subjective judgments include, but are not limited to, right-of-use assets, lease obligations, impairment of long-lived assets, stock-based compensation, accrued research and development costs, revenue from collaborations, deferred revenue, redeemable convertible preferred stock liability and pension liabilities in the accompanying consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions 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 materially from these estimates under different assumptions or conditions.

Deferred offering costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated, including the Company’s July 2021 follow-on offering and issuance of 4,400,000 shares of the Company’s common stock at a price to the public of $19.00 per share for net proceeds of $77.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. After consummation of the financing, these costs are recorded as a reduction of the proceeds received from the equity financing. If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. There were no deferred offering costs recorded within other assets on the Company’s consolidated balance sheets as at each of December 31, 2021 and 2020.

Foreign currency

The Company’s foreign subsidiaries use the U.S. dollar as their functional currency, and they initially measure the foreign currency denominated assets and liabilities at the transaction date. Monetary assets and liabilities are then re-measured at exchange rates in effect at the end of each period, and non-monetary assets and liabilities are converted at historical rates. A re-measurement loss was recognized during the year ended December 31, 2021 of $6,000, and a re-measurement gain was recognized during the year ended December 31, 2020 of $121,000, and are reflected within interest and other income (expense), net on the consolidated statements of operations and comprehensive loss.

Segment information

The Company has determined that the Chief Executive Officer is its Chief Operating Decision Maker. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis for the purposes of assessing the performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment. No revenue has been generated since inception.

The Company has $5.0 million and $1.2 million of fixed assets in Aligos-US and Aligos-Belgium, respectively, as of December 31, 2021 and $6.6 million and $1.4 million of fixed assets in Aligos-US and Aligos‐Belgium, respectively as of December 31, 2020.

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Cash equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents.

Restricted cash

As of December 31, 2021 and 2020, the restricted cash balance was $0.2 million and $0.6 million, respectively, and was used primarily to secure letters of credit in relation to the Company’s operating leases and deposits on rental assets (Note 6), as well as employee withholdings for the employee stock purchase plan.

Investments

The Company generally invests its excess cash in money market funds and investment grade short-to-intermediate-term fixed income securities. Such investments are included in cash, cash equivalents, short-term and long-term investments on the consolidated Balance Sheets.

The Company determines the appropriate classification of short-term and long-term securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity, otherwise securities are classified as available-for sale. Held-to-maturity securities are carried at amortized cost. Available-for-sale debt securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale securities are reported as a separate component of stockholders’ equity. Premiums or discounts from par value are amortized to investment income over the life of the underlying investment. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income (expense), net within the consolidated statements of operations and comprehensive loss.

For both held-to-maturity and available-for-sale investments, the Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If the Company believes an impairment of a security position is other than temporary, based on available quantitative and qualitative information as of the report date, the loss will be recognized as other income (expense), net, in the Company’s consolidated statements of operations and a new cost basis in the investment is established. No impairment charges were recorded during the years ended December 31, 2021 and 2020.

As of December 31, 2021 and 2020, investments consisted of Certificates of Deposit and U.S. Treasury securities, with original maturities of up to 1.50 years.

Concentrations of credit risk and significant suppliers

The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, restricted cash and investments. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company generally invests its excess capital in money market funds, U.S. treasury bonds, U.S. treasury bills and certificates of deposit that are subject to minimal credit and market risks.

The Company is dependent on various third parties to manufacture compounds for the Company to conduct research and studies for its programs. These programs would be adversely delayed by a significant interruption in the supply of active pharmaceutical ingredients.

Leases

The Company determines if an arrangement is a lease at the inception of the lease. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities in the consolidated balance sheet. Finance leases are included in property and equipment and finance lease liabilities in the consolidated balance sheet.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the

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Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement dates in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and excludes lease incentives when paid by the Company or on the Company’s behalf. The Company’s lease terms may include the period covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company elected to not separate lease and non-lease components for all of its building leases. For vehicle leases, lease and non-lease components are accounted for separately. The Company also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and not recognize ROU assets or lease liabilities for such leases.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation, and is depreciated using the straight-line method over the estimated useful life of the asset, which are as follows:

Lab equipment 3 years

Computer equipment 3 years

Furniture and office equipment 3-8 years

Vehicles 4 years

Leasehold improvements Shorter ofthe usefullife orremaininglease term

Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of long-lived assets

The Company regularly reviews the carrying amount of its property, equipment and intangible assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable. If the carrying value of the asset exceeds such projected undiscounted cash flows, the asset will be written down to its estimated fair value. No impairment charges were recorded during the years ended December 31, 2021 or 2020.

Research and development expenses

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, and third-party license fees. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized.

In-process research and development (IPR&D) expense represents the costs to acquire technologies to be used in research and development that have not reached technological feasibility or have no alternative future uses and thus are expensed as incurred. IPR&D expense also includes upfront license fees and milestones paid to collaborators for technologies with no alternative use.

Collaborative arrangements

The Company enters into collaboration arrangements with pharmaceutical and other partners, under which the Company may grant licenses to its collaboration partners to research and develop potential drug candidates. Consideration under these contracts may include an upfront payment, development, regulatory, sales and other

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milestone payments. Contractual payments received for research and development activities performed are recognized on a gross basis in revenue from collaboration arrangements.

The Company may also perform research and development activities under the collaboration agreements where the Company may be granted licenses from its collaboration partners. Contractual payments to the other party in collaboration agreements and costs incurred by the Company are recognized on a gross basis in research and development expenses. Royalties and license payments are recorded as due.

When the Company enters into collaboration arrangements, the Company assesses whether the arrangement falls within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangement involves joint operating activities and whether both parties would be active participants and would be exposed to significant risks and rewards of the arrangement. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the parties fall within the scope of other accounting literature such as ASC 606, Revenue from Contracts with Customers (ASC 606).

During the year ended December 31, 2021, the Company made a milestone payment of $0.5 million. No royalties were due; therefore, the Company did not pay or expense any royalties. During the year ended December 31, 2020, a development milestone was met as the first patient dosing occurred and so the Company made a payment of $4.5 million. The milestone payments were included in research and development in the consolidated statement of operations. The upfront payment received during the year ended December 31, 2020 was recorded on the consolidated balance sheet as deferred revenue from collaborations.

Fair value measurements

Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Stock-based compensation

The Company’s stock-based awards consist of restricted stock awards and stock options. For stock-based awards issued to employees and nonemployees, the Company measures the estimated fair value of the stock-based awards on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective awards. The Company records expense for awards with service-based vesting using the straight-line method. The Company accounts for forfeitures as they occur.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s cash compensation costs are classified.

The fair value of each restricted stock award is determined based on the number of shares granted and the value of the Company’s common stock on the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of a number of assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and expected term of the option.

The Company determined the expected stock volatility using a weighted-average of the historical volatility of a group of guideline companies that issued options with substantially similar terms, and expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its own traded stock price.

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The expected term of the Company’s stock options has been determined utilizing the simplified method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company has not paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.

The fair value of the Company’s 2020 Employee Stock Purchase Plan (the ESPP) is determined on the date the offering period begins using a Black-Scholes option-pricing model and similar assumptions for stock options as described above.

See Note 9 for the assumptions used by the Company in determining the grant date fair value of stock-based awards granted, as well as a summary of the stock-based award activity under the Company’s stock-based compensation plan for years ended December 31, 2021 and 2020.

Income taxes

Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related interest and penalties.

Net loss per share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock, stock options, common stock subject to repurchase related to early exercise of stock options, unvested restricted stock subject to repurchase, warrants and convertible notes are considered to be potentially dilutive securities.

Accordingly, in periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Benefit plans

The Company has established a defined contribution savings plan for its employees in Aligos-US under Section 401(k) of the Internal Revenue Code, and a defined benefits plan for its employees in Aligos-Belgium.

The Company uses the standard method for the recognition of the actuarial results as described in ASC 715. This means application of a 10% corridor and amortization over the expected average remaining working lives of the employees. The plan contains benefits to the plan participant on the normal plan retirement date and benefits to the partner after death of the plan participant. This plan is recognized under ASC 715.

Recently issued accounting standards

In June 2016, the FASB issued ASU No. 2016-13. Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Currently, U.S. GAAP delays recognition of the full amount of credit losses until the loss is probable of occurring. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses will be based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2018, the FASB issued ASU No. 2018-19,

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Codification Improvements to Topic 326, Financial Instruments—Credit Losses (ASU 2018-19), which clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (ASU 2019-04), which clarifies the new expected credit loss methodology for loans, receivables and other financial assets, including recoveries and accrued interest on receivables. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (ASU 2019-11), which clarifies guidance around how to report expected recoveries. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The guidance removes specific exceptions to the general principles in ASC 740, improves application of income tax-related guidance and reduces complexity related to the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements.

From time to time, new accounting pronouncements are issued by FASB that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has the option to not “opt out” of the extended transition related to complying with new or revised accounting standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

3. Property and equipment

The components of property and equipment were as follows as of December 31, 2021 and 2020:

Furniture and office equipment 472 459

Asset under construction 22 65

Accumulated depreciation (7,262 ) (4,243 )

During the years ended December 31, 2021 and December 31, 2020, depreciation expense was $3.0 million and $2.7 million, respectively. Finance leases for vehicles and lab equipment are also included in property and equipment on the consolidated balance sheets (Note 6).

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4. Investments

As of December 31, 2021 and 2020, amortized cost, gross unrealized gains and losses, and estimated fair values of total fixed-maturity securities were as follows:

Amortized Gross Unrealized Gross Unrealized Estimated

(in thousands) Cost Gain Loss Fair Value

Held-to-maturity securities:

Available-for-sale securities:

Amortized Gross Unrealized Gross Unrealized Estimated

(in thousands) Cost Gain Loss Fair Value

Available-for-sale securities:

Changes in fair value are related to changes in market interest rates. The Company expects to collect all contractual principal and interest payments.

Amortized cost and estimated fair value of fixed-maturity securities at December 31, 2021 by contractual maturity were as follows:

(in thousands) AmortizedCost EstimatedFair Value

Amounts maturing in:

The Company recorded interest income of $0.2 million and $1.3 million, respectively, during the years ended December 31, 2021, and 2020, as a component of interest and other income (expense), net on the Company’s consolidated statement of operations and comprehensive loss.

5. Accrued liabilities

Accrued liabilities consisted of the following as of December 31:

Liability for early exercised stock options 276 569

6. Leases

The Company has operating and finance leases for corporate offices, research and development facilities, and certain vehicles and lab equipment. These leases have remaining lease terms of four to six years, some of which

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include options to extend the leases for five to eight years. The Company has determined that it is not reasonably certain to exercise the options under any leases. The lease of research and development facilities includes costs for utilities and common area maintenance which have been included in the calculation of lease payments. Differences between lease payments as measured at lease inception and variations in monthly payments will be recognized as operating expenses in the period in which the obligation is incurred. The Company entered into a new 5-year lease in the fourth quarter of 2021. The lease is for approximately 12,000 square feet of office space in South San Francisco to accommodate growth, with a renewal option for an additional 5-years, which we are not certain to renew at this time. The rental payments under the lease agreement are approximately $2.5 million over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease terms. Leases with terms greater than 12 months are included in operating lease ROU assets and operating lease liabilities in the Company’s consolidated balance sheets as of December 31, 2021 and 2020. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Maturities of lease liabilities as of December 31, 2021, were as follows:

(in thousands) OperatingLease FinanceLease

Year ending December 31:

Less: imputed interest (3,791 ) (43 )

Present value of lease liabilities 14,056 399

Less: current portion (2,769 ) (138 )

Lease liabilities net of current portion $ 11,287 $ 261

The components of lease expense were as follows for the years ended December 31, 2021 and 2020:

Finance lease cost:

Amortization of right-of-use assets 107 60

Interest on lease liabilities 15 9

Total finance lease cost $ 122 $ 69

Short-term lease cost $ 89 $ 15

The Company made payments of $2.8 million and $2.5 million during the years ended December 31, 2021, and 2020, respectively, which are included as cash flow from operations on the consolidated statements of cash flows.

As of December 31, 2021 and 2020, $608,000 and $296,000 of finance lease ROU assets, respectively, were presented as part of property and equipment on the consolidated balance sheet with accumulated amortization of $214,000 and $107,000, respectively.

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Additional information related to the Company’s leases was as follows as of December 31:

Operating Lease:

Weighted-average remaining lease term (years) 5.18 5.97

Weighted-average discount rate 9.08 % 9.35 %

Finance Lease:

Weighted-average remaining lease term (years) 3.83 2.68

Weighted-average discount rate 4.86 % 3.15 %

7. Derivative liabilities and redeemable convertible preferred stock liability

Warrants

In connection with the issuance of the Notes, Lenders were issued Warrants to purchase 134,112 shares of the Company’s capital stock. The Warrants have a coverage percentage of 25% of the principal amount of the Notes and have a ten-year expiration date from the applicable closing date of April 20, 2018 or June 6, 2018.

The underlying shares issuable upon the exercise of the Warrants were eligible to be converted into the next round of equity financing. The Warrants became exercisable into shares of Series A for an exercise price of $9.32 per share.

The Company recorded the Warrants initially at fair value (Note 10) as derivative liabilities on the consolidated balance sheet with the remaining value being allocated to the Notes as a debt discount. The fair value of the Warrants upon issuance on April 20, 2018 and June 6, 2018, was $0.7 million and $238,000, respectively. Due to the IPO in October 2020, all outstanding warrants as of December 31, 2020 were automatically exercised for the issuance of Common Stock, and following that exercise, such warrants were no longer outstanding.

As Series A contains a conditional obligation for the Company to repurchase the shares for cash consideration, the Warrants remain outstanding as derivative liabilities with changes in fair value being recorded on the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2020, the Company recorded a change in fair value of derivative liabilities $296,000.

Redeemable convertible preferred stock liability

In connection with the issuance of Series B-1 Redeemable Convertible Preferred Stock (the Series B-1) (Note 8), the Series B-1 preferred stockholders committed to purchase and the Company committed to sell 3,569,630 shares of Series B-2 Redeemable Convertible Preferred Stock (the Series B-2) at a price of $11.20563 per share in a subsequent closing, contingent upon the achievement of certain developmental milestones or a receipt of a waiver of achievement of the milestones. The Redeemable Convertible Preferred Stock Liability is considered a freestanding instrument that qualifies as a liability under ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) as the Company is committed to issue an instrument that ultimately may require a transfer of assets. The liability is accounted for at fair value and re-measured at each reporting date (Note 10). On the date of the initial closing, the Company recorded the Redeemable Convertible Preferred Stock Liability at a fair value of $3.2 million.

As of December 31, 2020, all Series B-2 shares were issued. As a result of the IPO, the Series B-2 shares converted to shares of common stock. The Company recorded a change in fair value of the liability of $11.4 million for the year ended December 31, 2020 included in interest and other (expense) income, net. The convertible preferred stock liability was retired as of the IPO.

8. Capital stock

Common stock

On October 20, 2020, the certificate of incorporation was amended to increase the total shares of Common Stock authorized for issuance to 320,000,000 and decrease the total shares of preferred stock authorized for issuance to 10,000,000 with a par value of $0.0001 per share. 300,000,000 shares of the Common Stock were designated as “Voting Common Stock” and 20,000,000 shares of the Common Stock were designated as “Non-Voting Common Stock”.

The holders of shares of voting Common Stock are entitled to one vote for each share of Common Stock at all meetings of stockholders.

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Redeemable convertible preferred stock

On August 16, 2018, the Company entered into the Series A Preferred Stock Purchase Agreement for the purchase and sale of Series A preferred stock for $9.32 per share. The Company received $75.0 million in cash proceeds from the initial purchasers. On September 19, 2018, the Company received an additional $20.0 million in cash proceeds from subsequent purchasers. Additionally, on the initial closing date, $5.6 million in convertible notes plus accrued interest converted into shares of Series A and the notes were subsequently cancelled. The Warrants associated with the convertible notes became exercisable into Series A. Each share of Series A is convertible into Common Stock on a one-for-one basis. In connection with the issuance of Series A, the Company incurred $194,000 in issuance costs which have offset amounts reported as temporary equity as of December 31, 2019. As of December 31, 2020, in connection with the Company’s IPO, all shares of Series A converted into Common Stock.

On December 23, 2019, the Company entered into the Series B-1 and Series B-2 Preferred Stock Purchase Agreement, pursuant to which the investors committed to invest an aggregate amount of up to $125.0 million for the issuance and sale of shares of Series B-1 and Series B-2 (collectively, the Series B), at a price of $10.18690 and $11.20563 per share, respectively. The Company issued 8,344,034 shares of Series B-1 for cash proceeds of $85.0 million at the initial closing on December 23, 2019. The investors also committed to purchase and the Company committed to sell 3,569,630 shares of Series B-2 in a subsequent closing (the Second Closing), contingent upon achievement by the Company of certain development milestones or a receipt of a waiver of achievement of the milestones. No shares of Series B-2 were issued as of December 31, 2019. In connection with the issuance of Series B-1, the Company incurred $442,000 in issuance costs which have offset amounts reported as temporary equity as of December 31, 2019.

Prior to the IPO, the Company issued 3,569,630 shares of Series B-2, which upon the closing of the IPO converted into common stock. In connection with the Company’s IPO, all shares of Series B-1 converted into common stock. As of December 31, 2020, there was 10,000,000 shares of preferred stock authorized and no preferred stock issued.

9. Stock-based compensation

2018 Equity incentive plan

The Company’s 2018 Equity Incentive Plan (the 2018 Plan) allows the Company to issue restricted stock awards and restricted stock units, and to grant incentive stock options or non-qualified stock options. Incentive stock options may be granted only to the Company’s employees including officers and members of the Board who are also employees. Restricted stock awards, restricted stock units and non-qualified stock options may be granted to employees, members of the Board, outside advisors, and consultants of the Company (the Participants). The Company is authorized to issue awards for 4,913,665 shares of Common Stock under the 2018 Plan. The Company has granted awards of common stock in the form of 4,279,693 shares as of December 31, 2021 with none remaining available for future grant.Following the Company’s IPO in October 2020, all remaining shares from the 2018 Plan will be available for issuance under the 2020 Plan (as defined below).

2020 Incentive award plan

The Company adopted the 2020 Incentive Award Plan (the 2020 Plan) effective October 15, 2020. The 2020 Plan provides for a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards, dividend equivalents, or other stock or cash based awards. The Company has granted 3,867,000 shares subject to awards as of December 31, 2021 with 2,637,000 remaining available for future grant.

Following the effectiveness of the 2020 Plan, the Company will not make any further grants under the 2018 Plan. However, the 2018 Plan will continue to govern the terms and conditions of the outstanding awards granted under this plan. Shares of common stock subject to awards granted under the 2018 Plan that are forfeited or lapse unexercised and which following the effective date of the 2020 Plan are not issued under the 2018 Plan will be available for issuance under the 2020 Plan.

2020 Employee stock purchase plan

The Company adopted the 2020 Employee Stock Purchase Plan (the 2020 ESPP) effective on October 15, 2020. The 2020 ESPP enables eligible employees of the Company to purchase shares of common stock at a discount

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to fair market value. The Company has initially reserved for issuance 368,901 shares of common stock pursuant to the 2020 ESPP. As of December 31, 2021, 45,610 grants of awards under this plan have been made.

During the year ended December 31, 2021, the Company's 2020 ESPP compensation expense was $0.9 million. The first purchase in connection with our employee stock purchase plan was in 2021, therefore there was no expense in 2020. The assumptions that the Company used to determine the grant-date fair value of shares granted to participants were as follows, disclosed on a grant date basis:

Expected term (in years) 0.5 - 2.0 years

Risk-free interest rate 0.03% - 0.54%

Dividend yield —

Weighted-average estimated fair value of purchase rights $4.13 - $13.49

Stock options

The exercise price for incentive stock options is at least 100% of the fair market value on the date of grant for stockholders owning less than 10% of the voting power of all classes of stock, or at least 110% of the fair market value for stockholders owning more than 10% of the voting power of all classes of stock. Options generally expire in 10 years and vest over periods determined by the Board, generally 48 months. Certain stock options referred to as “early exercise stock options” permit the holders to exercise the option in whole or in part prior to the full vesting of the option in exchange for unvested shares of Restricted Stock with respect to any unvested portion of the option so exercised.

During the years ended December 31, 2021 and December 31, 2020, the Company’s stock option compensation expense was approximately $12.2 million and $2.6 million, respectively, and there was no recognized tax benefit in either year. As of December 31, 2021, the unamortized expense balance was $33.6 million, to be amortized over a weighted-average period of 2.56 years.

The assumptions that the Company used to determine the grant-date fair value of stock options granted to Participants were as follows, presented on a weighted-average basis:

Expected term (in years) 5.72 5.79

Risk-free interest rate 0.99 % 0.93 %

Dividend yield — —

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Stock option activity during the year ended December 31, 2021 and 2020 was as follows:

The weighted-average grant date fair value of stock options granted was $13.76 per share during the year ended December 31, 2021. The weighted-average grant date fair value of stock options granted was $7.50 per share during the year ended December 31, 2020.

During the year ended December 31, 2021 the Company did not issue shares for unvested stock options, and in the year ended December 31, 2020, the Company issued 371,939 shares of Common Stock upon the exercise of unvested stock options or purchases for unvested restricted stock awards. As of December 31, 2021 and 2020, there were 163,855 and 396,522 shares of Common Stock, respectively, held by employees subject to repurchase at an aggregate price of $0.3 million and $0.6 million, respectively. A corresponding liability was recorded and included in accrued expenses on the consolidated balance sheet as of December 31, 2021 and 2020.

Restricted stock awards

The Company may grant restricted stock purchase awards to the Participants to purchase restricted stock under the Company’s Plan, which are subject to vesting conditions. The purchase prices of the restricted stock are determined by the Board. The Company has a right to repurchase the shares if the Participant’s service period is not fulfilled or upon termination of service at the original per share issuance price. The right of repurchase lapses over a service period which is typically four years with 25% vesting on the first anniversary of the vesting commencement date and 1/48 each month thereafter.

Before the adoption of the Company’s Plan, the Company granted 502,964 restricted stock awards to employees and founders. These restricted stock awards have similar characteristics to the restricted stock awards granted under the Company’s Plan, other than the right of repurchase, which typically lapses over three years with 33% vesting on the first anniversary of the vesting commencement date and 1/36 each month thereafter.

During the years ended December 31, 2021 and December 31, 2020, the Company recorded a total stock-based compensation expense of $357,000 and $361,000, respectively, related to the restricted stock awards. As of December 31, 2021, unrecognized stock-based compensation costs related to outstanding unvested restricted stock awards that are expected to vest were approximately $95,000, expected to be recognized over a weighted-average period of 0.3 years.

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The following table summarizes the Company’s restricted common stock activity for years ended December 31, 2021 and 2020:

Restricted stock awards granted — —

Restricted stock awards granted — —

Stock-based compensation expense was allocated as follows for the years ended December 31, 2021 and December 31, 2020:

10. Fair value measurements

The following tables present the fair value of the Company’s financial instruments that are measured or disclosed at fair value on a recurring basis:

Fair Value Measurements as of December 31, 2021

(in thousands) Level 1 Level 2 Level 3

Assets:

Cash equivalents $ 186,816 $ — $ —

Certificates of deposit 3,918 — —

U.S. Treasury bonds 15,110 — —

Fair Value Measurements as of December 31, 2020

(in thousands) Level 1 Level 2 Level 3

Assets:

Cash and cash equivalents $ 220,383 $ — $ —

U.S. Treasury bonds 23,144 — —

In order to determine the fair value of the Warrants, the Company utilized a probability-weighted multi-scenario Black-Scholes option-pricing model to determine the fair value of the Warrants by accounting for the probability of multiple possible outcomes, including deemed liquidation events, as best estimated by management.

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Estimates and assumptions impacting the fair value measurement including the fair value of the underlying shares of Series A, the remaining contractual or expected term of the Warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock on an as converted basis. The Company considered the probability of a deemed liquidation event in determining the remaining expected term of the Warrants, which was used as an input to the probability-weighted multi-scenario Black-Scholes option-pricing model adopted in 2019. The Company lacked company-specific historical and implied volatility information of its stock since there was no market prior to the IPO. Therefore, it estimated its expected stock volatility based on the historical volatility of publicly traded guideline companies for a term equal to the remaining contractual or expected 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 or expected term of the Warrants. The Company estimated no expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future.

The Warrants were converted into shares of Series A stock immediately prior to the IPO and therefore they were retired as of December 31, 2020. The Warrants were measured at fair value under the following assumption immediately prior to retirement:

Exercise price $ 9.32

Term (in years) 0.32

Risk-free interest rate 0.10 %

Dividend yield —

The following table sets forth a summary of changes in fair value of the Company’s derivative liability for which fair value was determined by Level 3 inputs:

Warrants RedeemableConvertiblePreferred StockLiability

Exercise of warrants (137 ) —

Balance as of December 31, 2020 $ — $ —

Immediately prior to the IPO, the Redeemable Convertible Preferred Stock Liability was converted in shares of Series B-2 Preferred Stock, which then converted into shares of common stock. As of December 31, 2020, the liability was retired.

The Redeemable Convertible Preferred Stock Liability was measured at fair value under the following assumptions through redemption on October 6, 2020:

Exercise price $ 11.21

Risk-free interest rate 0.08%-0.11%

Dividend yield —

Volatility — %

The significant unobservable inputs that were used in the fair value measurement of the Redeemable Convertible Preferred Stock Liability included the probability of milestone achievement and/or milestone achievement waiver, the Series B-2 value estimate under each scenario, the term, and the equity volatility, which was a statistical measure of the dispersion of returns for a given security. Significant increases (decreases) in the milestone achievement and/or milestone waiver would have resulted in a significantly higher (lower) fair value

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measurement. Significant decreases (increases) in assumed current or future Series B-2 value would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the term would have resulted in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the volatility would have resulted in significantly higher (lower) fair value measurements.

11. License and collaboration agreements

Agreement with Emory University (Emory)

In June 2018, the Company entered into a license agreement with Emory (the Emory License Agreement), pursuant to which Emory granted the Company a worldwide, sublicenseable license under certain of its intellectual property rights to make, have made, develop, use, offer to sell, sell, import and export products containing certain compounds relating to Emory’s hepatitis B virus capsid assembly modulator technology, for all therapeutic and prophylactic uses. Such license is initially exclusive with respect to specified licensed patents owned by Emory and non-exclusive with respect to certain of Emory’s specified know-how. Beginning in June 2022, the license to such patents will become non-exclusive with respect to all fields except for the treatment and prevention of HBV; however, the Company may select up to six compounds which will maintain exclusivity with respect to all therapeutic and prophylactic uses. With respect to all other compounds that are enabled by the licensed patents, those which are jointly invented by the Company and Emory or inventors in the Schinazi laboratory, or which are disclosed in a specified licensed patent, are licensed to the Company exclusively including as to Emory; whereas all other such compounds are licensed to the Company non-exclusively. Under the terms of the Emory License Agreement, the Company is obligated to use commercially reasonable efforts to bring licensed products to market in accordance with a mutually agreed upon development plan. Unless terminated earlier by either party in accordance with the provisions thereof, the Emory License Agreement shall continue until the expiration of the last–to-expire of the patents licensed to the Company thereunder.

In June 2020, the Company amended the license agreement with Emory. Pursuant to the amended license agreement, Emory granted the Company additional patent rights to certain compounds targeting the treatment or prevention of HBV. As consideration for the additional rights, the Company made a one-time, non-refundable payment to Emory in the amount of $150,000, with an additional obligation to pay up to a maximum of $35,000. On the same date, the Company entered into a collaboration agreement with Emory, with the initial research plan pertaining to the synthesis and evaluation of the compounds licensed through the additional patent rights granted in the amended license agreement. The research plan terminates one year from the effective date, with the Company having an option to extend for a second year. In connection with the research plan, the Company will provide Emory funding up to $270,000 per year.

The Company has agreed to pay Emory up to an aggregate of $125.0 million upon the achievement of specified development, regulatory, and commercial milestones, and all ongoing patent costs. During the year ended December 31, 2021, the Company had $195,000 expenses related to milestone payments. During the year ended December 31, 2020, the Company made a payment of $4.5 million in relation to the first patient dosing in a clinical trial which was the first development milestone per the contract. The Company also agreed to pay Emory tiered single-digit royalties on worldwide annual net sales of licensed products, on a quarterly basis and calculated on a product-by-product basis. With respect to licensed products containing any of a specified subset of the licensed compounds, such royalties range from a mid-single digit to a high-single digit percentage rate. With respect to licensed products which do not contain such compounds, the royalties span a range of percentage rates within the mid-single digits if a Phase 1 clinical trial is initiated for the product within three years of the effective date of the Emory License Agreement, and range from a low-single digit to a mid-single digit rate if a Phase 1 clinical trial is initiated more than three years after the effective date. During the years ended December 31, 2021 and December 31, 2020, the Company made no payments associated with royalties.

Agreement with Luxna Biotech Co., Ltd. (Luxna)

On December 19, 2018, the Company entered into a license agreement with Luxna, pursuant to which Luxna granted the Company an exclusive, worldwide, sublicenseable license under certain of Luxna’s intellectual property rights to research, develop, make, have made, and commercialize for all therapeutic and prophylactic uses, (i) products containing oligonucleotides targeting the hepatitis B virus genome, (ii) products containing certain oligonucleotides targeting up to three genes which contribute to NASH, which the Company may select at any time during the first eight years of the term, to the extent not licensed to a third party, and (iii) products containing

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oligonucleotides targeting up to three genes which contribute to hepatocellular carcinoma, which the Company may select at any time during the first three years of the term. As consideration for this agreement, the Company paid an upfront license fee of $600,000.

In April 2020, the Company amended the license agreement with Luxna. Pursuant to the amended license agreement, Luxna granted the Company an exclusive, worldwide license under the licensed patents to research, develop, make, have made and commercialize products containing oligonucleotides targeting three families of viruses: orthomyxoviridae, paramyxoviridae, and coronaviridae (a family which includes SARS-CoV-2). As consideration for the amended license agreement, the Company paid Luxna a one-time non-refundable fee of $200,000 on April 2020.

The Company is obligated to make payments to Luxna, in aggregate, totaling up to but no more than $55.5 million upon the achievement of specified development, regulatory, and commercial milestones. During the year ended December 31, 2021, the Company recognized $500,000 related to milestone payments, and in the year ended December 31, 2020, the Company recognized no milestone payments. The Company is also required to pay Luxna a low-single digit royalty percentage on net sale of applicable products, if any. During the years ended December 31, 2021 and December 31, 2020, the Company made no payments associated with royalties.

Agreement with Katholieke Universiteit Leuven (KU Leuven)

On June 25, 2020, the Company entered into a Research, Licensing and Commercialization Agreement (KU Leuven Agreement) with KU Leuven, under which the Company is collaborating with KU Leuven’s Rega Institute for Medical Research, as well as its Centre for Drug Design and Discovery, to research and develop potential protease inhibitors for the treatment, diagnosis or prevention of coronaviruses, including of SARS-CoV-2. Unless terminated earlier by either party in accordance with provisions in the agreement, the collaboration period will terminate at the earlier of completion of all collaboration activities or 2.5 years. In connection with the KU Leuven Agreement, KU Leuven and the Company granted each other exclusive cross-licenses to use certain know-how and existing patents of the other party as well as certain joint know-how and joint patents to carry out research and development collaboration activities during the collaboration period. KU Leuven granted to the Company an exclusive (including as to KU Leuven), worldwide license under certain of KU Leuven’s know-how and existing patents, and certain joint patents and joint know-how, to manufacture and commercialize the licensed products for the treatment, diagnosis or detection of viral infections in humans. KU Leuven reserved the right to use all KU Leuven knowhow, existing KU Leuven patents, joint patents and joint know-how for academic and non-commercial research and teaching purposes. As consideration for this license, the Company is obligated to make payments to KU Leuven, in aggregate, totaling up to but no more than $30.0 million upon the achievement of certain commercial sales milestones. For each licensed product developed through KU Leuven and the Company’s collaborative effort, the Company is obligated to make payments to KU Leuven, in aggregate, totaling up to $32.0 million upon the achievement of certain development and regulatory milestones. The Company is also required to pay KU Leuven a low-to-mid-single digit royalty percentage, subject to certain adjustments, on net sales of applicable products, if any. Unless terminated earlier by either party, the agreement shall continue until the expiration of the last to expire royalty term, which is the later of the expiration or termination of the last valid patent claim covering the manufacture, use, sale or importation of the licensed product in a particular country or 10 years after the first commercial sale of a licensed product. During the years ended December 31, 2021 and December 31, 2020, the Company recognized no expenses related to milestone payments.

Agreement with Merck

In December 2020, the Company and Merck & Co. entered into an exclusive License and Research Collaboration Agreement under which Merck and the Company agreed to apply the Company’s oligonucleotide platform technology to discover, research, optimize and develop oligonucleotides directed against a NASH target and up to one additional liver-targeted cardiometabolic and/or fibrosis target. Under the terms of the agreement, the Company received an upfront payment from Merck and may receive an additional upfront payment after finalization of a research plan for such additional target. With respect to each collaboration target, the Company will be eligible for up to $458.0 million in development and commercialization milestones as well as tiered royalties on net sales. The Company will be primarily responsible for designing, preparing and evaluating the oligonucleotide molecules and delivering optimized lead molecules, and Merck will be responsible for subsequent research, clinical development and commercialization efforts. The Company determined that the Merck agreement falls within the scope of ASC 808 and we analogized to ASC 606 for the accounting of payments such as upfront payments and other milestones. Revenue is recognized based on percentage of completion of the overall project. During the year

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ended December 31, 2021, the Company recognized $4.4 million in revenue from collaborative arrangements related to milestone payments. During the year ending December 31, 2020 the Company recognized no revenue from collaborative arrangements related to milestone payments. The unrecognized portion of the upfront payment received during 2020 is recorded on the consolidated balance sheet as Deferred Revenue from Collaborations.

12. Income taxes

The components of the current provision for income taxes were as follows for the years ended December 31, 2021 and 2020:

Current:

State $ — $ 1

Federal — —

Total current provision for income taxes $ 143 $ 161

Deferred:

State $ — $ —

Federal — —

Foreign — —

Total deferred provision for income taxes $ — $ —

The Company did not have any deferred provision for income taxes for the years ended December 31, 2021 and 2020.

A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2021 and 2020:

Income tax computed at federal statutory rate 21.00 % 21.00 %

State taxes, net of federal benefit 6.91 % 6.90 %

R&D credit carryovers 0.90 % 1.40 %

Change in valuation allowance -27.42 % -27.24 %

Stock based compensation -1.19 % -0.24 %

Permanent differences -0.31 % 0.27 %

Change in fair value of derivatives 0.00 % -2.25 %

Effective income tax rate -0.11 % -0.15 %

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The components of the deferred tax assets and liabilities were as follows at December 31:

Deferred tax assets:

Deferred revenue 2,140 —

Deferred tax liabilities:

Right of use assets $ (3,205 ) $ (2,857 )

Stock-based compensation — —

Property and equipment (570 ) (809 )

Total deferred tax liabilities $ (3,775 ) $ (3,666 )

Total deferred income taxes $ — $ —

Management believes that, based on a number of factors, including the Company’s historical operating performance and accumulated deficit, it is more likely than not that the deferred tax assets will not be utilized, such that a full valuation allowance has been recorded againstthe Company’s deferred tax assets. In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesbecome deductible. The valuation allowance increased by $35.2 million and $29.7 million during the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had $255.9 million of federal and $263.0 million of state net operating loss (NOL) carryforwards available to offset future taxable income. The Company’s federal NOL carryforwards can be carried forward indefinitely while state NOL carryforwards, if not utilized, will begin expiring in 2038. As of December 31, 2021, the Company had $1.5 million of Australia NOL carryforwards, which carryforward indefinitely. As of December 31, 2021, the Company had research and development credit carryforwards of $6.1 million and $3.0 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. If not utilized, the federal credit carryforwards will begin expiring in 2038. The California credit carryforwards have no expiration. Under Sections 382 and 383 of the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period), the Company’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We performed an IRC Section 382 analysis in 2021 and determined there was an ownership change that resulted in Section 382 limitations. The ownership change limited our ability to utilize net operating losses against future taxable income but will not result in the expiration of any NOLs. We may in the future experience ownership changes as a result of changes in our stock ownership (some of which are not in our control). In addition, under current tax law, federal NOL carryforwards generated in periods after December 31, 2017, may be carried forward indefinitely but, in taxable years beginning after December 31, 2020, may only be used to offset 80% of our taxable income. For these reasons, our ability to utilize our NOL carryforwards and other tax attributes to reduce future tax liabilities may be limited.

The Company adopted the provisions of FASB Accounting Standards Codification (ASC 740-10), Accounting for Uncertainty in Income Taxes, upon the date of incorporation. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.

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During the years ended December 31, 2021 and 2020, the Company had not recognized any tax-related penalties or interest. No liability related to uncertain tax positions is recorded on the financial statements related to uncertain tax positions. It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary:

Balance, beginning of the period $ 1,536 $ 637

Increase related to prior year positions 63 131

Increase related to current year positions 842 768

Balance, ending of the period $ 2,441 $ 1,536